WASHINGTON — Internal Revenue Service Security Summit partners today outlined for tax professionals how they can assist clients who were victims of unemployment compensation fraud schemes that targeted state workforce agencies in 2020 and 2021.

The IRS, state tax agencies and the tax industry – working together as the Security Summit – reported that unemployment compensation fraud was one of the more common identity theft schemes that emerged in 2020 as criminals exploited the COVID-19 pandemic and the resulting economic impact.

Addressing unemployment compensation fraud is the third in a five-part series sponsored by the Summit partners to highlight critical steps tax professionals can take to protect client data. This year's theme "Boost Security Immunity: Fight Against Identity Theft," is an effort to urge tax professionals to try harder to secure their systems and protect client data during the pandemic and its aftermath.

"Identity thieves always look for opportunities, and the unemployment surge presented a new opportunity to exploit the pain and financial hardships faced by Americans," said IRS Commissioner Chuck Rettig. "This particular scam is especially egregious because 23 million Americans were jobless or underemployed last year and desperately needed these benefits."

The U.S. Department of Labor's Inspector General estimated approximately $89 billion in unemployment compensation was lost in 2020 due to fraud.

Unemployment compensation is taxable income on federal taxes, although Congress waived the tax for 2020 for many people. States report compensation to the individual and to the IRS by using the Form 1099-G. Because of fraud and identity theft, many taxpayers received Forms 1099-G for compensation they did not receive. Some taxpayers received forms from multiple states.

This scam could affect 2021 returns next year as well as 2020 returns this year. Here are a few steps tax professionals should take to assist clients who are victims of the unemployment compensation fraud scheme:

Although unemployment compensation is taxable, the American Rescue Plan Act of 2021 allows an exclusion of unemployment compensation of up to $10,200 for individuals for taxable year 2020. In the case of married individuals filing a joint Form 1040 or 1040-SR, this exclusion is up to $10,200 per spouse.

To qualify for this exclusion, adjusted gross income (AGI) must be less than $150,000. This threshold applies to all filing statuses.

The exclusion may ease the burden on many fraud victims. However, victims who received Forms 1099-G from multiple states may have fraud claims that exceed that exclusion amount. Clients should retain any records of fraud reports to states.

Additional resources

Tax professionals can also get help with security recommendations by reviewing the recently revised IRS Publication 4557, Safeguarding Taxpayer Data PDF, and Small Business Information Security: The Fundamentals PDF  by the National Institute of Standards and Technology. The IRS Identity Theft Central pages for tax pros, individuals and businesses have important details as well.

Publication 5293, Data Security Resource Guide for Tax Professionals PDF, provides a compilation of data theft information available on IRS.gov. Also, tax professionals should stay connected to the IRS through subscriptions to e-News for Tax Professionals and Social Media.

For more information, see Boost Security Immunity: Fight Against Identity Theft.

Notice 2021-48 provides guidance regarding the changes to the funding rules for single-employer defined benefit pension plans under § 430 of the Internal Revenue Code that were made by §§ 9705 and 9706 of the American Rescue Plan Act of 2021.

It will appear in IRB: 2021-33 dated Aug. 16, 2021.

WASHINGTON – The Internal Revenue Service announced today that West Virginia University (WVU) College of Law has been selected for its 2021 Supplemental Application Low Income Taxpayer Clinic matching grant. The IRS’s LITC supplemental application expands coverage to states without a clinic, giving priority to qualified organizations in underrepresented geographic areas.

WVU College of Law operates an important tax controversy litigation clinic and will now be available to assist low-income and English as a second language (ESL) taxpayers located within West Virginia, a state that has not had an LITC-funded clinic for 2 1/2 years. WVU was awarded a grant for $100,000 with a period of performance of 18 months from July 1, 2021, to Dec. 31, 2022. The LITC grant will allow the law school to expand the tax clinic and offer more tax assistance to students.

LITCs represent low-income taxpayers in federal tax disputes with the IRS and provide taxpayer education and outreach to both low income and ESL taxpayers. They must provide all services for no more than a nominal fee.

Through the LITC program, the IRS awards matching grants of up to $100,000 per year to qualifying organizations. The LITC program is a federal matching grant program administered by the Taxpayer Advocate Service, led by National Taxpayer Advocate Erin Collins. Although LITCs receive partial funding from the IRS, LITCs, their employees and volunteers operate independent of the IRS.

”The LITC program has been extremely successful and very beneficial to taxpayers,” Collins said. “Through outreach and education activities, LITCs strive to ensure individuals understand their rights and responsibilities as U.S. taxpayers by recently conducting more than 1,800 educational activities that were attended by nearly 42,000 people. More than 1,500 volunteers contributed to the success of LITCs by volunteering over 52,500 hours of their time.” 

