Chase

Court of Appeals Rules for Clergy

Article Highlights:

Internal Revenue Code Section 107
Court Ruling
Employee Status
Self-employed Status
Parsonage Allowance
Self-employment Tax
Exemption from Self-employment Tax

If you read our previous article related to a Wisconsin District Court ruling, you will recall that the judge in that case had ruled that Sec. 107(2) of the Internal Revenue Code was unconstitutional.

Section 107 of the Internal Revenue Code provides that a minister’s gross income doesn’t include the rental value of a home provided by the house of worship. If the home itself isn’t provided, then a rental allowance paid as part of compensation for ministerial services is excludable. This benefit is generally referred to as a parsonage allowance. Thus, a minister can exclude the fair rental value (FRV) of the parsonage from income under IRC Sec. 107(1), or the rental allowance under Sec. 107(2), for income tax purposes. The Sec. 107(2) rental allowance is excludable only to the extent that it is for expenses such as rent, mortgage payments, utilities, repairs, etc., used in providing the minister’s main home, and only up to the amount of the home’s FRV.

Good news for clergy members: a 3-judge panel of the 7th U.S. Circuit Court of Appeals has unanimously overturned the lower court’s decision and ruled that Sec. 107 is constitutional; therefore, housing allowances continue to be excludable from income tax.

It is unknown whether those who brought the suit will ask the full 7th Circuit to review the case or appeal it to the U.S. Supreme Court and, if so, whether the Supreme Court will take it up.

Here is an overview of how members of the clergy (from all faiths) are taxed on their income. When we refer to “church” in this article, please read that to include mosques, synagogues, temples, etc. Members of the clergy are taxed on not just their salary but on other fees and contributions that they receive in exchange for performing services such as marriages, baptisms, funerals, and masses. As a result, clerics will generally report their income in two ways:

As an Employee – As an employee, clerics will receive a W-2 from the church showing the amount of their income that is subject to tax, any amount paid as a nontaxable housing allowance (discussed later), and any withholding.

Any expenses incurred as a W-2 employee are included on Form 2106 (Employee Business Expenses) and if the cleric also receives a nontaxable parsonage allowance, the expenses must be divided between the taxable W-2 income and nontaxable parsonage allowance. Unfortunately, for years 2018 through 2025 the deduction for employee business expenses has been suspended by tax reform. The suspension affects all employee business expenses, not just those of clergy employees.

As a Self-Employed Individual – Income received other than as an employee of a church is reported as self-employment income. Typically, this would include all income that is not included in the W-2 from the church, including fees charged for services, such as weddings, funerals, and other gatherings. This income and any expenses associated with it are reported on Schedule C and are subject to the self-employment tax.

Parsonage Allowance – As was discussed previously, as the subject of the court ruling, a member of the clergy can qualify to have a rental allowance excluded from his or her taxable income if that allowance is provided as remuneration for services that are ordinarily the duties of a minister of the gospel. The following are the qualifications and details of the parsonage allowance:

It is only excludable to the extent that it is used for expenses related to the minister’s housing (e.g., for rent, mortgage payments, utilities, and repairs).
The rental allowance is not excludable to the extent that it exceeds reasonable compensation for the minister’s services.
The allowance only applies to the minister’s primary residence.
The allowance cannot exceed a home’s FRV, including furnishings and appurtenances such as garages, plus the cost of utilities.
In advance of the payment, the employing organization must designate the allowance by an official action. If a minister is employed by a local congregation, the designation must come from the local church, instead of from the church’s national organization.
The portion of the minister’s business expenses that is attributable to tax-free income is not deductible. This rule does not apply to home-mortgage interest or to taxes that are deductible in full if the minister itemizes deductions.
Retired clerics can exclude a home’s rental value or a rental allowance if the home is furnished as compensation for past services and authorized under a convention of a national church organization. However, this exclusion does not extend to the widow or widower of a retired cleric.

Although it is not subject to income tax, a parsonage allowance is subject to the self-employment tax unless the minister is exempt (as discussed below).

Self-Employment Tax – A minister who hasn’t taken a vow of poverty is subject to self-employment tax on income from services performed as a minister.

