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Amended 1040 Form

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Amended 1040 Form

Amended 1040 form Other Methods of Depreciation Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: How To Figure the DeductionBasis Useful Life Salvage Value Methods To UseStraight Line Method Declining Balance Method Income Forecast Method How To Change Methods DispositionsSale or exchange. Amended 1040 form Property not disposed of or abandoned. Amended 1040 form Special rule for normal retirements from item accounts. Amended 1040 form Abandoned property. Amended 1040 form Single item accounts. Amended 1040 form Multiple property account. Amended 1040 form Topics - This chapter discusses: How to figure the deduction Methods to use How to change methods Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records 946 How To Depreciate Property Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization Schedule C (Form 1040) Profit or Loss From Business If your property is being depreciated under ACRS, you must continue to use rules for depreciation that applied when you placed the property in service. Amended 1040 form If your property qualified for MACRS, you must depreciate it under MACRS. Amended 1040 form See Publication 946. Amended 1040 form However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. Amended 1040 form Also, you can elect to exclude certain property from being depreciated under MACRS. Amended 1040 form Property that you cannot depreciate using MACRS includes: Intangible property, Property you can elect to exclude from MACRS that you properly depreciate under a method that is not based on a term of years, Certain public utility property, Any motion picture film or video tape, Any sound recording, and Certain real and personal property placed in service before 1987. Amended 1040 form Intangible property. Amended 1040 form   You cannot depreciate intangible property under ACRS or MACRS. Amended 1040 form You depreciate intangible property using any other reasonable method, usually, the straight line method. Amended 1040 form Note. Amended 1040 form The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. Amended 1040 form For more information, see chapter 12 of Publication 535. Amended 1040 form Public utility property. Amended 1040 form   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. Amended 1040 form This type of property is subject to depreciation under a special rule. Amended 1040 form Videocassettes. Amended 1040 form   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. Amended 1040 form You can depreciate the cost less salvage value of those videocassettes that have a useful life over one year using either: The straight line method, or The income forecast method. Amended 1040 form The straight line method, salvage value, and useful life are discussed later under Methods To Use. Amended 1040 form You can deduct in the year of purchase as a business expense the cost of any cassette that has a useful life of one year or less. Amended 1040 form How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. Amended 1040 form These methods are straight line and declining balance. Amended 1040 form To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. Amended 1040 form They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. Amended 1040 form The amount of the deduction in any year also depends on which method of depreciation you choose. Amended 1040 form Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. Amended 1040 form The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. Amended 1040 form Your original basis is usually the purchase price. Amended 1040 form However, if you acquire property in some other way, such as inheriting it, getting it as a gift, or building it yourself, you have to figure your original basis in a different way. Amended 1040 form Adjusted basis. Amended 1040 form   Events will often change the basis of property. Amended 1040 form When this occurs, the changed basis is called the adjusted basis. Amended 1040 form Some events, such as improvements you make, increase basis. Amended 1040 form Events such as deducting casualty losses and depreciation decrease basis. Amended 1040 form If basis is adjusted, the depreciation deduction may also have to be changed, depending on the reason for the adjustment and the method of depreciation you are using. Amended 1040 form   Publication 551 explains how to figure basis for property acquired in different ways. Amended 1040 form It also discusses what items increase and decrease basis, how to figure adjusted basis, and how to allocate cost if you buy several pieces of property at one time. Amended 1040 form Useful Life The useful life of a piece of property is an estimate of how long you can expect to use it in your trade or business, or to produce income. Amended 1040 form It is the length of time over which you will make yearly depreciation deductions of your basis in the property. Amended 1040 form It is how long it will continue to be useful to you, not how long the property will last. Amended 1040 form Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. Amended 1040 form The useful life can also be affected by technological improvements, progress in the arts, reasonably foreseeable economic changes, shifting of business centers, prohibitory laws, and other causes. Amended 1040 form Consider all these factors before you arrive at a useful life for your property. Amended 1040 form The useful life of the same type of property varies from user to user. Amended 1040 form When you determine the useful life of your property, keep in mind your own experience with similar property. Amended 1040 form You can use the general experience of the industry you are in until you are able to determine a useful life of your property from your own experience. Amended 1040 form Change in useful life. Amended 1040 form   You base your estimate of useful life on certain facts. Amended 1040 form If these facts change significantly, you can adjust your estimate of the remaining useful life. Amended 1040 form However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. Amended 1040 form Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. Amended 1040 form You generally cannot depreciate property below a reasonable salvage value. Amended 1040 form Determining salvage value. Amended 1040 form   Salvage value is the estimated value of property at the end of its useful life. Amended 1040 form It is what you expect to get for the property if you sell it after you can no longer use it productively. Amended 1040 form You must estimate the salvage value of a piece of property when you first acquire it. Amended 1040 form   Salvage value is affected both by how you use the property and how long you use it. Amended 1040 form If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. Amended 1040 form