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Debt Cancellation is Taxable Income – Yes or No

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Tuesday, March 1, 2016

 

Debt Cancellation is Taxable Income – Yes or No 

The best advice you can get – “It Depends”.  Discuss your personal situation with your CPA or tax advisor.  The IRS published tax tip 2016-30, on March 1 titled Top 10 Tax Tips about Cancellation.  Usually debt cancellation is taxable income; however, an exclusion may apply to homeowners who had mortgage debt cancelled in 2015. Even if the debt is not for your home, there may be other means to escape the debt cancellation taxability.  Following are what I consider pertinent:

1. Main Home. Does the debt cancellation pertain to your main home?  Was it for purchase of your home, or for improvements to your home?  Does your main home secure the mortgage?  A movie, nominated for best picture, ‘The Big Short’, is based on the housing collapse of 2007 and 2008.  The collapse resulted in new legislation in 2009 that is still in effect for 2015 and 2016, but scheduled to expire on Dec. 31, 2016.

2. Loan modification.  Debt cancelled or modified on your main home could be excluded as taxable income under the Home Affordable Modification Program, or HAMP.

3. Refinanced Mortgage. Did you refinance your mortgage and use the additional funds (up to the amount of the original mortgage) to improve your main home?  The debt cancellation may qualify under HAMP.

4. Other Cancelled Debt.  Other types of cancelled debt, i.e. credit card debt, rental mortgage debt, car loans or foreclosures, normally do not qualify for special exclusion.  However, other programs might be available to exclude those cancelled debts from being taxable.

5. Form 1099-C.  This is the form used to report debt cancellation to the IRS – it is due by February 1.  Did you receive a 1099-C from your lender?

6. Form 982.  Provides a form to attach to your tax return for discharged debt.  Title 11, bankruptcy is one course; however, debt could be discharged and not taxable if you are destitute or have qualified farm, business or residence debt.

Note:  More individuals are filing their own tax returns this year and not using tax professionals.  Individuals filing their own tax returns are more susceptible to identity theft since they do not have the safeguards in place as do tax professionals.  The IRS (IR 2016-34 issued March 1, 2016) estimates there has been a 400% surge in phishing and malware incidents so far this tax season. 

Tags:  debt cancellation  phishing  Taxes 

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AARP BULLETIN NEW SCAMS TO AVOID

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Sunday, January 10, 2016

 

Fraud is rampant in our society today.  Con artist are lurking to grab your cash through deceptive means.  The January – February 201 issue of the AARP Bulletin titled their article NEW Scams to avoid, however these swindles have been around for quite a while.  In fact, I have personally experienced but luckily did not fall victim to the frauds described.

TECH SUPPORT
according to Microsoft one of the biggest frauds, involving some 3.3 million people and $1.5 billion in revenue to the scammers.  You receive a call from someone purporting to be a technician from Microsoft or Windows.  They tell to go to a particular website and follow the instructions.  A screen appears telling you your computer has problems but in reality downloads malware the steals your information.  A variation of the swindle is an offer to fix your computer for a fee, when in reality you do not have problems. 

  • SOLUTION – upgrade to Microsoft 10 or the latest version of your operating system with the updates.  Another method is to purchase a long-term maintenance contract from the computer manufacturer and obtain tech support directly from them. 


SILENT CALLS

are generated by a computer. The computer records numbers when someone answers.  Fraudsters use the numbers as potential targets for theft. 

  • SOLUTION – Install caller ID and do not answer unless you recognize the caller.


IRS IMPOSTER

is still going strong.  I reported on the fraud before when they called me.  After I published my article, it happened to me again.  According to Amy Nofziger with the AARP Foundation, the fraud is getting more and more sophisticated.  The IRS imposter will tell you to call another number immediately, or you will be sued, your bank account garnished, or other threats. 

  • SOLUTION – Hang up! The IRS will not call you; they will use the postal service to contact you.  Do not return the call.  If in doubt, call the IRS at 800 829 1040.


CANCER CHARITIES

S
the Federal Trade Commission stated four national cancer charities were responsible for defrauding consumers of $187 million. These charities are Cancer Fund of America, Cancer Support Services, the Children’s Cancer Fund of America, and the Breast Cancer Society.  Miss Pennsylvania claimed she had cancer, shaved her head and staged Bingo for Brandi raising tens of thousands in sympathetic support. She was arrested last August.

  • SOLUTION – before contributing to any charity check out its rating on charitynavigator.org. I checked this out.  It lists the charity, lists a ‘donor advisory’ then tells about the complaints.   Be wary of giving cash or giving out your credit card to solicitations and be wary of on-line sites like gofundme.com.



CHIP CARD

Banks and credit card companies are in the process of replacing credit cards with a new chip that is more secure.  Some con artists are impersonating the banks and credit card companies by sending emails requesting financial information, or requesting that you go to a specific link where that installs malware on your computer.  The emails look official and are hard to distinguish from the real company.

  • SOLUTION – call the number on the back of your credit card.  No credit card company will call you to verify personal information.   

Always be skeptical.  Ask questions, and trust your intuition.                    

Tags:  fraud  IRS  phishing  scam  tax 

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IRS Repeats Warning About Phone Scams

Posted By Rhette Baughman, Arizona Small Business Association, Wednesday, August 13, 2014

WASHINGTON — The Internal Revenue Service and the Treasury Inspector General for Tax Administration continue to hear from taxpayers who have received unsolicited calls from individuals demanding payment while fraudulently claiming to be from the IRS.
 
Based on the 90,000 complaints that TIGTA has received through its telephone hotline, to date, TIGTA has identified approximately 1,100 victims who have lost an estimated $5 million from these scams. 

"There are clear warning signs about these scams, which continue at high levels throughout the nation,” said IRS Commissioner John Koskinen. “Taxpayers should remember their first contact with the IRS will not be a call from out of the blue, but through official correspondence sent through the mail. A big red flag for these scams are angry, threatening calls from people who say they are from the IRS and urging immediate payment. This is not how we operate. People should hang up immediately and contact TIGTA or the IRS.”

Additionally, it is important for taxpayers to know that the IRS:

  • Never asks for credit card, debit card or prepaid card information over the telephone.

  • Never insists that taxpayers use a specific payment method to pay tax obligations

  • Never requests immediate payment over the telephone and will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior notification of IRS enforcement action involving IRS tax liens or levies. 

Potential phone scam victims may be told that they owe money that must be paid immediately to the IRS or they are entitled to big refunds. When unsuccessful the first time, sometimes phone scammers call back trying a new strategy.

Other characteristics of these scams include:

  • Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.

  • Scammers may be able to recite the last four digits of a victim’s Social Security number.

  • Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.

  • Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.

  • Victims hear background noise of other calls being conducted to mimic a call site.

  • After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

  • If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue, if there really is such an issue.

  • If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to TIGTA at 1.800.366.4484.

  • If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add "IRS Telephone Scam" to the comments of your complaint.

Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

The IRS encourages taxpayers to be vigilant against phone and email scams that use the IRS as a lure. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.

For more information or to report a scam, go to www.irs.gov and type "scam" in the search box.

More information on how to report phishing scams involving the IRS is available on the genuine IRS website, IRS.gov.

Tags:  IRS  phishing  scam 

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