An ordained minister may be granted an exemption from the self-employment tax for ministerial services only. To qualify, the church employing the minister must qualify as a religious organization under Code Section 501(c)(3). The application for an exemption is filed with Form 4361 (Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners).

To claim an exemption from the self-employment tax, the minister must meet all of the following conditions and file Form 4361 to request exemption from the self-employment tax. The minister must:

Be conscientiously opposed to public insurance because of his or her individual religious considerations or because of the principles of his or her religious denomination (not because of general conscience).
File for noneconomic reasons.
Inform the church’s or order’s ordaining, commissioning, or licensing body that he or she is opposed to public insurance, if he or she is a minister or a member of a religious order (other than a vow-of-poverty member). This requirement doesn’t apply to Christian Science practitioners or readers.
Establish that the organization that ordained, commissioned, or licensed him or her (or his or her religious order) is a tax-exempt religious organization.
Establish that the organization is a church (or a convention or association of churches).
Not have previously filed Form 2031 (Revocation of Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners) to elect for Social Security coverage.

Form 4361 must be filed on or before the return's extended due date for the second tax year when the individual has net self-employment earnings of $400 or more (part of which is from services as a minister). A late application will be rejected. The time for applying starts over when a minister who previously was not opposed to accepting public insurance (i.e., Social Security benefits) enters a new ministry (e.g., joins a new church and adopts beliefs that include opposition to public insurance). However, the IRS has said that there is no second chance to apply for exemption if a minister is ordained in a different church but does not change his or her beliefs regarding public insurance (i.e., the minister opposed the acceptance of public insurance in both faiths).

Careful consideration should be made before applying for an exemption from the self-employment tax, as once the decision is made, the election is irrevocable.

If you have questions related to any of these issues or how they may apply to your situation, please give this office a call.

Gift and Estate Tax Primer

Article Highlights:

Exemptions from Gift and Estate Taxes
Annual Gift-Tax Exemption
Gifts for Medical Expenses and Tuition
Lifetime Exemption from Gift and Estate Taxes
Spousal Exclusion Portability
Qualified Tuition Programs
Basis of Gifts

The tax code places limits on the amounts that individuals can gift to others (as money or property) without paying taxes. This is meant to keep individuals from using gifts to avoid the estate tax that is imposed upon inherited assets. This can be a significant issue for family-operated businesses when the business owner dies; such businesses often have to be sold to pay the resulting inheritance (estate) taxes. This is, in large part, why high-net-worth individuals invest in estate planning.

Exemptions – Current tax law provides both an annual gift-tax exemption and a lifetime unified exemption for the gift and estate taxes. Because the lifetime exemption is unified, gifts that exceed the annual gift-tax exemption reduce the amount that the giver can later exclude for estate-tax purposes.

Annual Gift-Tax Exemption – This inflation-adjusted exemption is $15,000 for 2018 and 2019 (up from $14,000 for 2013–2017). Thus, an individual can give $15,000 each to an unlimited number of other individuals (not necessarily relatives) without any tax ramifications. When a gift exceeds the \$15,000 limit, the individual must file a Form 709 Gift Tax Return. However, unlimited amounts may be transferred between spouses without the need to file such a return – unless the spouse is not a U.S. citizen. Gifts to noncitizen spouses are eligible for an annual gift-tax exclusion of up to $155,000 in 2019 (up from $152,000 in 2018).

Example: Jack has four adult children. In 2019, he can give each child $15,000 ($60,000 total) without reducing his lifetime unified exemption or having to file a gift tax return. Jack’s spouse can also give $15,000 to each child without reducing either spouse’s lifetime unified exemption. If each child is married, then Jack and his wife can each also give \$15,000 to each of the children’s spouses (raising the total to \$60,000 given to each couple) without reducing their lifetime unified tax exemptions. The gift recipients are not required to report the gifts as taxable income and do not even have to declare that they received the gifts on their income tax returns.

If any individual gift exceeds the annual gift-tax exemption, the giver must file a Form 709 Gift Tax Return. However, the giver pays no tax until the total amount of gifts in excess of the annual exemption exceeds the amount of the lifetime unified exemption. The government uses Form 709 to keep track of how much of the lifetime unified exemption that an individual has used prior to that person’s death. If the individual exceeds the lifetime unified exemption, then the excess is taxed; the current rate is 40%.