However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. Amended 1040 form Changing salvage value. Amended 1040 form   Once you determine the salvage value for property, you should not change it merely because prices have changed. Amended 1040 form However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. Amended 1040 form When you redetermine the salvage value, take into account the facts that exist at the time. Amended 1040 form Net salvage. Amended 1040 form   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. Amended 1040 form You can choose either salvage value or net salvage when you figure depreciation. Amended 1040 form You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. Amended 1040 form However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. Amended 1040 form Your salvage value can never be less than zero. Amended 1040 form Ten percent rule. Amended 1040 form   If you acquire personal property that has a useful life of 3 years or more, you can use an amount for salvage value that is less than your actual estimate. Amended 1040 form You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. Amended 1040 form If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. Amended 1040 form Methods To Use Two methods of depreciation are the straight line and declining balance methods. Amended 1040 form If ACRS or MACRS does not apply, you can use one of these methods. Amended 1040 form The straight line and declining balance methods discussed in this section are not figured in the same way as straight line or declining balance methods under MACRS. Amended 1040 form Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. Amended 1040 form One of these methods was the straight line method. Amended 1040 form This method was also used for intangible property. Amended 1040 form It lets you deduct the same amount of depreciation each year. Amended 1040 form To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. Amended 1040 form Subtract the salvage value, if any, from the adjusted basis. Amended 1040 form The balance is the total amount of depreciation you can take over the useful life of the property. Amended 1040 form Divide the balance by the number of years remaining in the useful life. Amended 1040 form This gives you the amount of your yearly depreciation deduction. Amended 1040 form Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. Amended 1040 form If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Amended 1040 form Example. Amended 1040 form In April 1994, Frank bought a franchise for $5,600. Amended 1040 form It expires in 10 years. Amended 1040 form This property is intangible property that cannot be depreciated under MACRS. Amended 1040 form Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. Amended 1040 form He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). Amended 1040 form He must prorate the $560 for his 9 months of use in 1994. Amended 1040 form This gives him a deduction of $420 ($560 ÷ 9/12). Amended 1040 form In 1995, Frank can deduct $560 for the full year. Amended 1040 form Declining Balance Method The declining balance method allows you to recover a larger amount of the cost of the property in the early years of your use of the property. Amended 1040 form The rate cannot be more than twice the straight line rate. Amended 1040 form Rate of depreciation. Amended 1040 form   Under this method, you must determine your declining balance rate of depreciation. Amended 1040 form The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. Amended 1040 form (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. Amended 1040 form ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. Amended 1040 form Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. Amended 1040 form Depreciation deductions. Amended 1040 form   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. Amended 1040 form This gives you the amount of your deduction. Amended 1040 form For example, if your adjusted basis at the beginning of the first year is $10,000, and your declining balance rate is 20%, your depreciation deduction for the first year is $2,000 ($10,000 ÷ 20%). Amended 1040 form To figure your depreciation deduction in the second year, you must first adjust the basis for the amount of depreciation you deducted in the first year. Amended 1040 form Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). Amended 1040 form Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). Amended 1040 form Your depreciation deduction for the second year is $1,600. Amended 1040 form   As you can see from this example, your adjusted basis in the property gets smaller each year. Amended 1040 form Also, under this method, deductions are larger in the earlier years and smaller in the later years. Amended 1040 form You can make a change to the straight line method without consent. Amended 1040 form Salvage value. Amended 1040 form   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. Amended 1040 form However, you cannot depreciate the property below its reasonable salvage value. Amended 1040 form Determine salvage value using the rules discussed earlier, including the special 10% rule. Amended 1040 form Example. Amended 1040 form If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. Amended 1040 form But if your estimate of salvage value was $900, you can only deduct $100. Amended 1040 form This is because $100 is the amount that would lower your adjusted basis to equal salvage value. Amended 1040 form Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. Amended 1040 form You can group the videocassettes by title for making this projection. Amended 1040 form You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. Amended 1040 form The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. Amended 1040 form For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. Amended 1040 form How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. Amended 1040 form If you change your method of depreciation, it is generally a change in your method of accounting. Amended 1040 form You must get IRS consent before making the change. Amended 1040 form However, you do not need permission for certain changes in your method of depreciation. Amended 1040 form The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. Amended 1040 form For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. Amended 1040 form Change to the straight line method. Amended 1040 form   You can change from the declining balance method to the straight line method at any time during the useful life of your property without IRS consent. Amended 1040 form However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. Amended 1040 form When the change is made, figure depreciation based on your adjusted basis in the property at that time. Amended 1040 form Your adjusted basis takes into account all previous depreciation deductions. Amended 1040 form Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. Amended 1040 form   You can change from the declining balance method to straight line only on the original tax return for the year you first use the straight line method. Amended 1040 form You cannot make the change on an amended return filed after the due date of the original return (including extensions). Amended 1040 form   When you make the change, attach a statement to your tax return showing: When you acquired the property, Its original cost or other original basis, The total amount claimed for depreciation and other allowances since you acquired it, Its salvage value and remaining useful life, and A description of the property and its use. Amended 1040 form   After you change to straight line, you cannot change back to the declining balance method or to any other method for a period of 10 years without written permission from the IRS. Amended 1040 form Changes that require permission. Amended 1040 form   For most other changes in method of depreciation, you must get permission from the IRS. Amended 1040 form To request a change in method of depreciation, file Form 3115. Amended 1040 form File the application within the first 180 days of the tax year the change is to become effective. Amended 1040 form In most cases, there is a user fee that must accompany Form 3115. Amended 1040 form See the instructions for Form 3115 to determine if a fee is required. Amended 1040 form Changes granted automatically. Amended 1040 form   The IRS automatically approves certain changes of a method of depreciation. Amended 1040 form But, you must file Form 3115 for these automatic changes. Amended 1040 form   However, IRS can deny permission if Form 3115 is not filed on time. Amended 1040 form For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. Amended 1040 form B. Amended 1040 form 420. Amended 1040 form Changes for which approval is not automatic. Amended 1040 form   The automatic change procedures do not apply to: Property or an account where you made a change in depreciation within the last 10 tax years (unless the change was made under the Class Life System), Class Life Asset Depreciation Range System, and Public utility property. Amended 1040 form   You must request and receive permission for these changes. Amended 1040 form To make the request, file Form 3115 during the first 180 days of the tax year for which you want the change to be effective. Amended 1040 form Change from an improper method. Amended 1040 form   If the IRS disallows the method you are using, you do not need permission to change to a proper method. Amended 1040 form You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. Amended 1040 form If you file your tax return using an improper method, but later file an amended return, you can use a proper method on the amended return without getting IRS permission. Amended 1040 form However, you must file the amended return before the filing date for the next tax year. Amended 1040 form Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. Amended 1040 form You can do this by selling, exchanging, or abandoning the item of property. Amended 1040 form You can also withdraw it from use without disposing of it. Amended 1040 form For example, you could place it in a supplies or scrap account. Amended 1040 form Retirements can be either normal or abnormal depending on all facts and circumstances. Amended 1040 form The rules discussed next do not apply to MACRS and ACRS property. Amended 1040 form Normal retirement. Amended 1040 form   A normal retirement is a permanent withdrawal of depreciable property from use if the following apply: The retirement is made within the useful life you estimated originally, and The property has reached a condition at which you customarily retire or would retire similar property from use. Amended 1040 form A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property. Amended 1040 form Abnormal retirement. Amended 1040 form   A retirement can be abnormal if you withdraw the property early or under other circumstances. Amended 1040 form For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. Amended 1040 form Gain or loss on retirement. Amended 1040 form   There are special rules for figuring the gain or loss on retirement of property. Amended 1040 form The gain or loss will depend on several factors. Amended 1040 form These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. Amended 1040 form A single property account contains only one item of property. Amended 1040 form A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. Amended 1040 form Sale or exchange. Amended 1040 form   If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. Amended 1040 form See Publication 544. Amended 1040 form Property not disposed of or abandoned. Amended 1040 form   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. Amended 1040 form You are allowed a loss in such a case, but only if the retirement is: An abnormal retirement, A normal retirement from a single property account in which you determined the life of each item of property separately, or A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. Amended 1040 form However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account. Amended 1040 form   To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis. Amended 1040 form Special rule for normal retirements from item accounts. Amended 1040 form   You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if: You account for each one in a separate account, and You use the average useful life to figure depreciation. Amended 1040 form However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. Amended 1040 form   If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts. Amended 1040 form Abandoned property. Amended 1040 form   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. Amended 1040 form However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition. Amended 1040 form Basis of property retired. Amended 1040 form   The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions. Amended 1040 form Single item accounts. Amended 1040 form   If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. Amended 1040 form This is generally the cost or other basis of the item of property less depreciation. Amended 1040 form See Publication 551. Amended 1040 form Multiple property account. Amended 1040 form   For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. Amended 1040 form If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired. Amended 1040 form   You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. Amended 1040 form The method of depreciation used for the multiple property account is used. Amended 1040 form You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account. Amended 1040 form Prev  Up  Next   Home   More Online Publications
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IRS Releases the Dirty Dozen Tax Scams for 2013

