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Archives for December 2022

Tax ID Theft Prevention: You Are Your Own Best Defense

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Any form of identity theft can be costly and unsettling. And it can take months — sometimes years — to fully recover. But tax-related identity theft can be particularly disturbing because it involves the IRS.

While the government agency has taken significant steps in recent years to help minimize the occurrence of tax-related identity theft, fraud continues to occur. Before you become a victim, learn how to spot it and stop it in its tracks.

4 red flags for possible identity theft

If you find yourself in any of these situations, proceed with caution.

  1. Your return is rejected. The most unambiguous indication of tax-related identity theft is when the IRS rejects your return based on a duplicate Social Security Number (SSN) or Employer ID Number (EIN).
  2. You’re asked to pay additional taxes. To trigger a refund payment, criminals often submit fictitious information to the IRS.
  3. IRS records are incorrect. Criminals often invent sources of income to appear legitimate to the IRS and facilitate a refund. If, for example, the IRS issues an EIN you didn’t request, a criminal may be using your business’s identity to submit fraudulent returns.

What now? Reporting fraud

If it appears your tax-related identity has been stolen, complete IRS Form 14039, Identity Theft Affidavit as soon as possible. The IRS will assign your case to an employee who specializes in identify-theft victims. They will determine the scope of the fraud, make any necessary corrections to IRS records and assign you a personal identification number to prevent criminals from using your SSN or EIN to file returns in the future.

You may also need to notify your state’s tax authority. Although less prevalent (because refunds are generally smaller), it’s possible someone could use your SSN or EIN to file a fake state tax return.

If you’re contacted by the IRS, it’s important to note that the agency typically reaches out via regular mail delivered by the U.S. Postal Service. Special circumstances may warrant a visit or a phone call, including:

  • A delinquent tax return/employment tax payment
  • An overdue tax bill
  • The need to tour a business as part of an audit or investigation

Prevention is the best defense

What can you do to reduce your risk of tax identity fraud? These simple tips can save you the headaches.

  • File early before a potential scammer has an opportunity to file a fraudulent return in your name
  • Ensure that your computer is well-protected from viruses, malware and other hacker weapons
  • Take advantage of the IRS IP PIN program. After you verify your identity through the Secure Access authentication process, the IRS will issue you a six-digit PIN to use for all communications with the IRS, including your tax filings

If you suspect you’ve become a victim of fraud or have questions about protecting your own or your business’ identity, reach out to the knowledgeable CPAs at Magone & Company. Our extensive fraud protection expertise can help keep your sensitive information under wraps. Give us a call today at (973) 301-2300.

Surprise! Improperly Forgiven PPP Loans are Taxable Income

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A new IRS memorandum has confirmed that improperly forgiven Paycheck Protection Program (PPP) loans should be considered taxable income, and recommends affected taxpayers file original (or amended) returns that accurately reflect the status of their loan.

You may recall that PPP loans were established to help small U.S. businesses impacted by the pandemic cover certain critical expenses.

Under the program, loans were forgiven if the borrower met three conditions:

  1. The loan recipient was eligible to receive the PPP loan. An eligible loan recipient is a small business concern, independent contractor, eligible self-employed individual, sole proprietor, business concern, or a certain type of tax-exempt entity; was in business on or before February 15, 2020; and had employees or independent contractors who were paid for their services, or was a self-employed individual, sole proprietor or independent contractor.
  2. The borrower used the loan proceeds to cover eligible expenses such as payroll costs, rent, interest on a business mortgage and utilities.
  3. The borrower applied for loan forgiveness and attested on the application that they were eligible for a PPP loan, they used the loan proceeds for eligible expenses, certain financial information was correct, and they met other legal qualifications.

When all three requirements were met, the loan (or a portion of it) was forgiven. But if they weren’t? The IRS memorandum confirms that any portion of the loan not meeting the requirements for forgiveness must be included in income and any additional income tax must be paid.

Consult with your accountant to determine if you need to file an amended return. Not working with a trusted advisor? Magone & Company can help — call us at (973) 301-2300.