All gifts to the same person during a calendar year count toward the annual exemption. Thus, in the example above, If Jack gives one of his children a check for $15,000 on January 1, any other gifts that Jack makes to that child during the year, including birthday or Christmas gifts, would mean that Jack would have to file a Form 709.

Gifts for Medical Expenses and Tuition – An often-overlooked provision of the tax code allows for nontaxable gifts in addition to the annual gif-tax exclusion; these gifts must pay for medical or education expenses. Such gifts can be significant; they include

Tuition payments made directly to an educational institution (whether a college or a private primary or secondary school) on the donee’s behalf – but not payments for books or room and board – and
Payments made directly to any person or entity who provides medical care for the done.

In both cases, it is critical that the payments be made directly to the educational institution or health care provider. Reimbursements to the donee do not qualify.

Lifetime Exemption from Gift and Estate Taxes – The gift and estate taxes have been the subject of considerable political bickering over the past few years. Some want to abolish this tax, but there has not been sufficient support in Congress to actually do that; instead, the inflation-adjusted lifetime exemption amount has been increasingly annually. In 2019, the lifetime unified exemption is $11.4 million per person. By comparison, in 2017 (prior to the recent tax reform), the lifetime unified exemption was $5.49 million. The lifetime exemption for the gift and estate taxes has not always been unified; in 2006, the estate exclusion was $2 million, and the gift exclusion was $1 million. The tax rates for amounts beyond the limit have varied from a high of 46% in 2006 to a low of 0% in 2010. The 0% rate only lasted for one year before jumping to 35% for a couple of years and then settling at the current rate of 40%. This history is important because the exemptions can change significantly at Congress’s whim – particularly based on the party that holds the majority.

Spousal Exclusion Portability – When one member of a married couple passes away, the surviving member receives an unlimited estate-tax deduction; thus, no estate tax is levied in this case. However, as a result, the value of the surviving spouse’s estate doubles, and there is no benefit from the deceased spouse’s lifetime unified tax exemption. For this reason, the tax code permits the executor of the deceased spouse’s estate (often, the surviving spouse) to transfer any of the deceased person’s unused exclusion to the surviving spouse. Unfortunately, this requires filing a Form 706 Estate Tax Return for the deceased spouse, even if such a return would not otherwise be required. This form is complicated and expensive to prepare, as it requires an inventory with valuations of all of the decedent’s assets. As a result, many executors of relatively small estates skip this step. As discussed earlier, the lifetime exemption can change at the whim of Congress, so failing to take advantage of this exclusion’s portability could have significant tax ramifications.

Qualified Tuition Programs – Any discussion of the gift and estate taxes needs to include a mention of qualified tuition programs (commonly referred to as Sec 529 plans, after the tax-code section that authorizes them). These plans are funded with nondeductible contributions, but they provide tax-free accumulation if the funds are used for a child’s postsecondary education (as well as, in many states, up to $10,000 of primary or secondary tuition per year). Contributions to these plans, like any other gift, are subject to the annual gift-tax exclusion. Of course, these plans offer tax-free accumulation, so it is best to contribute funds as soon as possible.

Under a special provision of the tax code, in a given year, an individual can contribute up to 5 times the annual gift-tax exclusion amount to a qualified tuition account and can then treat the contribution as having been made ratably over a five-year period that starts in the calendar year of the contribution. However, the donor then cannot make any further contributions during that five-year period.

Basis of Gifts – Basis is the term for the value of an asset; it is used to determine the profit when an asset is sold. The basis of a gift is the same for the giver and the recipient, but this amount is not used for gift-tax purposes; instead, the fair market value is used.

