The worst tax scams, 1099-K, when IRS contacts taxpayers, NFTS, business interest expense
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| Issue Number: 2023-05Inside This Issue
1. The Dirty Dozen: The worst of the worst tax scamsThe annual IRS Dirty Dozen tax scam campaign lists a variety of common scams that taxpayers may encounter anytime. However, many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes. To avoid falling prey, taxpayers should check the Dirty Dozen page for more scams. They include: Businesses should be wary of advertised Employee Retention Credit schemes and direct offers promising tax savings that are too good to be true. Tax professionals are reporting receiving undue pressure from clients to claim the ERC. This is a valuable credit for those who qualify, but claiming it improperly could result in taxpayers having to repay the credit along with potential penalties and interest. The IRS is stepping up enforcement action involving these pandemic-related ERC claims. Taxpayers should remember that they're always responsible for the information reported on their tax returns. Taxpayers can and should establish their own Online Account through IRS.gov. These scammers often ask for the taxpayer's personal information including address, Social Security number or Individual Taxpayer Identification number (ITIN) and photo identification. The criminal then sells this valuable information to other criminals. They can also use the sensitive information to file fraudulent tax returns, obtain loans and open credit accounts. The IRS warns about trusting tax advice on social media that can lure otherwise honest taxpayers and tax professionals into compromising tax situations. The IRS has recently seen several scams encouraging people to submit false, inaccurate forms in hopes of getting a refund. 2. Form 1099-K: Tips for taxpayers who may receive one and revised FAQsForm 1099-K, Payment Card and Third Party Network Transactions, is an IRS form used to report certain payment transactions. IRS Tax Tip 2023-37 provides taxpayers with information about what to do if they receive the form and what to do if it's incorrect. The Tax Tip advises that money received as a gift or for reimbursement doesn't require a 1099-K and provides information on how taxpayers can minimize the chance of an error when receiving those types of payments from friends or family members. The American Rescue Plan of 2021 changed the reporting threshold requirement for payment apps, also known as third-party settlement organizations. The IRS announced that the new Form 1099-K reporting threshold will start in tax year 2023. The IRS recently revised its frequently asked questions (FAQs) for Form 1099-K, Payment Card and Third Party Network Transactions. 3. Steps to prevent tax return errors and delayed refundsWith only a few days remaining before the April 18, 2023, filing deadline, the IRS reminds taxpayers how to avoid common errors on their federal tax returns and help get possible refunds sooner. The steps include:
4. Important details to understand when the IRS might contact a taxpayerThe IRS reaches out in multiple ways to educate taxpayers while ensuring it fairly enforces the nation's tax laws. There are important factors to keep in mind about when the IRS may initiate direct contact with a taxpayer. Most IRS contacts with taxpayers are through regular mail delivered by the United States Postal Service. However, there are limited circumstances when the IRS will come to a home or business as part of a collection investigation, an audit or an ongoing criminal investigation. 5. Q&As: Limitations on the deduction for business interest expenseVisit IRS.gov for updated answers to some basic questions about the limitation on the deduction for business interest expense, also known as the Section 163(j) limitation. 6. IRS seeks comments on nonfungible tokens (NFTs)The Treasury Department and the IRS announced that they're soliciting feedback for upcoming guidance regarding the tax treatment of NFTs as a collectible. Notice 2023-27 provides details about providing feedback. Generally, collectibles don't have as advantageous capital-gains tax treatment as other capital assets. 7. Guidance on the CHIPS ActThe IRS issued proposed regulations that provide guidance regarding the implementation of The Advanced Manufacturing Investment Credit, established by the Creating Helpful Incentives to Produce Semiconductors Act of 2022, commonly known as the CHIPS Act. Small businesses can learn about eligibility requirements and how to claim the credit. They can also find information about how it will encourage the manufacturing of semiconductors and semiconductor manufacturing equipment within the U.S. 8. Other tax newsThe following information may be of interest to individuals and groups in or related to small businesses: IRS addresses questions about medical expenses related to nutrition, wellness and general health
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