COVID-19 Financial Scams to be reported to the IRS

by Mounica Kota | Jun 12, 2020 | COVID - 19, IRS Criminal Investigation Division, US Government

COVID-19 Financial Scams to be reported to the IRS

In March the US Government had declared a $2 trillion economic relief package under the CARES Act for providing relief and support to the Americans who have been facing economic challenges due to the outbreak of the pandemic COVID-19. According to the provisions of the CARES Act, economic impact payments would be sent to the eligible Americans. Furthermore, there are propositions for passing another act i.e. the HEROES Act which would also be providing further another round of economic impact payments to the Americans.

However, with these provisions for Economic Impact Payment to the distressed Americans, many criminal frauds related to these payments have also started blooming. These frauds can include using various lures related to the pandemic and stealing of personal/financial information of common people. The IRS has been continuously reminding the people to safeguard themselves against tax frauds and any other financial scams that are related to the COVID-19 pandemic.

Scams and threats related to COVID-19

The CI (IRS Criminal Investigation Division) has seen a significant rise in the number of scams and frauds related to the Economic Impact Payments and other financial schemes. The CI has encountered several instances of criminals using emails and text messages which are stimulus-themed to find out personally identifiable information and details related to bank accounts. Many telephone calls or emails have been received by the common people that suggest that they can get more Stimulus money or even obtain the Stimulus money faster by sharing personal information and paying certain processing fees. The phishing schemes send emails or text message which contain terms like “COVID-19”, “Coronavirus”, “Stimulus”, etc. to grab the attention of the common people.

Moreover, the IRS CI has also encountered scams which are related to the selling of fake COVID-19 at-home test kits, vaccines, pills, and other treatment methodologies for COVID-19. Many other scams claim to be selling huge quantities of medical supplies by the creation of fake websites/shops, fake social media accounts, fake emails, etc. These fraud suppliers then fail to deliver the supplies to the customers once the fund has been received by them.

Numerous other COVID-19 related scams involve the creation of fake charities that solicit donations for individuals, groups, and areas which are affected by the pandemic. Many such criminals are also offering opportunities to make investments into those companies which are working on vaccine development for COVID-19. They portray that the company would increase in value as a result and the promotions are put in the form of research reports which make predictions about target price and relate to microcap stocks or the low-cost stocks issued by those companies which are small and have limited public information.

What to do when you encounter COVID-19 scams?

The IRS has been constantly reminding the common people to report any phishing or fraudulent scam encountered by them during the COVID-19.

a. Scams related to COVID-19 must be reported to the National Center for Disaster Fraud (NCDF) Hotline at the number 866-720-5721. The scam can also be reported through the NCDF Web Complaint Form. The NCDF can investigate and prosecute the criminals involved in any scams which are related to natural or any man-made disasters. The Hotline Staff would obtain necessary information related to your complaint which would be further reviewed by the enforcement officials.

b.The taxpayers can also inform any such scams encountered during the COVID-19 to the IRS. Taxpayers receiving unsolicited emails or social media attempts for providing personal information from an organization that appears to be the IRS or closely connected to the IRS must forward those emails to phishing@irs.gov.

c.The Treasury Inspector General for Tax Administration (TIGTA) can help in investigating those external attempts that are being made to interfere with the Federal Tax Administration. Taxpayers can report about COVID-19 scams online by using the link TIPS.TIGTA.gov

d. Taxpayers are suggested to avoid the scammers and not to engage with them even if they think they are in the upper hand.

e.Common people can enhance their knowledge about phishing and fraud related to COVID-19 by visiting the official webpage of IRS i.e. IRS.gov.

Hence, criminals always keep looking for an opportunity by which they would be able to exploit the bad situations and attain some benefits from it. This pandemic COVID-19 is one such opportunity which is being utilized by the scammers. Taxpayers must be aware and should immediately report anything suspicious to the IRS.