Example: In 2019, Pete gifts shares of stock to his daughter. Pete purchased the shares for $6,000 (his basis), and they were worth $22,000 in fair market value when he gifted them to his daughter. Their value at the time of the gift is used to determine whether the gift exceeds the annual gift-tax exclusion. Because the gift’s value ($22,000) is greater than the $15,000 exclusion, Pete will have to file a Form 709 Gift Tax Return to report the gift; he also must reduce his lifetime exemption by $7,000 ($22,000 – $15,000). His daughter’s basis is also equal to the asset’s original value ($6,000); when she sells the shares, her taxable gain will be the difference between the sale price and $6,000. Thus, Pete has effectively transferred the tax on the stock’s appreciated value to his daughter.

If Pete’s daughter instead inherited the shares upon Pete’s death, her basis would be the fair market value of the stock at that time ($22,000) is she sold them for $22,000 she would have no taxable gain.

This is only an overview of the tax law regarding gifts and estates; please contact us for further details or to get advice for your specific situation.

What Are the Differences Between an IRS Tax Lien and a Tax Levy?

If you’re reading this, the chances are high that you’re one of the many, many people who have received a notice from the Internal Revenue Service. Some level of correspondence with the IRS is natural ‒ particularly leading up to and in the immediate aftermath of tax season. But if you’ve received notification that the government is about to file a tax lien or tax levy against you, suddenly you’re talking about an entirely different ballgame.

But the most important thing you can do at this point is stay calm. Yes, both of these notices mean that your financial situation has just gotten significantly more complicated. But you do have rights in each scenario that you would do well to protect at all costs.

What Is an IRS Tax Lien?

An IRS tax lien is a very specific type of claim that the government (in this case, the Internal Revenue Service) makes on your property. That property can include but is not limited to real estate and other types of assets. Typically, this is something that occurs when you’re past due on your income taxes and you’ve failed to make proper arrangements to get yourself back up to date again.

A tax lien can affect you in a number of different ways, all of which are less than ideal. Even though tax liens no longer appear on your credit report, your credit rating will still suffer ‒ thus harming your ability to get a loan or secure new credit for your business. Tax liens also usually appear during title searches, which can impact your ability to sell your house or refinance the mortgage you already have.

What Is an IRS Tax Levy?

A tax lien is essentially the first part in a two-step process. That second step takes the form of a tax levy, which involves the actual seizure of the property in question in an effort to pay the tax money you owe. Via a tax levy, the IRS can do everything from garnish your wages, seize assets like real estate or even take control of your bank accounts to get their money.

At the very least, you’re likely to go through wage garnishment ‒ meaning that you’ll be taking home far less money at the end of the week in your paycheck. A 21-day hold might be placed on your bank account in an effort to encourage you to “work things out,” and if you don’t, they may even try to seize your home as a last resort.

Luckily, there are a few things that the IRS CAN’T seize even by way of a tax levy. These include things like unemployment benefits, certain pension benefits, disability payments, workers’ compensation and others.

What Can I Do About Them?

Thankfully, even in the unfortunate event of a lien or levy, you do still have some options available to you.

More than anything, if you CAN pay your tax bill, you SHOULD pay your tax bill. If necessary, get on an IRS payment plan to help you get back up to date. Yes, your past due balance will continue to accrue both interest and penalties until you’ve paid it off. But the choice between paying interest and losing your house isn’t really a choice at all.

It’s also important for you to actively work to protect your rights if you feel it necessary to do so. After receiving either a lien or a levy notice, you can always file an appeal with the IRS Office of Appeals if you feel you’re being treated unfairly. It is within your right to ask for a conference with the IRS agent’s manager so that your case can be reviewed by a fresh set of eyes. If nothing else, this is a great way to make sure that your side of the story is known.

You can also apply for a Withdrawal of the Notice of Federal Tax Lien, which will remove the public notice of a tax lien filing. If the IRS has notified you that any of your property is about to be seized, you can file something called a Certificate of Discharge. This will remove the property in question from the effects of the tax lien, allowing you to sell something like your home (or another asset) without worrying.

All of this can be confusing and stressful. Working with a seasoned tax professional can take negotiating with the IRS off your hands.

