Watch out for tax scams
As tax season approaches, be on the alert for tax fraud. Every year, the IRS publishes its list of "Dirty Dozen" tax scams. Here are two of the most common:
Identity theft. An identity thief uses your identity to file an illegal tax return and claim a refund. To avoid this scam, file your return as early as possible. If you receive any suspicious tax-related notices or any of your personal information is lost or stolen, contact the IRS right away to secure your tax account.
Telephone scams. A caller pretending to be with the IRS claims you owe money and threatens you with loss of your driver’s license or even arrest if you don’t pay. Remember, the IRS always initiates contact by mail, not by phone, so if a claimed tax liability is news to you, it’s probably not legitimate. If you’re uncertain whether you owe taxes, call the IRS at 800-829-1040. And if you’re certain that you don’t, call the Treasury Inspector General for Tax Administration at 800-366-4484 to report the incident.
Have you researched the research credit?
Claiming traditional research credits requires a company to compile and analyze years of historical data, a process that can be time-consuming and expensive. The alternative simplified credit (ASC) is easier to calculate and document, but until recently, it could only be claimed on a timely filed, original tax return (including extensions).
In June 2014, the IRS issued new regulations that allow companies, with certain exceptions, to claim research credits for open tax years using the ASC method on an amended return. If you missed the opportunity to claim the ASC in prior years, consult with your tax advisor to see if you’re eligible.
Mandatory accrual accounting for personal service firms?
Under current law, personal service businesses — such as law, accounting, architecture, engineering and consulting firms — are allowed to use the cash method of accounting for tax purposes, regardless of size (unless they have inventory). But this may change if certain lawmakers have their way. Two bills pending in Congress would require these companies to use the accrual method if their annual gross receipts exceed $10 million (using a three-year average gross receipts test).
If this proposal becomes law, many personal service firms will find themselves with accelerated tax liabilities for work-in-process and receivables that haven’t yet been billed or collected. Firms should have a plan for financing these liabilities in the event they’re required to switch from the cash method to the accrual method.
If you have any questions regarding this article, please contact Friedman LLP at firstname.lastname@example.org or 877-538-1670.