Washington Hotline – February 20, 2018

Tuesday February 20, 2018


Washington Hotline

Tax Filing Season Opens Door to New Scam

As the tax filing season moves into high gear, tax scammers continue to develop new strategies.

In IR-2018-27, the Service explained the latest tax scam. Because it is difficult for IRS software to discover scams using actual taxpayer data, the tax scammers have developed a new concept.

The tax scammer starts by acquiring your normal tax return information — your name, Social Security Number, typical deductions, filing status and bank account numbers. In some cases, the tax scammer steals this information by hacking into your tax preparer’s computer network.

After stealing your information, the scammer files the return and claims a large refund. That refund is sent directly to your bank account.

To have a successful scam, the thief must then implement a creative plan to persuade you to send the refund to him or her. There are two basic ways the scammer will try to convince you to send him or her your refund.

First, the scammer contacts you and claims to be an IRS representative tasked to recover erroneous refunds. He or she demands that you send the money to his or her “refund recovery” account.

A second strategy is to use an automated phone call to threaten you with immediate arrest for criminal fraud because you received an improper refund. If you call the scammer’s number, he or she directs you to deposit the improper refund amount in a “recovery” account.

The IRS has specific procedures to follow if you receive a phony refund. You can contact your bank Automated Clearing House (ACH) and have the amount returned to the IRS.

If you have an amount returned to the IRS, you should call the Service at 800-829-1040 (Individual Returns) or 800-829-4933 (Business Returns). In your call, you will need to explain why the refund amount is being returned.

Land Trust Endorses Conservation Easement Bill

On February 15, 2018, Joshua Lynsen, Media Relations Manager for the Land Trust Alliance, released an endorsement of the Charitable Conservation Easement Program Integrity Act (S. 2436). The act was introduced by Sen. Steve Daines (R-MT) and Sen. Debbie Stabenow (D-MI). It is similar to a companion bill introduced in the House by Rep. Mike Thompson (D-CA) and Rep. Mike Kelly (R-PA).

Both bills are designed to eliminate abuse of conservation easements by not allowing charitable deductions for syndicated partnerships with short holding periods.

Partnership promoters started to sponsor these conservation easement plans in 2013. The claimed value of conservation easements rose dramatically from $1.1 billion in 2013 to $3.2 billion in 2014 as the result of the syndicated conservation partnerships.

In 2016, the IRS reviewed the syndicated partnerships with large claimed valuation increases. Investors in the partnerships reported deductions equal to approximately nine times the original investments.

Sen. Daines noted, “As Montanans, we value the natural beauty of the outdoors. We must protect the integrity of conservation incentives meant to encourage public enjoyment by prohibiting scammers from taking advantage of taxpayers.”

Land Alliance President Andrew Bowman supported the bill and stated, “These bipartisan bills would prevent abuse while ensuring the vast majority of conservation easements can continue to go forward as truly charitable endeavors.”

Senate Inquiry about Nonprofit Charity Care

On February 15, 2018, Sen. Orrin Hatch (R-UT) and Sen. Chuck Grassley (R-IA) sent a letter to Acting IRS Commissioner David Kautter. The letter requests information on the level of charity care provided by nonprofit medical centers.

Hatch and Grassley noted, “Hospitals are an integral part of their communities and we commend these entities for the work they perform to ensure access to high-quality, affordable care. We also recognize that hospitals often use their resources for items not accounted for in basic financial reports, such as reinvesting in new models of care and supporting medical research. Given the importance of these institutions to their communities and the forgone federal revenue associated with their tax-exempt status, it is important that both Congress and the IRS conduct oversight to ensure their activities are in line with the benefits they enjoy under the Internal Revenue Code.”

Under provisions of the Affordable Care Act and Sec. 501(r), nonprofit hospitals must assess the healthcare needs of their community at least every three years.

Sen. Grassley has been seeking greater transparency for nonprofit medical centers. In response to his request, the American Hospital Association (AHA) released an October 2017 report that reviewed calendar year 2013.

According to the AHA report, in 2013 the nonprofit medical center tax exemption saved $6 billion in taxes. However, the nonprofit medical centers provided charity care and other community benefits with a value of $67.4 billion.

Editor’s Note: Many nonprofit medical centers provide extensive and expensive care to indigent persons. Sen. Grassley continues to seek greater transparency in order to encourage nonprofit hospitals to provide higher levels of charity care.

Applicable Federal Rate of 3.0 for March — Rev. Rul. 2018-6; 2018-12 IRB 1 (16 Feb 2018)

The IRS has announced the Applicable Federal Rate (AFR) for March of 2018. The AFR under Section 7520 for the month of March is 3.0%. The rates for February of 2.8% or January of 2.6% 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. Federal rates are available by clicking here.

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