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Friday July 20, 2018

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IRS Launches "Don't Take the Bait" Campaign

In IR-2017-119 the IRS warned tax professionals to not "Take the Bait" of spear phishing emails.

Many tax preparers are receiving emails from tax fraudsters. A typical email could be similar to the following:
Subject: Tax Return
From: Joe Taxpayer

I got your email from the local directory. Hope you are doing good and actively involved in the tax filing season.

I would like to file my tax return which includes that of me and my spouse. Details are below. I would like you to have a review and let me know the cost. Click Here to view my details.

Joe Taxpayer

If the tax preparer clicks the link to retrieve Joe's data, the tax fraudster downloads malware on the tax preparer's computer. The malware may pass client data to the tax fraudster. The tax fraudster will use this client data to file for fraudulent refunds.

IRS Commissioner John Koskinen stated, "We are seeing repeated instances of cybercriminals targeting tax professionals and obtaining sensitive client information that can be used to file fraudulent tax returns. Spear phishing emails are a common way to target tax professionals. We urge practitioners to review this information and take steps to protect themselves and their clients."

Tax professionals are especially vulnerable if a tax fraudster hacks the email account of a client. The tax fraudster sends an email that appears to be from a known client account and the tax preparer then opens the email and clicks on the link.

All tax preparers and individuals should take protective steps against these tax fraudsters.

1. Spear Phishing - You should educate and alert all of your staff about the email risks.
2. Passwords - It is best to use a strong password with a mix of letters, characters and numbers.
3. Unfamiliar Source - If you receive an email from a person you do not know, do not click on a link. In most cases, you can go to a website for the IRS or other government site and obtain your desired information.
4. Hover - If you hold your browser over a link or "hover," you should be able to view the address of the link. If this is an unknown address, do not click on the link.
5. Call - A tax professional who is contacted by an unknown individual can usually obtain a phone number and call the person.
6. Security Software - Check to see that you have appropriate security software on your computer and that it is regularly updated.

Senate Health Care Bill Retains Taxes

On July 13, the Senate leadership published an updated version of the Better Care Reconciliation Act (BCRA). Majority Leader Mitch McConnell (R-KY) has been working to build support for BCRA. His challenge is that there are three or four senators who are on the moderate side and three or four who are conservative. Any changes to the bill may be applauded by one side and criticized by the others.

Moderate senators would like to retain support for Medicaid. However, this change will require a substantial amount of tax revenue. As a result, the updated BCRA retains the 3.8% net investment income tax. This is a tax for upper-income persons on passive income. There also is a 0.9% hospital insurance and Medicare tax on the salaries of upper-income persons. These two tax provisions could raise up to $230 billion over the next decade.

Majority Leader McConnell hopes to schedule a vote on BCRA next week. It is anticipated there will be an extended debate and many amendments.

Editor's Note: The process to pass a medical reform bill will be extended and could easily continue until late fall or the end of 2017. While 10 or more Republican senators are not yet in full support of the bill, there remains a reasonable potential for a bill by the end of the year. The concession to the moderate senators with respect to funding for Medicaid and retention of taxes on upper-income persons is significant. Once this concession has been made, it is quite possible that it will be in the final bill, even though it will be opposed by conservative members of the House of Representatives.

White House Promises Tax Reform Plan by September

On July 10, Treasury Secretary Steven Mnuchin promised a Republican tax reform plan by September. He hopes to have a "full-blown release of the plan in the beginning of September" and expects to pass the bill by December of 2017.

White House Director of Legislative Affairs Marc Short stated the plan is to "begin the mark up process" when the House and Senate members return in September.

The current delay in publishing a specific tax plan relates to the extended process in the Senate on health care reform. Short is expecting the House and Senate to pass a medical reform bill. He stated, "We are confident it is going to pass and we are not going to be in a position of failure."

While the White House will propose a plan this fall, an actual tax bill will be drafted by House Ways and Means Chairman Kevin Brady (R-TX).

Brady was asked about the Senate plan to retain the 3.8% Medicare tax. He responded, "I continue to believe that each of those Obamacare taxes does the economy wrong. I still think there [are] a lot of Americans, including those who have Medicaid today, that could benefit from the 130,000 new jobs that would be generated by eliminating the net investment income tax."

Brady also voiced support for charitable giving. If the tax bill reflects the current Republican plan with much larger standard deductions, the number of itemizers may fall from the current 30% of taxpayers to less than 10%. This could have impact on charitable giving.

Brady noted, "So our committee - Ways and Means Republicans - have been examining first, how do we unlock more charitable giving, and how do we encourage more of it, not just for the 5% of Americans or so who will itemize under the Republican blueprint, but at all income levels? We want to encourage Americans who are incredibly generous already to give more, to give earlier in life."

Editor's Note: A coalition of charitable associations strongly supports moving the charitable deduction "above the line." This would allow charitable deductions for all taxpayers, including those who use the standard deduction. Chairman Brady seems to be suggesting that the Ways and Means Committee Members are considering this option for the final bill.

Applicable Federal Rate of 2.2% for July -- Rev. Rul. 2017-14; 2017-27 IRB 1 (16 June 2017)

The IRS has announced the Applicable Federal Rate (AFR) for July of 2017. The AFR under Section 7520 for the month of July will be 2.2%. The rates for June of 2.4% or May of 2.4% 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 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published July 14, 2017

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