Washington News

On June 12, 2024, the Internal Revenue Service (IRS) announced that it is joining together with other governmental agencies to address the "rising threat of impersonation scams."

These scams have fraudsters frequently pretend to be representing a government agency and specifically target senior adults. They use carefully crafted strategies that are based on fear and deceit to exploit senior victims.

IRS Commissioner Danny Werfel stated, "Scammers often target seniors, attempting to steal personal information through phone calls, emails or text messages by pretending to be from the IRS or other agencies or businesses. Preventing these types of scams requires assistance from many different places. By partnering with other federal agencies and others in the tax community, we can reach more seniors and other taxpayers to help protect them against these terrible scams."

World Elder Abuse Awareness Day is Saturday, June 15, 2024. This day has been observed for nearly two decades and focuses on programs to reduce neglect and abuse of seniors. It attempts to recognize the cultural, social, economic and demographic factors that are used by fraudsters.

The IRS offers specific cautions that enable seniors to understand the threats. The fraudsters continue to become more sophisticated and use "spoofed" caller IDs to appear legitimate.

1. Impersonation of Government Agents — Fraudsters often claim to represent the IRS, Social Security Administration, Medicare and other public agencies. They frequently spoof the caller ID, and the victim believes that it is a legitimate call from a government agency.
2. Claim of Prizes or Problems — Scammers may promise large prize winnings or claim you owe a significant debt. You might be promised a substantial tax refund or told that you owe a large amount to the IRS. The scammer’s goal is to convince you that you are receiving a large positive benefit or facing serious trouble. In either case, the scammer will attempt to persuade you to disclose financial information.
3. Pressure for Prompt Action — Fraudsters are skilled at creating a sense of urgency. They craft dramatic stories that persuade you to take immediate action. The stories could threaten a senior with arrest, deportation or loss of a driver's license. The urgency of the fraudster’s threat is a major red flag.
4. Unusual Payments — A fraudster knows he or she must remain anonymous. The scammer will use unusual payment methods that can make it difficult to track the money. These payments might include cryptocurrency, wire transfers or gift cards. The fraudster will explain why the senior must respond immediately. Under pressure and because of the urgency of the demand, many seniors have shared the financial information on a gift card and then had their funds disappear.

The IRS offers several protections for seniors. If you receive an unexpected call because you have not previously been notified by mail from the IRS regarding any issues with your taxes, you should hang up. You can contact the IRS at 800-829-1040 to verify the name and IRS department of the caller. You also can set up an online account on IRS.gov to review your tax information and status.

If you think you have been scammed, you can report it on the IRS Impersonation Scam Reporting form or call 800-366-4484.

Always keep in mind that there are four "never” rules that are followed by IRS staff.

1. Never Demand — The IRS emphasizes it will not demand immediate payment with a debit card, gift card or wire transfer.
2. Never Threaten Arrest — The IRS will not threaten you with arrest by police or a local law enforcement agency.
3. Never Skip Appeal — The IRS will never demand payment without giving you an opportunity to dispute the tax amount or proceed through an appeal process.
4. Never Demand Numbers — The IRS will never demand information from your credit, debit or gift card.

Finally, the U.S. Department of Justice has a National Elder Fraud Hotline. If you are a victim of elder fraud, you may call 833-372-8311. There are operators available who speak English, Spanish and other languages.

Solutions For Tax Non-Filers

In IR-2024-162, the Internal Revenue Service (IRS) provided multiple options for taxpayers who failed to file their tax return by the April 15 deadline. The IRS emphasizes there are various payment programs that can assist individuals who are struggling to pay taxes.

If you have not filed, it is important to file as soon as possible to reduce your penalty and interest charges. Interest on unpaid taxes is currently 8% with daily compounding. If you are a late-filer, there is a penalty of 5% per month for filing and a late-payment penalty of 0.5% per month, with a maximum penalty of 25%.