How to Pay Your Federal Taxes

Article Highlights:

Electronic Funds Withdrawal
Direct Pay
Electronic Federal Tax Payment System
Send a Check
Pay by Cash
Credit Card
Installment Agreement
Tap a Retirement Account

If you aren’t one of those lucky Americans who gets a tax refund from the IRS, you might be wondering how you go about paying your balance due. Here are some electronic and manual payment options that you can use to pay your federal income tax:

Electronic Funds Withdrawal – You can pay using funds from your bank account when your tax return is e-filed. There is no charge by the IRS for using this payment method, and payment can be arranged by your tax return preparer, allowing for e-filing of your return and submitting an electronic funds withdrawal request at the same time.
Direct Pay – You can schedule and make a payment directly from your checking or savings account using IRS Direct Pay. There is no fee for this service, and you will receive an e-mail notification when the funds have been withdrawn. Payments, including estimated tax payments, can be scheduled up to 30 days in advance. You can change or cancel the payment up to two business days before the scheduled payment date.
Electronic Federal Tax Payment System – This is a more sophisticated version of the IRS’s Direct Pay that allows not only federal income tax but also employment, estimated and excise tax payments to be made over the Internet or by phone from your bank account, with a robust authentication process to ensure the security of the site and your private information. This is a free service. Payments, which can be scheduled up to 365 days in advance, can be changed or cancelled up to two days prior to the scheduled payment date. You can use IRS Form 9783 to enroll in the system or enroll at EFTPS.gov – but do so well in advance of the date when a payment is due because the government will use U.S. mail to send you a personal identification number (PIN), which you will need to access your EFTPS account.
Send a Check – You can also pay the old-fashioned way by sending in a check along with a payment voucher. The payment voucher – IRS Form 1040-V – includes the information needed to associate your payment with your IRS account. IRS addresses for where to send the payment and your check are included with Form 1040-V.
Pay with Cash – Taxpayers without bank accounts or those who would just prefer to pay in cash can do so by making a cash payment at a participating 7-Eleven store. Taxpayers can do this at more than 7,000 locations nationwide. Taxpayers can visit IRS.gov/paywithcash for instructions on how to pay with cash. There is a very small charge for making a cash payment, and the maximum amount is $1,000 per payment. But don’t wait until the last minute, as it will take up to a week for the IRS to receive the cash payment.

The IRS also has a mobile app that allows taxpayers to pay with their mobile device. Anyone wishing to use a mobile device can access the IRS2Go app to pay with either Direct Pay or by debit or credit card. IRS2Go is the official mobile app of the IRS and is available for download from Google Play, the Apple App Store or the Amazon App Store.

If you are unable to pay the taxes that you owe, it is generally in your best interest to make other arrangements to obtain the funds needed to fully pay your taxes, so that you are not subjected to the government's penalties and interest. Here are a few options to consider when you don't have the funds to pay all of your tax liability.

Credit Card – Another option is to pay by credit card by using one of the service providers that works with the IRS. However, as the IRS will not pay the credit card discount fee, you will have to pay that fee. You will also have to pay the credit card interest on the payment.
Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement that will allow you to make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. In addition, interest will also be charged at the current rate, and you will have to pay a user fee to set up the payment plan. By signing up for this arrangement, you agree to keep all future years’ tax obligations current. If you do not make payments on time or if you have an outstanding past-due amount in a future year, you will be in default of the agreement, and the IRS will then have the option of taking enforcement actions to collect the entire amount you owe. If you are seeking an installment agreement exceeding $50,000, the IRS will need to validate your financial condition and your need for an installment agreement through the information you provide in the Collection Information Statement (in which you list your financial information). You may also pay down your balance to $50,000 or less to take advantage of the streamlined option.
Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because it jeopardizes your retirement and the distributions are generally taxable at the highest bracket, which adds more taxes to the existing problem. In addition, if you are under age 59.5, such a withdrawal is also subject to a 10% early-withdrawal penalty, which will compound the problem even further.
Family Loan – Although it may be uncomfortable to ask, obtaining a loan from a relative or friend is an option because this type of loan is generally the least costly, in terms of interest.

Whatever you decide, don’t just ignore your tax liability, as that is the worst thing you can do, and it can only make matters worse.

A Government Shutdown Isn’t Going to Save You from an IRS Audit

Yes, it's true that we're just coming out of the longest government shutdown in the history of the United States. It will take many government agencies – including the Internal Revenue Service – a significant period of time to get back up to speed. But if you think that all this means that the chances of your getting audited are lower than ever, you're going to want to think again.