References

https://www.irs.gov/newsroom/irs-warns-against-covid-19-fraud-other-financial-schemes

https://www.theabingtonjournal.com/news/44722/irs-warns-against-covid-19-fraud-other-financial-schemes

https://www.cisa.gov/sites/default/files/publications/Avoid_Scams_Related_to_Economic_Payments_COVID-19.pdf

https://home.treasury.gov/services/report-fraud-waste-and-abuse/covid-19-scams

All you need to know about the relaxed e-filing rules amidst COVID-19 pandemic

by Mounica Kota | May 8, 2020 | COVID - 19, COVID - 19 pandemic, e filing rules, IRS, tax return

All you need to know about the relaxed e-filing rules amidst COVID-19 pandemic

With the impact of the pandemic COVID-19 becoming worse for the Americans, the Government has imposed lockdowns and has been asking people to stay indoors. In such situations, the IRS has also taken certain effective measures to alleviate the distress of the common people. One of the major initiatives taken by the IRS for providing some relief to the people is by the extension of the tax return filing and the tax payment deadline due to 15th April 2020 up to 15th July 2020.

Another important step taken by the IRS amidst the outbreak of the COVID-19 is the relaxation in the rules related to e-filing. The IRS has allowed its employees to accept the documents related to tax by email which can be accompanied by the images of signatures.

IRS announces relaxed e-filing rules

On 27th March 2020, the Treasury Department had announced that the IRS has made temporary provisions for allowing its employees to accept images of signatures and digital signatures in case of determination/collection of taxes. Earlier, the IRS employees were not allowed for accepting any tax-related documents from taxpayers by email; however, the IRS has granted permission for accepting documents and also transmitting documents to taxpayers by email/secure messaging system. This has made it easier for both IRS employees and the taxpayers also to process their requests without any physical contact.

Major security threats due to relaxed e-filing rules

Many tax experts have highlighted their worries about a wide range of security threats that can arise due to the relaxed e-filing rules introduced by the IRS.

Transmitting sensitive data via e-mails has been considered as non-complaint according to several industry standards. If this relaxation by the IRS is considered as normal, then it would lead to an increase in the number of cyber-crimes.
When a taxpayer sends an attachment through the email, the attachment gets saved on the servers of the IRS and is not encrypted. As a result of this, anyone who has access to the emails can get hold of the information easily. This poses to be a big security risk.

However, in these difficult times when it is not advisable to come to offices, it is necessary to have some type of concessions which would make it easier for tax professionals to do their work from home. The IRS has made it necessary for the taxpayers to attach a cover letter which would be considered as a form of consent from the taxpayer. This will act as an acknowledgment that the taxpayer knows about sharing his data, the consequences and the responsibility of any liability are upon him.

Sending data securely to the IRS

1.To have knowledge about where the data is and is being handled by whom

Taxpayers should try and acquire some knowledge about where and how their sensitive data is being stored. They must check with their accountant on where their data is being stored, who has access to their data, and what kind of backup is being utilized for their data.

2.To know about encryption

Encryption is the primary method by which data can be kept secure. Two major types of encryption would be used by the accountant or IRS for keeping data safe i.e. 256-bit AES and SSL/TLS. The 256-bit AES is used in banks whereas the SSL/TLS form of encryption is used by standard internet. Taxpayers must ensure that their tax preparers are using those applications which make use of these two encryption techniques.

3.Utilization of multifactor authentication

Mostly, secure systems use multiple levels of authentication so that malicious parties would not be able to get hold of the data. For instance, if the malicious party gets the password they will not be able to get the data as there would be another level of authentication such as fingerprint authentication. So, the system by which taxpayers are sharing their data must have different levels of authentication such as passwords and then code generated on phone or by the taxpayer’s fingerprint.

4.Avoid sharing sensitive data over emails

Tax experts advise that even though sending data by email is the most common method and have some level of encryption, it cannot be trusted completely. Rather, by encrypted file-sharing system secure connections can be created between the machine and the server where the data is being stored. By using these encrypted file-sharing systems, sensitive data transfer can be done without any threat by a taxpayer and his accountant.

