Protect Your Identity During the Holidays
IRS Commissioner Chuck Rettig urged everyone to be careful during the holidays. He stated, “With tax season quickly approaching, people should be extra careful during the holidays to protect their sensitive tax and financial data. Taking a few simple steps can protect this valuable information and help prevent someone from stealing a tax refund. Taxpayers guarding their information also helps strengthen protections against identity thieves taken by the IRS, the states and the tax industry.”
In IR-2018-238, the Service offered seven tips to protect your personal information.
- Public Wi-Fi – Many stores and shops now offer free Wi-Fi. These networks can be easily monitored by hackers. If you use public Wi-Fi, do not log on to any of your bank or retirement accounts.
- Online Shopping – A record number of gifts will be purchased online year. Use websites with familiar names or the sites from stores where you shop. Look for the lock symbol or “https” in the address bar on your browser to ensure that you are using a site with a security certificate. Do not click on pop-up ads for unknown sites.
- Phishing Emails – There has been a large increase in “phishing” emails claiming to be from your bank or the IRS. A hacker may send you an email claiming that your password has expired and you need to create a new password. This hacker will try to steal your password and access your financial accounts.
- Virus Protection – There are virus protection programs available for your phone, tablet and computer. Set up your virus software with automatic updates. Do not use “free security scans” or click on pop-up ads for security software.
- Passwords – Use long passwords with at least one capital letter, lowercase letter and number. You may also add a unique character such as ! , # or %. If you have many passwords, a password management program will be invaluable. The password program should have 256-bit encryption.
- Multi-Factor Authentication – Many financial institutions offer two-step authentication. It usually involves entering both a password and a code sent to your phone via text message. This is a higher level of security. You will need access to your phone whenever you log on to your financial accounts. However, after you are familiar with the two-step authentication method, it is fairly easy and convenient.
- Encrypt or Password Protect Data – Your financial records and other data may be encrypted with security software. Information files on many types of word processing or spreadsheet software may be locked with passwords.
For further tips on how to protect your data, see Pub. 4524, Security Awareness for Taxpayers. This publication is available on www.IRS.gov.
Recover Your Records after a Disaster
The year 2018 brought hurricanes, fires, floods and other natural disasters to many American homes. Unfortunately, victims of these types of natural disasters often lose financial and tax records. They also need to substantiate their losses to claim insurance payouts or deduct casualty amounts on tax returns.
In IR-2018-18, the Service explained how to recover your records and document losses.
- Tax Records – Use the “Get Transcript” tool on www.IRS.gov, or request a transcript with your phone using the IRS2Go mobile app. If you send in IRS Form 4506, Request for Copy of Tax Return, write “California Wildfires” or another disaster title in red letters at the top of the form. The IRS will expedite your request.
- Home and Property – Take pictures of the damage to your home and property. Contact your bank or mortgage lender for copies of documents. Your property tax statement will often show the value of the home and the land. Because the land survives the natural disaster, the casualty loss will be limited to the value of your home. Contact your insurance company and obtain a copy of your policy. Most (but not all) natural disasters are covered by your homeowner’s insurance policy.
- Vehicles – Take pictures of damaged or burned vehicles and contact your insurance company. If you have a loan, contact your lender. The value of the automobile can usually be estimated using Kelley Blue Book or edmunds.com.
- Personal Property – Check your phone for pictures of rooms in your home. Your credit card or bank statements may show the purchase price of furniture and other items. Draw a basic picture for each room and label your furniture. Be sure to include your garage, closets and attic for a complete list of all damage.
- Casualty Losses – You may qualify for an itemized casualty loss deduction if you are in a federally-declared disaster zone and enter the FEMA disaster number on Form 4684. With a federally-declared disaster, you may deduct the loss this year or in the prior tax year. To deduct for the prior year, file IRS Form 1040X, Amended U.S. Individual Income Tax Return. Your casualty loss deduction is generally the decrease in fair market value of the item destroyed. If the cost basis is lower than that amount of decrease, the cost basis is your deduction amount.
Repair, cleanup and restoration amounts may also be deducted. These costs must not be excessive and should restore the property to the same condition it was in prior to the disaster.
IRS Pub. 547, Casualties, Disasters and Thefts and Pub. 584, Casualty Disaster and Theft Loss Workbook will be of great help if you are a disaster victim.
Administrator Not Liable for Decedent’s Income Tax
In United States v. Timothy O’Brien et al.; No. 8:17-cv-01007 (3 Dec 2018), a U.S. District Court for the District of Maryland held a special administrator was not liable for unpaid income taxes.
Decedent Louis C. Pate passed away on December 5, 2012. On November 7, 2013, the Orphan’s Court for Prince George’s County, Maryland, removed Willee Mae Pate Roary as personal representative and appointed Timothy P. O’Brien as special administrator.
The insolvent estate was closed on May 17, 2016 with no successor personal representative having been appointed. The IRS sought to collect $229,974 in unpaid income taxes from Special Administrator O’Brien. The income taxes were from tax years 2007 through 2009.
Maryland law permits a court appointment for a special administrator to protect the estates. The Maryland code states, “When necessary to protect property before the appointment and qualification of a personal representative or before the appointment of a successor personal representative following a vacancy in the position of personal representative, the Court shall enter an order appointing a special administrator.”
The special administrator does not have all of the powers of a personal representative. The personal representative may “prosecute, defend or submit to arbitration actions, claims, or proceedings in any appropriate jurisdiction for the protection or benefit of the estate, including the commencement of a personal action which the decedent might have commenced or prosecuted.”
While the special administrator has “all powers necessary to collect, manage and preserve property,” he has no “inherent power” to sue. Therefore, O’Brien did not have the right to pursue collection of the taxes from the estate beneficiaries. The IRS claim against Special Administrator O’Brien was dismissed.
Applicable Federal Rate of 3.6% for December — Rev. Rul. 2018-30; 2018-49 IRB 1 (16 November 2018)
The IRS has announced the Applicable Federal Rate (AFR) for December of 2018. The AFR under Section 7520 for the month of December is 3.6%. The rates for November of 3.6% or October of 3.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2018, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return.