According to one recent study, the IRS audited about 0.6 percent of individual tax returns in 2016, which means that your chances of getting that unfortunate letter in the mail were about one in 160. When you expand the definition of a traditional audit to include all of the other types of notices that you may receive to re-examine your taxes or provide backup documentation, for example, that number jumps to about 6.2 percent— or roughly one in 16.

So not only were your chances of getting audited always higher than you thought, but a government shutdown isn't going to prevent this particular train from running on time. There are a few common IRS audit red flags in particular that you’ll want to know more about as April approaches once again.

The Dreaded Math Errors

A lot of people don’t realize just how much of the IRS’s own processes are automated. When you file your income tax return, that information gets entered into a computer, and a lot of the processing is done before a human ever looks at it — if one ever comes into contact with your return at all.

Therefore, one of the major red flags that will certainly trigger an audit are math errors, because a computer doesn’t care whether the government was shut down or not. A math error is a math error, and if you make one (or multiple), it’ll send up a red flag within the IRS’s system, and an automated notice will likely be issued as a result.

How You Make Your Money

The people who work for the IRS aren’t amateurs; they know that certain types of industries feature more instances of unreported cash earnings than others. This is why another one of the major red flags that could see you on the receiving end of an IRS audit has to do with the industry you’re operating in to begin with.

If you work in the restaurant industry where cash tips are common, for example, you are probably always going to garner more attention from IRS professionals than someone who may have a more rigid salary. Simply being a part of these types of industries automatically raises your odds of being audited, and no government shutdown is going to change that.

Earned Income Tax Credit Audits

In 2018, the IRS actually came right out and admitted that people who claim the Earned Income Tax Credit are twice as likely to be audited than those who don’t. A large part of this comes down to the fact that people sometimes take this credit who shouldn’t, and it costs the United States government about $10 billion per year.

At this point, it’s important to note that taking this credit intentionally when you shouldn’t is fraud, and that is not a situation you want to find yourself in. If you can prove that you took the credit by accident, you don’t necessarily have anything to worry about. But you’ll likely still be audited, and you’re certainly going to have some explaining to do.

Large Charitable Contributions

Finally, one of the biggest red flags that the IRS always looks for when determining whom to audit ultimately comes down, not to charitable contributions as a concept, but to significantly large contributions under peculiar circumstances.

When viewing charitable contributions, the IRS always looks at the amount you gave relative to the overall amount you made during a year. The IRS definitely knows, on average, how much people in certain income brackets are likely to donate. Sure, there are always special circumstances – but if you give two years’ worth of donations in a single year in an effort to maximize the deduction you can take, you’re almost always going to attract the type of attention you don’t necessarily want.

Provided that you’ve got the documentation to back up your donations, you have absolutely nothing to worry about. But a lot of people try to game the system by saying that they gave X amount of dollars in one year when they really gave that money over the last few years, and that is something the IRS will try to put a stop to.

An audit isn’t necessarily a bad thing, especially if you have the documentation to support every move you made and why it was the right one for you at the moment. But again, don’t assume that the government shutdown means that your chances of an IRS audit are practically zero. They never were, but they certainly aren’t now, which is why you’ll always want to make sure that you’ve crossed your T’s and dotted your I’s before you submit your tax return information this year.

Don’t Be a Victim of Cybercrooks

Article Highlights:

What They Are After
Email Attachments or Links
Emails from the IRS
Detecting Phony Email Addresses
Embedded Hyperlinks
Security Software
Strong Passwords
IRS Phone Calls
Educate the Elderly
Too Good to Be True

Well, here it is: 2019. The holiday season is over, and the season for preparing tax returns is about to begin. But unfortunately, it is also the season for scammers who are out to steal your identity, swindle you out of your money and even file tax returns in your name. All of this can make you poorer, ruin your credit rating, cause financial havoc, and cost you hours upon hours of time trying to straighten out the messes caused by cybercrooks.