Hence, relaxed e-filing rules by the IRS have made the tax return filing process convenient for both IRS employees and the taxpayers. However, the implementation of secure methods for data transfer would prevent the occurrence of scams and losses.

References

https://www.cnbc.com/2020/04/07/irs-relaxed-e-filing-rules-during-covid-19-poses-big-security-risks.html

COVID-19 and Stock Market: How will it affect next year taxation?

by Mounica Kota | Apr 18, 2020 | capital gains taxation, COVID - 19, stock market

COVID-19 and Stock Market: How will it affect next year taxation?

The pandemic COVID-19 has created great havoc in the physical and economic lives of people across the world. In the US, COVID-19 has not only affected the lives of people but also has created a huge amount of economic disruption. Several businesses have been closed temporarily whereas many small businesses might not even be able to open anymore. Many employees are losing their jobs and the overall economy is being affected.

The impact of the pandemic has also been experienced in the global stock markets by recent slides and low values. In the current times, we are in the middle of a pandemic and we have never been prepared for this by the financial markets or by the investment books.

In such tough times, we must be prepared by taking some precautionary steps.

You must check your investment portfolio thoroughly and understand in detail about the stocks in which you have made the investments. You should also understand how investments have been done in these stocks so that you would be ready.
A risk assessment must be done to understand the major risk areas of investment and steps to deal with them.
Investments must be arranged in different kitties so that recovery can also be easy and quick.

However, even during these grim times when the stock market rates are falling steeply, some hand-picked options would help in keeping your finances stable for next year’s taxes.

a.Capital Gains

In simple terms, capital gains are the profits that are earned due to the sale of a capital asset such as a stock, bond or real estate. It is when you are selling an investment such as a stock for an amount which is more than you have paid to purchase it.

Capital Gains are taxed and this taxation depends upon your income. The maximum percentage for taxation of the Capital Gains can be around 20% of your income which can add up to be a huge amount on your tax bill. So, if you are having a loss in your investment you can it can be helpful in reducing your tax bill of Capital Gains. This can help you in keeping an additional amount of money with yourself when the stock markets are down.

b.Loss realization for Capital gains in 2020

Throughout the world, investment owners are experiencing the value of the majority of their investments going down. When fluctuations occur on the Stock board they are known to be paper gains or paper losses. It means that you were just having an observation of the market without taking any action to sell your stocks/bonds.

However, it is quite obvious that market fluctuations would not only be your sole reason to reduce your Capital gains or offset your taxable income. In order to be able to claim the losses incurred in your investments, you should be able to realize the losses. Here the act of realization of losses in an investment indicates the act of selling the investments.

If you are willing to obtain a reduction in your income which is taxable for the year 2020, you must sell those investments on which you had paper losses in the year 2020. Hence, the investments would sell for an amount which is less than the amount at which those investments were bought.

c.Retirement Accounts

Usually, the value of your IRA or 401(k) will not affect your taxes. The traditional IRAs and the 401(k) plans are said to be funded by the help of pre-tax income. According to the Federal Government, these can be considered as ‘paper’ income.

However, if you have a Roth IRA then your taxes would be affected by it. In case there is a loss of value for your Roth IRA hen you would be able to claim that loss on your taxes. But, if you wish to claim your Roth IRA loss on taxes then you will have to close any similar IRAs which you already have.

The theory of Stock Market Recovery

However, amidst all these precautionary measures and preparations to stabilize finances, one thing which must be kept in mind is that the current market situations will turn around in the upcoming few months. Currently, market losses and its impacts are being experienced worldwide and in such scenarios, it would be wiser to evaluate your risks and your investments as well.

Hence, if you have been able to push through your paper losses during market fluctuations you would be able to have much higher capital gains once the market bounces back.

