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Friday May 3, 2024Washington NewsTop Tax Season Scams
On March 21, 2023, the Internal Revenue Service (IRS) published a warning to taxpayers to watch out for scammers using email or text messages. With the tax deadline of April 18 approaching, scammers are hard at work tricking taxpayers.
IRS Commissioner Danny Werfel noted, "Email and text scams are relentless, and scammers frequently use tax season as a way of tricking people. With people anxious to receive the latest information about a refund or other tax issue, scammers will regularly pose as the IRS, a state tax agency or others in the tax industry in emails and texts. People should be incredibly wary about unexpected messages like this that can be a trap, especially during filing season." The IRS, state tax agencies and tax software companies all participate in the Security Summit. The Security Summit publishes warnings that are designed to reduce the vulnerability of taxpayers to identity theft. This warning focuses on both email and text frauds.
The IRS urges taxpayers to be cautious about clicking on unsolicited emails. A more sophisticated phishing strategy is to send three or four emails. After the relationship has been developed, the scammer sends the victim an email with the link that downloads malware. Many of the latest scams include emails that claim to be from friends or family. A scammer monitors your email account to acquire information and sends an email that appears to be from someone you know. This has been an effective strategy to target both individuals and tax preparers. The final goal is always to obtain your financial information so they can file for a fraudulent refund. An additional scam is currently popular. The scammer offers to provide "free help" in setting up an IRS Online Account. IRS Commissioner Danny Werfel noted, "Scammers are coming up with new ways all the time to try to steal information from taxpayers. An Online Account at IRS.gov can help taxpayers view important details about their tax situation. But scammers are trying to convince people they need help setting up an account. In reality, no help is needed. This is just a scam to obtain valuable and sensitive tax information that scammers will used to try stealing a refund." If you are approached by someone who wants to provide help in setting up an IRS Online account at IRS.gov, you should use the IRS website yourself to set up the account. Do not allow a third party to help you set up your IRS Online Account. If you think you received an email or text from a scammer, you can send the email or a copy of the text to [email protected]. You should also include the caller ID, his or her email address or phone number, the date, time, and the number that receives a text message. There is a "Report Phishing and Online Scams" page at IRS.gov with additional details. Most NFTs Are CollectiblesIn Notice 2023-27, 2023-15 IRB 1, the Internal Revenue Service (IRS) published Section 408(m) guidance for individual retirement accounts. The guidance indicated that some non-fungible tokens (NFTs) would be treated as collectibles. An NFT is a digital identifier that is recorded in a blockchain. The ownership may be transferred and many NFTs are sold or traded. NFTs are often digital files that include a photo, video or audio recording. They are uniquely identified and therefore different from cryptocurrency, which is a fungible asset. In Notice 2023-27, the IRS indicated that NFTs will generally be subject to Sec. 408(m). Section 408(m)(1) indicates that items which are collectibles are treated as a distribution from IRAs. The collectible items could include a work of art, a rug or antique, an item of metal or gem, a stamp or coin, an alcoholic beverage, or any other tangible personal property specified by the Secretary of the Treasury. A Sec. 408(m) collectible is subject to Sec. 1(h). If the collectible is held for more than one year, it is a capital asset and may be sold, but it is subject to the tangible personal property 28% capital gains tax rate. However, an NFT that is not a collectible would be subject to the normal 15% or 20% capital gain rate. The purpose of Notice 2023-27 is to publish guidance and to classify some NFTs as Sec. 408(m) collectibles. This will generally exclude them from ownership in retirement accounts. The NFT is defined with a "look-through analysis" by the IRS. Typical collectibles are items such as a gem or rare wine. The exception is an NFT used to record a right to use or develop "a plot of land." The right to use or develop land is an exception to the collectible rule based on the look-through analysis. Editor's Note: NFTs have existed for a number of years. However, in 2021 trading of NFTs skyrocketed from $82 million to $17 billion. In a manner similar to cryptocurrency, the NFT market suffered a colossal collapse during 2022. However, there are organizations that now are creating NFTs through customer rewards programs. One large international corporation is now offering NFTs as a customer reward. They plan to post a marketplace so the customers can buy and sell their NFTs. If a significant number of large companies start using NFTs as a customer reward, there could eventually be a billion NFTs. For this reason, the IRS determined that it would need to issue guidance. It is highly probable that additional guidance will be forthcoming. IRS Exempt Organizations Technical GuideOn March 17, 2023, the Internal Revenue Service (IRS) published the latest version of the Publication 5781, Exempt Organizations Technical Guide. This guide sets forth many of the specific criteria for qualified charitable deductions.
Applicable Federal Rate of 5.0% for April -- Rev. Rul. 2023-6; 2023-14 IRB 1 (15 March 2023)The IRS has announced the Applicable Federal Rate (AFR) for April of 2023. The AFR under Section 7520 for the month of April is 5.0%. The rates for March of 4.4% or February of 4.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2023, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return. Published March 24, 2023
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