The best way to prevent your ID from being stolen, your computer from being hacked, or yourself from being tricked by some clever schemer is not to take their bait. These schemers will target you in a number of ways, including through email, regular mail and phone. Each one will try to scare you, appeal to your greedy side or trick you into allowing access to your electronic devices.

The most common way for cybercriminals to steal money, bank account information, passwords, credit cards and Social Security numbers is to simply ask for them in an unsuspecting way.

Here are a few steps you can take to protect against phishing and other email scams:

Be vigilant and skeptical. Never open a link or attachment from an unknown or suspicious source. Even if the email is from a known source, the recipient should approach it with caution. Cybercrooks are good at acting like trusted businesses, friends, family and even the IRS.
Emails and other electronic contact from the IRS. If you should receive an email claiming to be from the IRS or directing you to an IRS web site, you should know that the IRS never initiates contact via email. This includes asking for information via text messages and social media channels. The first thing you should do is contact this office. But above all, DO NOT reply to the message, open any attachments (which may contain malicious code that will infect your computer), or click on any links in a suspicious email or phishing website and enter your confidential information. The IRS never asks for detailed personal and financial information like PINs, passwords, or similar secret access information for credit cards, banks, or other financial accounts.The address of the official IRS website is www.irs.gov. Do not be misled by sites claiming to be the IRS but ending in .com, .net, .org, or anything other than .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the site.
Double check the email address. Thieves may have compromised a friend’s email address. They might also be spoofing the address with a slight change in text, such as by using narne@example.com instead of name@example.com. Merely changing the “m” to an “r” and “n” can trick people.
Remember that the IRS doesn’t initiate spontaneous contact with taxpayers by phone or email to ask for personal or financial information. The IRS does not call taxpayers with aggressive threats of lawsuits or arrests. It is a common tactic for criminals to call, acting as an IRS agent to try collecting a tax bill and threatening to arrest you or have your home seized for payment. These same individuals will sometimes ask you to make payments using a gift card, which the IRS would never do.
Don’t click on hyperlinks in suspicious emails. It is common practice for cyber crooks to send out emails asking you to click on an embedded link to update your password or other sensitive information. Legitimate firms would not do that, so be safe and ignore and then delete the email. If the email is from a business or person you deal with and you are concerned, contact the business directly, either through its main webpage or by phone. Also remember that no legitimate business or organization will ask for sensitive financial information by email. Another trick cybercrooks employ is to hack into a friend’s emails and then send you messages asking you to click on an embedded link in the email, which can end up installing malware on your computer.
Use security software to protect against malware and viruses found in phishing emails. Some security software can help identify suspicious websites that are used by cybercriminals as well as detect malware on your computer.
Use strong passwords to protect online accounts. Experts recommend the use of a passphrase, instead of a password, with a minimum of 10 digits, including letters, numbers, and special characters. But don’t use a family name or birth date, as cybercriminals may already have that information and will try it.
Use multi-factor authentication when offered. Two-factor authentication means that in addition to entering a username and password, the user must enter a security code. This code is usually sent as a text to the user’s mobile phone. Even if a thief manages to steal usernames and passwords, it’s unlikely the crook would also have a victim’s phone.
Communication from the IRS. If you receive a phone call, fax, or letter from an individual claiming to be from the IRS, you should immediately contact this office before providing any information. You should do this whether you suspect the contact is legitimate or not. You can also contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you.
Educate the elderly. The elderly are frequent victims of scammers. If you have elderly family members or friends, take the time to sit down with them and educate them about scammers, email phishing and the like.
Too good to be true. One of the tactics used by scammers is fooling you into thinking that you won a foreign lottery or have received a foreign inheritance and that you need to send money before the funds can be transferred. Remember the old adage: “If it is too good to be true, it probably isn’t true.”
Report phishing scams. Should you receive a suspicious email, you can help the government fight the cybercrooks by forwarding it to phishing@irs.gov.

Our modern means of communication have provided opportunities for cybercrooks to scam you, which is a growing problem. You have to be vigilant and always keep your guard up. Don’t take their bait.

Always contact this office if you receive any communications from the IRS or state tax authorities. Be extra cautious with emails, phone calls, or mail. If you have questions related to phishing or ID theft, please call.