References

Can pandemic COVID-19 affect your house mortgage rate and your deduction?

by Mounica Kota | Apr 7, 2020 | federal government, Standard Deduction

Can pandemic COVID-19 affect your house mortgage rate and your deduction?

Currently, the world is fighting against the huge economic disruptions caused due to the spread of the dreadful coronavirus. The US has been highly impacted by this pandemic causing loss of many lives and the livelihoods of people. COVID 19 The Federal Government has been taking up several measures to reduce the financial stress on the common people. Amongst these, one of the announcements made by the Federal Reserve is related to the cutting of the interest rates and also making unlimited quantitative easing.

According to the Federal Reserve, unlimited quantitative easing would help to calm down the markets. The Federal Reserve has declared that there would be continuity in its asset-purchasing program in amounts which would help in supporting the smooth functioning of the share market and broadening of the financial conditions.

Some of the major reasons why the Federal Reserve uses Quantitative Easing can be mentioned below.

According to the Federal Reserve, the money printed by Quantitative Easing can be used to create more employment opportunities in the country.
Quantitative Easing can encourage both lending and borrowing as the interest rates would be low.
As per Federal Reserve, this would also encourage spending as there would be more money which enters the economy so more money to be spent. It would increase company profits and stimulate the stock market.

If you are a homeowner, then the Unlimited Quantitative Easing and cutting of interest rate would have an impact on you. When there is a drop in the rates of the Federal Reserve, then it would put pressure on the mortgage lending rates.

Mortgage lending rates would be affected directly as the adjustable-rate mortgages are often parallel to the rates of the Federal Reserve.
There would be an indirect impact on the Mortgage lending rate as the borrowers would be allowed to refinance at a low rate of interest.

Moreover, the interest rates on the Home Equity Lines of Credit (HELOCS) have also fallen down due to the drop in the rates of the Federal Reserve.

Higher Equity and Lower payments

Due to the lower rate of interest the borrowers would be able to avail several benefits such as lower payments to be done in a month or the capability of building up of equity quite faster.
But, as you know mortgage interest is tax-deductible and lower mortgage interest rate would result in reducing your deductions. This would ultimately result in an increase in your taxes to be paid.

Major points to be considered

You would have to refinance for locking in the lower rate of interest if you have a fixed mortgage or your Adjustable Rate Mortgage i.e. ARM is in its fixed-rate period.
It has been noticed that usually in the beginning many ARMs have a fixed-rate period which is then followed by an adjustable period.
Refinancing for locking in the lower rate of interest means paying of some loan-originating points.
These loan-originating points are deductible but you would have to spread that deduction over the life period of the loan which would be difficult and impractical.
So, it is quite simple if you stick to your current mortgage even though it would be an expensive option.

Additional thoughts

Usually, the taxpayers in the US would prefer to opt for Standard Deduction. However, there are some taxpayers who prefer itemizing and they must think about refinancing. If you are planning for refinancing at a lower rate, then you must consider the advantages and disadvantages of doing the same.

You must consider in detail how much the reduced monthly payment would help you in saving for each month, for a year and the entire life of the loan.
You should compare the savings you make with the new additions that would come up at the time of tax payment.
You must analyze and calculate any other changes that might come. These changes can be associated with your income or the deductions that you make while filing taxes.
You must ensure that you take into consideration other aspects such as the birth of a baby, change in your household income, increase or decrease in charity for the year or if your adult child has moved out, etc.

Hence, you must be educated about the changes that are being made in tax laws and be aware of the implementation of these changes.

References

COVID-19 Stimulus Payment and Tax Relief for the Self-Employed

by Mounica Kota | Apr 5, 2020 | COVID - 19, self employed, Stimulus payment, US Government

COVID-19 Stimulus Payment and Tax Relief for the Self-Employed

Self-employed individuals are those who earn a livelihood by working for themselves. They do not work as an employee for someone else and not as an owner/shareholder of any corporation. Self-employed persons can work for themselves in different trades and occupations such as photography, music, hairstyling, tutors, childcare workers, etc. Professionals like Gig workers, independent contractors, freelancers, and owners of small businesses can be said to be self-employed.