More information about LITCs, and the work they do to represent, educate, and advocate on behalf of low income and ESL taxpayers, is available in IRS Publication 5066, LITC Program Report. IRS Publication 4134, Low Income Taxpayer Clinic List, provides information about LITCs by geographic area, including contact information and details about the languages, in addition to English, in which each LITC offers services. Publication 5066 and Publication 4134 are available at IRS.gov.

WASHINGTON – Calling it a key security issue, the Internal Revenue Service today urged those entities with Employer Identification Numbers (EINs) to update their applications if there has been a change in the responsible party or contact information.

IRS regulations require EIN holders to update responsible party information within 60 days of any change by filing Form 8822-B, Change of Address or Responsible Party - Business. It is critical that the IRS have accurate information in cases of identity theft or other fraud issues related to EINs or business accounts.

The data around the “responsible parties” for business-type entities is often outdated or incorrect, meaning that the IRS does not have accurate records of who to contact for identity theft issues. This means a time-consuming process to identify the point of contact so the IRS can inquire about a suspicious filing.

As a result, the IRS intends to step up its awareness efforts aimed at businesses, partnerships, trusts and estates, charities and other entities that are EIN holders. Starting in August, the IRS will begin sending letters to approximately 100,000 EIN holders where it appears the responsible party is outdated.

All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (Social Security number, Individual Taxpayer Identification Number or EIN) of the true principal officer, general partner, grantor, owner or trustor.

The IRS defines the responsible party as the individual or entity who "controls, manages, or directs the applicant entity and the disposition of its funds and assets.”

Unless the applicant is a government entity, the responsible party must be an individual, not an entity. If there is more than one responsible party, the entity may list whichever party the entity wants the IRS to recognize as the responsible party.

EINs are to be used strictly for tax administration purposes. Entities with EINs that are no longer in use should close their IRS tax accounts and follow steps outlined at Canceling an EIN - Closing Your Account.

Video - Five Things to Know about the Employer Identification Number

WASHINGTON – The IRS today updated frequently asked questions (FAQs) on the paid sick and family leave tax credits under the American Rescue Plan Act of 2021 (ARP). The updates clarify that eligible employers can claim the credits for providing leave to employees to accompany a family or household member or certain other individuals to obtain immunization relating to COVID-19 or to care for a family or household member or certain other individuals recovering from the immunization.

The paid sick and family leave credits reimburse eligible employers for the cost of providing paid sick and family leave for reasons related to COVID-19. The revised FAQs make clear this includes leave taken by employees to care for certain individuals to obtain immunization relating to COVID-19 or to recover from immunization relating to COVID-19. This new reason for paid sick or family leave also applies for the comparable credits for self-employed individuals.

The paid sick and family leave tax credits under the ARP are similar to those put in place by the Families First Coronavirus Response Act (FFCRA), as amended and extended by the COVID-related Tax Relief Act of 2020 (Tax Relief Act), under which certain employers could receive tax credits for providing paid sick or family leave that met the requirements of the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act (as added by FFCRA). The tax credits under the FFCRA, as amended and extended by the Tax Relief Act, covered leave taken beginning April 1, 2020, through March 31, 2021. The ARP amends and extends these credits to leave taken beginning April 1, 2021, through Sept. 30, 2021.

The FAQs include information on how eligible employers may claim the paid sick and family leave credits, including how to file for and compute the applicable credit amounts, and how to receive advance payments for and refunds of the credits. Under the ARP, eligible employers, including businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers, may claim tax credits for qualified leave wages and certain other wage-related expenses (such as health plan expenses and certain collectively bargained benefits).

Self-employed individuals may claim comparable credits on the Form 1040, U.S. Individual Income Tax Return.

WASHINGTON – The Internal Revenue Service reported today that another 1.5 million taxpayers will receive refunds averaging more than $1,600 as it continues to adjust unemployment compensation from previously filed income tax returns.
 
The American Rescue Plan Act of 2021, which became law in March, excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.

Refunds by direct deposit will begin July 28 and refunds by paper check will begin July 30. This is the fourth round of refunds related to the unemployment compensation exclusion provision.

Since May, the IRS has issued over 8.7 million unemployment compensation refunds totaling over $10 billion. The IRS will continue reviewing and adjusting tax returns in this category this summer.

The IRS effort focused on minimizing burden on taxpayers so that most people won’t have to take any additional action to receive the refund. The IRS review means most taxpayers affected by this change will not have to file an amended return because IRS employees have reviewed and adjusted their tax returns for them. For taxpayers who overpaid, the IRS will either refund the overpayment or apply it to other outstanding taxes or other federal or state debts owed.

