June 2021 / United States

Americans urged to watch out for tax scams during the pandemic.

The Internal Revenue Service today began its "Dirty Dozen" list for 2021 with a warning for taxpayers, tax professionals and financial institutions to be on the lookout for these 12 nefarious schemes and scams.

This year's "Dirty Dozen" will be separated into four separate categories:

• pandemic-related scams like Economic Impact Payment theft;
• personal information cons including phishing, ransomware and phone "vishing;"
• ruses focusing on unsuspecting victims like fake charities and senior/immigrant fraud; and
• schemes that persuade taxpayers into unscrupulous actions such as Offer In Compromise mills and syndicated conservation easements.

The agency compiled the list into these categories based on who perpetuates the schemes and who they impact. In addition to today's scams the IRS will highlight the other schemes over the next three days.

The IRS urges all taxpayers to be on guard, especially during the pandemic, not only for themselves, but also for other people in their lives.

"We continue to see scam artists use the pandemic to steal money and information from honest taxpayers in a time of crisis," said IRS Commissioner Chuck Rettig. "We provide this list to alert taxpayers about common scams that fraudsters use against their victims. At the IRS, we are dedicated to stopping these criminals, but it's up to all of us to remain vigilant to protect ourselves and our families."

Taxpayers are encouraged to review the "Dirty Dozen: list in a special section on IRS.gov and should be alert to these scams during tax filing season and throughout the year.

Economic Impact Payment theft

A continuing threat to individuals is from identity thieves who try to steal Economic Impact Payments (EIPs), also known as stimulus payments. Most eligible people will get their payments automatically from the IRS. Taxpayers should watch out for these tell-tale signs of a scam:

• Any text messages, random incoming phone calls or emails inquiring about bank account information or requesting recipients to click a link or verify data should be considered suspicious and deleted without opening.
• Be alert to mailbox theft. Frequently check mail and report suspected mail losses to Postal Inspectors.
• Don't fall for stimulus check scams. The IRS won't initiate contact by phone, email, text or social media asking for Social Security numbers or other personal or financial information related to Economic Impact Payments.

Taxpayers should remember that the IRS website, IRS.gov, is the agency's official website for information on payments, refunds and other tax information.

Unemployment fraud leading to inaccurate taxpayer 1099-Gs

Because of the COVID-19 pandemic, many taxpayers lost their jobs and received unemployment compensation from their state. However, scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Payments made on these fraudulent claims went to the identity thieves.

The IRS reminds taxpayers to be on the lookout for receiving a Form 1099-G reporting unemployment compensation that they didn't receive. For people in this situation, the IRS urges them to contact their appropriate state agency for a corrected form. If a corrected form cannot be obtained so that a taxpayer can file a timely tax return, taxpayers should complete their return claiming only the unemployment compensation and other income they actually received. See Identity Theft and Unemployment Benefits for tax details and DOL.gov/fraud for state-by-state reporting information.

Additional protection to help protect taxpayers

IRS makes IP PINs available to all taxpayers – adding another layer of security

To help taxpayers avoid identity theft, the IRS this year made its Identity Protection PIN (IP PIN) program available to all taxpayers. Previously it was available only to victims of ID theft or taxpayers in certain states. The IP PIN is a six-digit code known only to the taxpayer and to the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayer's personally identifiable information.

Using an IP PIN is, in essence, a way to lock a tax account. The IP PIN serves as the key to opening that account. Electronic returns that do not contain the correct IP PIN will be rejected and paper returns will go through additional scrutiny for fraud.

Reducing fraud

The IRS and its Security Summit partners in the states and the private-sector tax community have made changes to help reduce identity theft-related refund fraud that are noticeable to the average person filing a return:

• Tax software providers agreed to strengthen password protocols. This is the first line of defense for these companies to make sure their products are secure.
• State tax agencies began asking for taxpayers' driver's license numbers as another way for people to prove their identities.
• The IRS limited the number of tax refunds going to financial accounts or addresses.
• The IRS masked personal information from tax transcripts.

Multi-factor authentication can help

It is important for taxpayers filing in 2021 to know that online tax software products available to both taxpayers and tax professionals will contain options for multi-factor authentication. Multi-factor authentication allows users to better protect online accounts. One way this is accomplished is by requiring a security code sent to a mobile phone in addition to the username and password used to access the account.

The IRS and its Security Summit partners have formed an information sharing center that allows them to quickly identify emerging scams and react to protect taxpayers. The Identity Theft Tax Refund Fraud Information Sharing and Analysis Center PDF is now operational.

Also, check out our recent A Closer Look column for more on how to be vigilant about tax scams. Visit Identity Theft Central and Tax Fraud Alerts for more information on how to protect against or report identity theft or fraud.

Source: Internal Revenue Service

On 5 June 2021, the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) agreed on supporting an international global tax reform agreement for multinational companies, creating new guidelines for corporations worldwide once a global deal is established at the end of 2021.

A face-to-face meeting was held in London on 4 and 5 June 2021 to help negotiate key elements of the deal. Now that an informal agreement is reached, the G7 leaders can subsequently officially sign it during the G7 Summit, scheduled to be held in Carbis Bay (Cornwall) from 11 to 13 June 2021.

Highlights of the agreement are:

• counterparts agree to reforms which will see multinationals paying tax in the countries where they do business; and
• a global minimum rate that ensures multinationals pay tax of at least 15% in each country they operate.

More information can be found on the website of the UK government and on the OECD website. Further developments will be reported as they occur.

The US Internal Revenue Service (IRS) has released the Fiscal Year 2020 Internal Revenue Service Data Book detailing tax administration activities conducted by the IRS during Fiscal Year 2020 (i.e. 1 October 2019 through 30 September 2020).

