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Sunday February 1, 2015

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IRS Tips to Avoid Identity Theft

As the tax-filing season opens, the IRS has offered eight “tax tips” for your protection.

1. Social Security Number – Do not carry your Social Security card or other identification items that contain a Social Security number in a wallet or purse. If you have an Individual Taxpayer Identity Number (ITIN), you should also protect it.

2. Protect SSN – Do not give out your Social Security number to stores or businesses unless there is a specific need.

3. Financial Information – Attempt to protect your financial information and do not give out your banking information to anyone without a specific reason or requirement.

4. Credit Report – You should check your credit report each year with one of the major agencies.

5. SSN Earnings Statement – Each year you should receive a report of your earnings from the Social Security Administration. Check that report for accuracy.

6. Personal Information – In your home or apartment, keep your sensitive personal information in a safe or locked cabinet.

7. Personal Computers – Everyone should use a virus-checking software program. You should update your operating system with security patches (some software companies automatically do that). It is also helpful to change the passwords periodically that are used for your banking or financial accounts.

8. Phone Solicitors – Do not give out your Social Security number, personal information or financial information over the phone.

There are several warning signs of a potential problem. If you are notified that more than one tax return was filed with your name, an identity thief might have been successful in an early filing. If you receive a request for tax due or a refund in a year where you were not required to file, that indicates someone else has filed using your name. Finally, if someone files and claims a large income and substantial tax refund, you may suffer a loss of your state or federal benefits.

There are several actions that you should take if you suspect you are a victim of identity theft.

1. Local Police – File a report with your local police department.

2. Federal Trade Commission – The FTC has an identity theft hotline at 877-438-4338.

3. Credit Bureau – You can request a “fraud alert” note on your record from Equifax (800-525-6285), Experian (888-397-3742) or TransUnion (800-680-7289).

4. Accounts – After notifying the bank or other financial institution, close any account that has been fraudulently accessed.

The IRS recommends that you file Form 14039, Identity Theft Affidavit. Even if you are subject to identity theft, there still is the obligation to file and pay your taxes. Many victims of identity theft choose to file a paper tax return for that year.

There also is a special identity theft protection unit within the IRS. The phone number is 800-908-4490.

Permanent IRA Rollover Bill


On January 27, House Majority Leader Kevin McCarthy (R-CA) published the February schedule for House Republicans. This schedule provides a tentative outline of the anticipated bills and other actions during the month of February.

For the week of February 10-13, McCarthy indicates that he hopes to move forward with a bill making permanent several tax extender provisions. These will include the IRA charitable rollover, gifts of food inventory and conservation easement deductions.

McCarthy stated, “We will consider language to update and make permanent provisions of the tax code related to charitable giving. This includes provisions related to tax-free distributions from IRAs for charitable purposes, encouraging donation of real property for conservation, and enhanced deductions for contributions of food inventory. We will also make permanent the increased expensing benefits for small businesses (Section 179).”

McCarthy indicated that House Ways and Means Chairman Paul Ryan (R-WI) and the full committee will have opportunity to markup the bill prior to a vote. It is quite possible that a bill could proceed through markup and to a vote on the House floor by the end of February.

Senate Finance Committee Chair Orrin Hatch (R-UT) approved the plan. Hatch commented, “It is going to take a little while to get tax reform. You can’t play around with those [tax extenders].”

Editor’s Note: In the December lame-duck session, the House and Senate had tentatively agreed on a bill to make permanent 10 of the extenders. That bill included the three charitable provisions above. Even though the permanent extenders bill had House and Senate bipartisan support, it did not pass due to White House opposition. When the permanent tax extenders bill is marked up in the House Ways and Means Committee, it will be important to determine whether or not it includes just the business and charitable provisions, or the full 10 permanent provisions from the December compromise. If it includes all of the provisions, it is much more likely to receive Democratic support in the House and Senate. The level of bipartisan support will be very important in order to persuade the White House to accept the bill.

Sen. Hatch Advocates Corporate Tax Reform


On January 27, Senate Finance Committee Chairman Orrin Hatch (R-UT) suggested that he will start with business tax reform, rather than pursuing a combination of personal and business tax reform. This decision reflected the White House preference for tax reform only on business provisions.

Speaking at a Brookings Institute Conference on Corporate Inversions, Hatch indicated that he hoped to move forward with business tax reform. He stated, “Put simply, we need to make America a better place to do business and put our job creators on equal footing with their foreign competitors. To do that, we need to lower corporate tax rates and transition toward a territorial tax system.”

While there is some bipartisan support for a territorial system, there still are a number of Democratic Senators that are in opposition. Hatch therefore continued, “Once we have agreement on the overall idea of a territorial system, we can talk about other ideas that will further prevent erosion of our tax base. But, in all discussions, we must – and I can’t stress this enough – we must always be looking at our international taxation system with an eye toward improving our competitiveness.”

Chairman Hatch and Ranking Member Ron Wyden (D-OR) jointly announced a number of working groups to develop language for a corporate tax reform bill. Wyden and the Senate Finance Committee Democrats released a letter to Hatch. The letter noted, “These seven core principles highlight beliefs that must contribute to any consensus tax reform product in order to grow the economy and support the middle class. As we move forward in pursuit of comprehensive tax reform, it is critical that we establish clear goals, outline transparent principles, create a process framework and come to the table willing to find common ground.”

Editor’s Note: Tax reform is easy in principle and very difficult when writing specific provisions. This week the White House had initially suggested eliminating tax-free distributions for college tuition from Sec. 529 plans. Following a firestorm of criticism, the White House withdrew that proposal. This is one small example of the challenge of making significant changes that inevitably require taking some benefits from someone. However, both Hatch and Wyden have a solid working relationship. The Senate has a history of bipartisan cooperation on taxes. Finally, House and Senate Republicans may be willing to complete corporate tax reform without changing personal tax provisions. The widely-publicized corporate inversions continue to motivate both parties to try to reduce the highest corporate tax rate in the first world. While tax reform is always difficult, it is possible that the components for a successful bill may be coming together.

Applicable Federal Rate of 2.0% for February -- Rev. Rul. 2015-3: 2015-5 IRB 1 (23 Jan 2015)


The IRS has announced the Applicable Federal Rate (AFR) for February of 2015. The AFR under Section 7520 for the month of February will be 2.0%. The rates for January of 2.2% or December of 2.0% 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 2015, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published January 30, 2015

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