For this round, the IRS identified approximately 1.7 million taxpayers due an adjustment. Of that number, approximately 1.5 million taxpayers are expected to receive a refund. The refund average is $1,686.

The IRS started with the simplest tax returns and is now reviewing more complex returns. The average refund amount is higher for this round because the IRS included an adjustment to the Advance Premium Tax Credit (APTC).

Most taxpayers need not take any action and there is no need to call the IRS. However, if, because of the excluded unemployment compensation, taxpayers are now eligible for deductions or credits not claimed on the original return, they should file a Form 1040-X, Amended U.S. Individual Income Tax Return.

Taxpayers should file an amended return if they:

Taxpayers do not need to file an amended return if they:

Taxpayers will generally receive letters from the IRS within 30 days of the adjustment, informing them of what kind of adjustment was made (such as refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment.

WASHINGTON – Internal Revenue Service Security Summit partners today called on tax professionals to increase efforts to inform clients about the Identity Protection PIN Opt-In Program that can protect against tax-related identity theft.
 
The IRS, state tax agencies and the nation’s tax industry – working together as the Security Summit  –  need assistance from tax professionals to spread the word to clients that the IP PIN is now available to anyone who can verify their identity.

Sharing information about the IP PIN Opt-In Program is the second in a five-part weekly series sponsored by the Summit partners to highlight critical steps tax professionals can take to protect client data. This year’s theme “Boost Security Immunity: Fighting Against Identity Theft” is an effort to urge tax professionals to intensify efforts to secure their systems and protect client data during this pandemic and its aftermath.

“An Identity Protection PIN prevents someone else from filing a tax return using your Social Security number,” said Chuck Rettig, IRS commissioner. “We’ve now made the IP PIN available to anyone who can verify their identity. This is a free way for taxpayers to protect themselves, but we need the help of tax professionals to make sure more people know about it.”

The IRS created Publication 5367, IP PIN Opt-In Program for Taxpayers, in English and Spanish, so that tax professionals could print and share the IP PIN information with clients. There are also special posters available in English and Spanish.

For security reasons, tax professionals cannot obtain an IP PIN on behalf of clients. Taxpayers must obtain their own IP PIN.

Summit partners urged taxpayers and tax professionals to protect the IP PIN from identity thieves. Taxpayers should share their IP PIN only with their trusted tax prep provider. Tax professionals should never store clients’ IP PINs on computer systems. Also, the IRS will never call, email or text either taxpayers or tax preparers to request the IP PIN.

Tax professionals who experience a data theft can assist clients by urging them to quickly obtain an IP PIN. Even if a thief already has filed a fraudulent return, an IP PIN would still offer protections for later years and prevent taxpayers from being repeat victims of tax-related identity theft.

Here are a few things taxpayers should know about the IP PIN:

Currently, taxpayers may obtain an IP PIN for 2021, which should be used when filing any federal tax returns during the year. New IP PINs will be available starting in January 2022.

To obtain an IP PIN, the best option is the Get an IP PIN, the IRS online tool. Taxpayers must validate their identities through Secure Access authentication to access the tool and their IP PIN. Before attempting this rigorous process, see Secure Access: How to Register for Certain Online Self-Help Tools. The tool is offline between November and January.

If you are unable to validate your identity online and if your income is $72,000 or less, you may file Form 15227, Application for an Identity Protection Personal Identification Number. The IRS will call the telephone number provided on Form 15227 to validate your identity. However, for security reasons, the IRS will assign an IP PIN for the next filing season. The IP PIN cannot be used for the current filing season.

Taxpayers who cannot validate their identities online, or on the phone with an IRS employee after submitting a Form 15227, or who are ineligible to file a Form 15227 may call the IRS to make an appointment at a Taxpayer Assistance Center. They will need to bring one picture identification document and another identification document to prove their identity. Once verified, the taxpayer will receive an IP PIN via U.S. Postal Service within three weeks.

The IP PIN process for confirmed victims of identity theft remains unchanged. These victims will automatically receive an IP PIN each year.

Additional resources
Tax professionals also can get help with security recommendations by reviewing the recently revised IRS Publication 4557, Safeguarding Taxpayer Data, and Small Business Information Security: The Fundamentals by the National Institute of Standards and Technology. The IRS Identity Theft Central pages for tax pros, individuals and businesses have important details as well.

Publication 5293, Data Security Resource Guide for Tax Professionals, provides a compilation of data theft information available on IRS.gov. Also, tax professionals should stay connected to the IRS through subscriptions to e-News for Tax Professionals and Social Media.