A very important part of the American workforce comprises of self-employed individuals. With the outbreak of the COVID-19, there are a large number of self-employed individuals who are facing economic disruptions. Many of them have either lost their income or are struggling hard to make income.

Let us talk about the various changes made in the tax laws by the Federal Government for reducing the stress of these self-employed individuals during the COVID-19.

a.Families First Coronavirus Response Act (FFCRA)

The Families First Coronavirus Response Act was signed into law on 18th March 2020. This Act included certain refundable tax credits which would be beneficial for the self-employed individuals.

1.Qualified Sick Leave

In case a self-employed individual is taking a sick leave from his job due to his health or for taking care of a family member showing up symptoms of being affected by COVID-19. In case of a self-employed individual is willing to claim sick leave credit, the below-mentioned guidelines would be helpful.

If the individual is himself being quarantined due to exhibiting symptoms of COVID-19, he can claim up to ten days of sick pay at his average rate of income whose maximum value is $511 per day.
If the self-employed individual has to take a leave for taking care of a family member exhibiting coronavirus symptoms, he can claim up to 10 days of sick pay at two-thirds of his average rate of income whose maximum value can be $200 per day.

2.Qualified Family Leave

A self-employed individual can claim a refundable tax credit associated with family leave. This family leave can be because of not being able to send your kid to school or daycare as they are closed due to the outbreak of COVID-19. In this case, the self-employed individual would be able to claim up to 50 days of income at the rate of two-thirds of his earning. The maximum value of the average rate of earning in a day can be $200.

These refundable credits offered by FFCRA will be applicable when a self-employed individual is filing his tax returns for 2020 in 2021. The IRS has suggested considering these credits while planning for federal estimated tax payments. The self-employed tax would get reduced by the qualifying credit and hence the funds can be used up now at the times of emergency. Self-employed individuals can maintain records related to virus testing, medical care or school closure for making the claims.

b.Extension in tax deadlines

To alleviate the financial disruption caused by COVID-19, the Federal Government has extended the deadlines for filing tax returns and even tax payments to 15th July 2020.

For the self-employed taxpayers, the deadline for payment of the first quarter estimated tax has been extended to 15th July 2020. However, the deadline for the payment of second, third and fourth remains unchanged i.e. 15th June 2020, 15th October 2020 and 15th January 2021 respectively.

Even though there has been an extension in the deadline for filing tax returns and tax payment, the IRS advises people to file the tax refund soon as the refund can be obtained on time and be utilized in these times of emergency.

c.Stimulus payment under the CARES Act

The Federal Government would be sending the taxpayers stimulus payments based on their AGI and tax filing status of the year 2019. The Government would consider the tax returns filed for the year 2019 to determine how much a self-employed individual should obtain as Stimulus payment. In case, a self-employed individual has not filed for the year 2019 his tax returns for 2018 would be taken into consideration.

If a self-employed individual is filing his tax returns as a single individual and his AGI is below $75,000 then he would receive a Stimulus payment of $1200.
In case of filing tax returns jointly as a married couple with AGI less than $150,000, the Stimulus payment received would be $2400.
If there is a dependent below the age of 17 years and has been claimed on tax returns, then an additional Stimulus payment of $500 would be obtained.

Hence, with the impacts of COVID-19 affecting the financial lives of the Americans especially the self-employed individuals, it is quite sure that the relief measures initiated by the US Government would bring the stress level of the Americans under control.

References

https://www.taxslayer.com/blog/covid-19-stimulus-payment-tax-credits-self-employed-gig-workers/

https://www.uschamber.com/co/start/strategy/families-first-coronavirus-response-act-guide

https://www.investopedia.com/terms/s/self-employed-person.asp