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Dirty Dozen: English | Spanish | ASL

IR-2013-33, March 26, 2013

WASHINGTON — The Internal Revenue Service today issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

"This tax season, the IRS has stepped up its efforts to protect taxpayers from a wide range of schemes, including moving aggressively to combat identity theft and refund fraud," said IRS Acting Commissioner Steven T. Miller. "The Dirty Dozen list shows that scams come in many forms during filing season. Don't let a scam artist steal from you or talk you into doing something you will regret later."

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

The following are the Dirty Dozen tax scams for 2013:

Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

Combating identity theft and refund fraud is a top priority for the IRS, and we are taking special steps to assist victims. For the 2013 tax season, the IRS has put in place a number of additional steps to prevent identity theft and detect refund fraud before it occurs. We have dramatically enhanced our systems, and we are committed to continuing to improve our prevention, detection and assistance efforts.

The IRS has a comprehensive and aggressive identity theft strategy employing a three-pronged effort focusing on fraud prevention, early detection and victim assistance. We are continually reviewing our processes and policies to ensure that we are doing everything possible to minimize identity theft incidents, to help those victimized by it and to investigate those who are committing the crimes.

The IRS continues to increase its efforts against refund fraud, which includes identity theft. During 2012, the IRS prevented the issuance of $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

This January, the IRS also conducted a coordinated and highly successful identity theft enforcement sweep. The coast-to-coast effort against identity theft suspects led to 734 enforcement actions in January, including 298 indictments, informations, complaints and arrests. The effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012. The Criminal Investigation unit has devoted more than 500,000 staff-hours to fighting this issue.

We know identity theft is a frustrating and complex process for victims. The IRS has 3,000 people working on identity theft related cases — more than double the number in late 2011. And we have trained 35,000 employees who work with taxpayers to help with identity theft situations.

The IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and an assistance guide. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind 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 has information that can help you protect yourself from email scams.

Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

The IRS also has created a new web page to assist taxpayers. For tips about choosing a preparer, red flags, details on preparer qualifications and information on how and when to make a complaint, visit www.irs.gov/chooseataxpro.

Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

IRS.gov has general information on reporting tax fraud. More specifically, report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes a return address.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, 38,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS continues working on a wide range of international tax issues and follows ongoing efforts with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected $5.5 billion so far from people who participated in offshore voluntary disclosure programs since 2009.

“Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

Scammers prey on low income individuals and the elderly and members of church congregations with bogus promises of free money. They build false hopes and charge people good money for bad advice including encouraging taxpayers to make fictitious claims for refunds or rebates based on false statements of entitlement to tax credits. For example, some promoters claim they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college. Con artists also falsely claim that refunds are available even if the victim went to school decades ago. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

There are also a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Beware: Intentional mistakes of this kind can result in a $5,000 penalty.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. As in the case of a recent disaster, Hurricane Sandy, the IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

  • To help disaster victims, donate to recognized charities.
  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
  • Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits  a contribution from you. Scam artists may use this information to steal your identity and money.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

False/Inflated Income and Expenses

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit although they were not eligible. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

False Form 1099 Refund Claims

In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Falsely Claiming Zero Wages

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.
 

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Page Last Reviewed or Updated: 07-Mar-2014

The Amended 1040 Form

Amended 1040 form Index A Assistance (see Tax help) C Carryback period, When To Use an NOL Carryback, waiving, Waiving the Carryback Period Carryforward period, When To Use an NOL Carryover from 2012 to 2013 Estates and trusts, Estates and trusts. Amended 1040 form Worksheet instructions, Worksheet Instructions Claiming an NOL deduction, How To Claim an NOL Deduction D Deducting a carryback, Deducting a Carryback Deducting a carryforward, Deducting a Carryforward Domestic production activities deduction, Domestic production activities deduction (line 23). Amended 1040 form , Modified taxable income. Amended 1040 form E Eligible loss, Eligible loss. Amended 1040 form F Farming business, Farming business. Amended 1040 form Farming loss, Farming loss. Amended 1040 form Figuring an NOL Capital losses, Adjustments for capital losses (lines 19–22). Amended 1040 form Carryover, How To Figure an NOL Carryover Form 1045, Schedule A, Form 1045, Schedule A. Amended 1040 form NOL deduction, NOLs from other years (line 24). Amended 1040 form Nonbusiness deductions, Nonbusiness deductions (line 6). Amended 1040 form Nonbusiness income, Nonbusiness income (line 7). Amended 1040 form Filing status, change in, Change in Filing Status Form 1045, Schedule A, Form 1045, Schedule A. Amended 1040 form Form 1045, Schedule B, Form 1045, Schedule B. Amended 1040 form Forms and schedules Form 1040X, Form 1040X. Amended 1040 form Form 1045, Form 1045. Amended 1040 form Form 1045, Schedule A, Form 1045, Schedule A. Amended 1040 form Form 1045, Schedule B, Form 1045, Schedule B. Amended 1040 form Free tax services, Free help with your tax return. Amended 1040 form Future developments, Reminders H Help (see Tax help) How to carry an NOL back or forward, How To Carry an NOL Back or Forward How to figure an NOL, How To Figure an NOL I Illustrated forms and schedules Form 1045, Illustrated Form 1045 Form 1045, Schedule A, Illustrated Form 1045, Schedule A Form 1045, Schedule B, Form 1045, Schedule B. Amended 1040 form M Marital status, change in, Change in Marital Status Missing children, photographs of, Reminders Modified taxable income, Modified taxable income. Amended 1040 form N NOL resulting in no taxable income, NOL resulting in no taxable income. Amended 1040 form NOL year, Introduction, NOL year. Amended 1040 form P Publications (see Tax help) Q Qualified disaster loss, Qualified disaster loss. Amended 1040 form Qualified small business, Qualified small business. Amended 1040 form R Refiguring tax, Refiguring your tax. Amended 1040 form S Specified liability loss, Specified liability loss. Amended 1040 form Steps in figuring NOL, NOL Steps T Tax help, How To Get Tax Help W Waiving the 10-year carryback, Waiving the 10-year carryback. Amended 1040 form Waiving the 5-year carryback, Waiving the 5-year carryback. Amended 1040 form Waiving the carryback period, Waiving the Carryback Period When to use an NOL, When To Use an NOL Worksheet (Continued), Carryover from 2012 to 2013, Prev  Up     Home   More Online Publications