Filers who are more than 60 days late will incur a minimum penalty of $485 or 100% of the unpaid tax, whichever amount is lower. For more information go to IRS.gov and view the Penalties webpage. You may be able to reduce your interest and late-payment penalties with IRS Direct Pay. This is an electronic method for making payments that will minimize your costs.

Some taxpayers qualify for various types of penalty relief. If you have filed and paid on time for three years, the IRS may abate your penalties. Review the First-Time Penalty Abatement webpage on IRS.gov for additional details. You may also qualify for penalty relief if you can show that failure to pay was due to reasonable cause and not willful neglect. Reasonable cause will require some specific health, employment or other problem that made it difficult or impossible for you to have filed your tax return and made the payment on time.

There are two principal payment plan options on IRS.gov. If you have a balance of less than $100,000 in tax, penalties and interest, you can qualify for a payment plan up to 180 days. The other option is a long-term payment plan. If you owe less than $50,000 in combined tax, penalties and interest, you can make monthly payments for up to 72 months. This monthly payment may be set up with automatic bank debits. Automatic debits are required if your balance is between $25,000 and $50,000.

There are a limited number of taxpayers who received extra time to file and pay the tax. If you are in a federally declared disaster area, the IRS may grant additional time to file and pay your taxes. U.S. citizens and resident aliens who live and work outside the U.S. or Puerto Rico have a delayed filing date until June 17, 2024, but must pay interest on taxes due. In general, members of the military who are in combat zones may file and pay taxes 180 days after they return from the area of conflict.

IRS Generative AI Enables New Audits

The IRS has explained its efforts to incorporate artificial intelligence (AI) in tax enforcement and compliance efforts. Mabeline Baldwin is the Transformation Lead for the IRS Transformation and Strategy Office. At a Washington webinar on June 5 she commented, "No matter how many employees we hire, we onboard, and the current employees we have, we will always do examination, but we cannot audit our way into compliance. We have to do a mixture of things."

Ms. Baldwin explained that the IRS is currently using AI and advanced analytics to audit complex partnerships. It has opened examinations on 76 of the largest American partnerships and is conducting 60 audits on large corporations with assets over $24 billion.

Ronald Hodge is Assistant Deputy Commissioner in the IRS Large Business and International Division. He notes that the IRS efforts in AI include large language models. Hodge stated, "What we have seen is products, the internet included — applications, databases — taking more and more advantage of integrating artificial intelligence in these particular platforms. We see an opportunity for us to take advantage of that and provide an efficiency game to our revenue agents as they conduct…tax and legal research."

One main focus of the IRS is using existing AI tools for tax and legal research. There is an unanswered question as to whether the IRS tax and legal research use of large language models might violate Section 6103 which bars the IRS from releasing confidential tax return information.

Hodge indicated the IRS has protections and significant data on tax and legal research. It is aware of the privacy concerns but will also be expanding the use of AI in research. Other areas for expanded use of AI tools are taxpayer services, customer service and compliance.

The IRS is also exploring developing its own architecture with generative AI. The IRS Office of Research, Applied Analytics and Statistics is planning to build an internal AI operations platform. The department stated it desires "a cost-effective solution that supports multiple data science projects on a unified, collaborative and governed AI project environment that can scale within an on-premises, air-gapped environment."

Editor’s Note: With the requirement to protect taxpayer security, the IRS is likely to develop an internal AI system. This would allow the benefits of a large language model, while protecting the use of taxpayer information. Since nearly all large technology and public businesses are now developing AI applications, it is logical that the IRS would build its own generative AI system. With the massive data of the IRS, an AI system will enhance its ability to conduct audits of sophisticated partnerships and public corporations.

Applicable Federal Rate of 5.6% for June: Rev. Rul. 2024-12; 2024-25 IRB 1 (15 May 2024)

The IRS has announced the Applicable Federal Rate (AFR) for June of 2024. The AFR under Sec. 7520 for the month of June is 5.6%. The rates for May of 5.4% or April of 5.2% 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 2024, pooled income funds in existence less than three tax years must use a 3.8% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”