For more information, see Boost Security Immunity: Fighting Against Identity Theft.

Notice 2021-46 provides additional guidance on issues relating to the application of § 9501 of the American Rescue Plan Act of 2021 (the ARP), which provides temporary premium assistance for Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) continuation coverage. This notice expands on guidance in Notice 2021-31, 2021-23 IRB 1173. The questions addressed include availability of the premium assistance to individuals eligible for an extension who had not elected it; whether premium assistance for vision or dental-only coverage ends due to eligibility for other health coverage that does not include vision or dental benefits; availability of premium assistance under a State statute that limits continuation coverage to government employees; whether employers may claim the premium assistance tax credit if the SHOP exchange requires employers to pay COBRA premiums and which party may claim the premium assistance tax credit in situations involving parties other than an insurer or former common law employer providing the COBRA coverage.   

Notice 2021-46 will be in IRB: 2021-33, dated August 16, 2021.

Today, the IRS published the latest executive column “A Closer Look,” which features Harrison Smith and Justin Abold-LaBreche, co-directors, IRS Enterprise Digitalization & Case Management, discussing how they are trying to improve the taxpayer experience by modernizing and consolidating business processes and policies. “We both feel strongly that when IRS employees can rapidly resolve taxpayer issues in a simplified digital environment, we can dramatically improve the taxpayer experience,” said Smith and Abold-LaBreche. Read more here. Read the Spanish version here.

“A Closer Look” is a column from IRS executives that covers a variety of timely issues of interest to taxpayers and the tax community. It also provides a detailed look at key issues affecting everything from IRS operations and employees to issues involving taxpayers and tax professionals.

Check here for prior posts and new updates.

WASHINGTON — The Internal Revenue Service, U.S. Department of the Treasury, and the Bureau of the Fiscal Service announced today they have disbursed more than 2.2 million additional Economic Impact Payments under the American Rescue Plan.

Today's announcement covering the most recent six weeks of the effort brings the total disbursed so far under the American Rescue Plan to more than 171 million payments. They represent a total value of more than $400 billion since these payments began rolling out to Americans in batches on March 12.

Here is additional information on the last six weeks of payments, which includes those with official payment dates through July 21:

The IRS will continue to disburse Economic Impact Payments on a weekly basis. Ongoing payments will be sent to eligible individuals for whom the IRS previously did not have information to issue a payment but who recently filed a tax return, as well to people who qualify for "plus-up" payments.

Special reminder for those who don't normally file a tax return

Although payments are automatic for most people, the IRS continues to urge people who don't normally file a tax return and haven't received Economic Impact Payments to file a 2020 tax return to get all the benefits they're entitled to under the law, including tax credits such as the 2020 Recovery Rebate Credit, the Child Tax Credit, and the Earned Income Tax Credit. Filing a 2020 tax return will also assist the IRS in determining whether someone is eligible for monthly advance payments of the 2021 Child Tax Credit, which began earlier this month.

For example, some federal benefits recipients may need to file a 2020 tax return – even if they don't usually file – to provide information the IRS needs to send payments for a qualifying dependent. Eligible individuals in this group should file a 2020 tax return as quickly as possible to be considered for an additional payment for their qualifying dependents.

People who don't normally have an obligation to file a tax return and don't receive federal benefits may qualify for these Economic Impact Payments. This includes those experiencing homelessness, the rural poor, and other historically under-served groups. Individuals who didn't get a first or second round Economic Impact Payment or got less than the full amounts may be eligible for the 2020 Recovery Rebate Credit, but they'll need to file a 2020 tax return. See the special section on IRS.gov: Claiming the 2020 Recovery Rebate Credit if you aren't required to file a tax return.

The IRS has provided an online Non-Filer tool to allow individuals who weren’t required to file (and have not filed) a tax return for 2020 to file a simplified tax return. This simplified tax return allows eligible individuals to register for advance Child Tax Credit payments and the third Economic Impact Payment, as well as claim the 2020 Recovery Rebate Credit. Free tax return preparation is also available for qualifying people.

The IRS reminds taxpayers that the income levels in this third round of Economic Impact Payments have changed. This means that some people won't be eligible for the third payment even if they received a first or second Economic Impact Payment or claimed a 2020 Recovery Rebate Credit. Payments will begin to be reduced for individuals making $75,000 or above in Adjusted Gross Income ($150,000 for married filing jointly). The payments end at $80,000 for individuals ($160,000 for married filing jointly); people with Adjusted Gross Incomes above these levels are ineligible for a payment.

Individuals can check the Get My Payment tool on IRS.gov to see the payment status of these payments. Additional information on Economic Impact Payments is available on IRS.gov.