The 2020 Data Book comprises 33 tables presenting all IRS activities from returns processed and revenue collected to numbers and amounts from examinations of returns and collection methods, as well as budget and personnel information.

During Fiscal Year 2020, the IRS processed more than 240 million tax returns and collected nearly USD 3.5 trillion in federal taxes, which accounts for approximately 96% of the US federal revenue from all sources.

Particularly in response to the COVID-19 pandemic, the IRS:

• developed new technologies and provided the equipment necessary to allow thousands of IRS employees to work from home;
• mitigated taxpayers' burdens by:
  • extending the deadline to file and pay US federal income taxes from 15 April 2020 to 15 July 2020;
  • easing payment guidelines; and
  • postponing compliance actions and suspending most collection enforcement activities, such as new notices of lien or levy, from 15 April 2020 to 15 July 2020; and
• issued Economic Impact Payments (EIPs) totalling USD 412.9 billion during the 2020 calendar year.

The Congressional Research Service (CRS) of the US Library of Congress has outlined issues and proposals related to the US international corporate tax system in a recently released report. The CRS report is entitled "Issues in International Corporate Taxation: The 2017 Revision (P.L. 115-97)" (R45186-Version 16, 17 June 2021).

The CRS report explains:

• prior international tax rules and the revisions made in the Tax Cuts and Jobs Act of 2017 (TCJA);
• the four major issues of concern under prior law:
  • allocation of investment between the United States and other countries;
  • artificial profit shifting out of the United States;
  • repatriation of income earned by foreign subsidiaries; and
  • inversions (US firms shifting their headquarters to other countries for tax reasons);
• how the TCJA addresses those four concerns or raises new ones;
• issues associated with international agreements (including tax treaties, the WTO and OECD minimum standards);
• problems and issues (such as legal challenges, uncertainty and new regulations) within the new international tax regime; and
• options that have been suggested in President Biden's legislative proposals and bills introduced in Congress.

Note: The CRS is an agency within the US Library of Congress and serves the US Congress throughout the legislative process by providing legislative research and analysis for an informed national legislature.

The Joint Committee on Taxation (JCT) of the US Congress has released a report with a description of US federal tax law, and an analysis of selected issues, related to the tax gap.

The JCT report is entitled "Joint Committee on Taxation, Tax Gap: Overview of Federal Tax Provisions and Analysis of Selected Issues." The report, designated JCX-30-21, is dated 7 June 2021.

A standard definition of the tax gap is the shortfall between the amount of tax voluntarily and timely paid by taxpayers and the actual tax liability of taxpayers. It measures:

• taxpayers' failure to accurately report their full tax liabilities on tax returns (i.e. underreporting);
• taxpayers' failure to pay taxes due from filed returns (i.e. underpayment); and
• taxpayers' failure to file a required tax return altogether or on time (i.e. non-filing).

The tax gap includes shortfalls in individual income taxes, corporate income taxes, employment taxes, estate taxes, and excise taxes.

According to the JCT report, the most recent study shows that the estimated average annual tax gap for tax years 2011-2013 was USD 441 billion, and the annual net tax gap (i.e. the gross tax gap adjusted for late payments and collections due to enforcement activities) was USD 381 billion.

With total average tax liabilities of USD 2.7 trillion per year between 2011 and 2013, the voluntary compliance rate was 83.6% and the net compliance rate was 85.8%.

In 2011-2013, the largest source of the tax gap was the individual income tax, followed by employment taxes, and the corporate income tax. Underreporting was the largest component of the tax gap. Only 20% of the gross tax gap was attributable to non-filing (including late filing) and underpayment.

The JTC report was prepared in connection with a public hearing titled "Minding the Tax Gap: Improving Tax Administration for the 21st Century," which the Subcommittee on Select Revenue Measures and the Subcommittee on Oversight of the House Committee on Ways and Means will jointly hold on 10 June 2021.

Note: The JCT is a non-partisan committee of the US Congress that assists members of the majority and minority parties in both chambers on tax legislation.

The US Internal Revenue Service (IRS) has issued two sets of frequently asked questions (FAQs) to provide guidance on the child and dependent care credit and the paid sick and family leave credit, as enhanced by the American Rescue Plan Act of 2021 (ARP). The IRS has also issued an accompanying News Release (IR-2021-128), dated 11 June 2021.

The child and dependent care tax credit is allowed for a percentage of work-related expenses that a taxpayer incurs for the care of qualifying persons to enable the taxpayer to work or look for work.

For 2021, the ARP:

• increases the maximum amount of work-related expenses for qualifying care that may be taken into account in calculating the credit;
• increases the maximum percentage of those expenses for which the credit may be taken;
• modifies how the credit is reduced for higher earners; and
• makes it refundable.

The paid sick and family leave credit reimburses eligible employers for the cost of providing paid sick and family leave to their employees for reasons related to COVID-19. Self-employed individuals are eligible for similar tax credits.

The ARP:

• amends and extends the credit;
• treats leave wages paid to an employee who is seeking or awaiting the results of a test for, or diagnosis of, COVID-19, or is obtaining immunizations related to COVID-19 or recovering from immunization, as leave wages that can be eligible for the credit; and
• permits eligible employers to claim the credit for paid family leave wages for all the same reasons that they can claim the credit for paid sick leave wages.

The two sets of FAQs, both of which were last reviewed or updated on 11 June 2021, provide information on eligibility, computing the credit amounts, and how to claim the credits.

Note: The ARP was enacted on 11 March 2021 to assist families and businesses, as well as state and local governments, with the fallout of the COVID-19 pandemic and recovery underway.