The partners and professionals at Hamilton Tharp, LLP would like to remind our clients to watch for IRS notices and letters. With IRS scams and identity theft on the rise, stopping identity theft and refund fraud is a top priority for the Internal Revenue Service. The IRS has many new safeguards in place to help fight against stolen identity refund fraud. These safeguards are designed to better authenticate the taxpayer’s identity and the validity of the tax return at the time of filing. If the IRS received your federal income tax return, but needs more information to verify your identity and process your tax return, they will send you Letter 4883C. There are many reasons why a return may appear to be suspicious to IRS systems, and the agency takes this precautionary step to help protect you.

If you received Letter 4883C, it is not fraud. It is a legitimate request, from the IRS, asking you to verify your identity. The letter will contain instructions to call the toll-free IRS Identity Verification telephone number at 800-830-5084. Before you call, gather the following items:

• Letter 4883C,
• Last year’s tax return,
• Your current tax return,
• Supporting documents, such as Forms W-2 or 1099.

If you are unable to verify your identity with the customer service representative, you may be asked to visit an IRS Taxpayer Assistance Center in person. To find a Taxpayer Assistance Center closest to you, visit https://apps.irs.gov/app/officeLocator/index.jsp and enter your zip code into the office locator. Taxpayer Assistance Centers are closed on federal holidays. You will be asked to provide photo identification and a taxpayer identification number such as your social security number. You may also be asked to provide a copy of the tax return in question.

Remember, the IRS will never

• Call to demand immediate payment, nor will we call about taxes owed without first having mailed you a bill.
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• Require you to use a specific payment method for your taxes, such as a prepaid debit card.
• Ask for credit or debit card numbers over the phone.
• Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
• 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.
• Report suspicious online or emailed phishing scams to: phishing@irs.gov. For phishing scams by phone, fax or mail, call 1-800-366-4484.
• Report IRS impersonation scams to the Treasury Inspector General for Tax Administration’s IRS Impersonation Scams Reporting.

We also remind our clients, this is the time of year they may see scam emails from their tax software provider or others asking them to update online accounts. Taxpayers should learn to recognize phishing emails, calls or texts that pose as familiar organizations such as banks, credit card companies, tax software providers or even the IRS. These ruses generally urge taxpayers to give up sensitive data such as passwords, Social Security numbers and bank account or credit card numbers.

If you receive a suspicious email, check with us first. Never open an attachment or link from an unknown or suspicious source. It may infect your computer with malware or steal information. Remember, the IRS does not send unsolicited emails or request sensitive data via email.

The tax reform legislation that Congress signed into law on December 22, 2017, was the largest change to the tax system in over 3 decades. The new tax code contains many provisions that will affect individual, estate, and corporate taxpayers. One of those changes, the elimination of a business-related deduction used for entertainment, amusement or recreation expenses, will make it costlier for business owners to entertain clients.

Previously, if an entertainment or meal expense was related to or associated with the active conduct of a trade or business, it was deductible up to 50 percent. Under the new tax code, these expenses are now considered the cost of doing business. In the chart below, we have highlighted the major changes.

 

Activity	2017 Old Rules	2018 New Rules
Qualified client meal expenses	50% deductible	50% deductible
Qualified employee meal expenses	50% deductible	50% deductible
Meals provided for employer convenience	100% deductible	50% deductible
Client entertainment expenses Event tickets Qualified charitable events	50% deductible 50% deductible at face value 100% deductible	No deduction for entertainment expenses
Office holiday parties	100% deductible	100% deductible

 

The elimination of this deduction will impact business owners who are accustomed to treating clients to golf outings or providing clients with tickets to sporting events or concerts. Businesses will have to re-evaluate their entertainment expenses related to their trade or business, as these items are no longer 50 percent deductible.

In consideration of the elimination of this deduction, we recommend creating separate accounts for meals and entertainment expenses. Educating employees to separate their expenses will be vital as business meals will remain 50 percent deductible until 2025.

Entertainment expenses are notoriously targeted by auditors. Considering the law change, we anticipate these expenses to be a heightened area of concern during an audit. The professionals in our office can help ensure you are in compliance, call us today.