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Trusts, Estates & Business Succession Blog

This blog is published by the attorneys in Capehart Scatchard’s Wills, Trusts & Estates group. It addresses issues related to estate planning, wills, trusts, succession planning, tax and tax codes.

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Should You Obtain An IP PIN?

An IP PIN, you ask – what is it?  Well, it is an Identity Protection PIN which prevents the filing of a tax return using your Social Security Number by someone other than you. 

These PINs have been around for several years but were issued only when someone had fraudulent activity on their account or were victims of identity theft.  The IP PIN is valid for one year.

What was once available for only certain individual taxpayers is now available to all individual taxpayers through the Opt-In Program.  As long as you can verify your identity, you can protect yourself. 

Here are a few things the IRS shares that taxpayers should know about the IP PIN:

  • It’s a six-digit number known only to the taxpayer and the IRS.
  • The opt-in program is voluntary.
  • The IP PIN should be entered onto the electronic tax return when prompted by the software product or onto a paper return next to the signature line.
  • The IP PIN is valid for one calendar year; taxpayers must obtain a new IP PIN each year.
  • Only dependents who can verify their identities may obtain an IP PIN.
  • IP PIN users should never share their number with anyone but the IRS and their trusted tax preparation provider. The IRS will never call, email or text a request for the IP PIN.

Currently, taxpayers may obtain an IP PIN for 2021, which should be used when filing any federal tax returns during the year. New IP PINs will be available starting in January 2022.

To obtain an IP PIN, the best option is the Get an IP PIN, the IRS online tool. Taxpayers must validate their identities through Secure Access authentication to access the tool and their IP PIN. Taxpayers who cannot validate their identities online, or on the phone with an IRS employee, may call the IRS to make an appointment at a Taxpayer Assistance Center. They will need to bring one picture identification document and another identification document to prove their identity. Once verified, the taxpayer will receive an IP PIN via U.S. Postal Service within three weeks.

The IP PIN process for confirmed victims of identity theft remains unchanged. These victims will automatically receive an IP PIN each year.

Do what you can to protect yourself.  An ounce of prevention can be worth more than a pound of cure.

IRS Urges Caution With Email, Social Media And Phones

The Internal Revenue Service continues in its fight against cyber criminals and is constantly finding new ways that these criminals are obtaining information.  There is no limit to the means in which crimes can occur.  Whether through a telephone call, text message or email, the con artist tries to convince the recipient that they need to provide Social Security numbers, bank account or credit card information or passwords. The scam may also include sending links that once clicked on can download malicious software that collects, or “mines”, personal data.

Often, criminals pose as someone the recipient knows or frequently interacts with, whether a social or family relationship or a business contact. They gather much of this information from social media. A person’s contacts or ‘friends’ are used to bait the recipient into thinking they’re dealing with someone they know.  The IRS warns taxpayers to be alert for a continuing surge of fake emails, text messages, web sites and social media attempts to steal personal information.

Phishing scams target individuals with communications appearing to come from legitimate sources to collect victims’ personal and financial data and potentially infect their devices by convincing the target to download malicious programs. Cybercriminals usually send these phishing communications by email but may also use text messages or social media posts or messaging.

These phishing schemes can be tricky and cleverly disguised to look like they’re from the IRS or from others in the tax community. Taxpayers are reminded to continually watch out for emails and other scams posing as the IRS, like those promising a big refund, missing stimulus payment or even issuing a threat. People should not open attachments or click on links in those emails or text messages.

Individuals should be wary of unexpected phone calls asking for personal financial information. The IRS has seen an increase in voice-related phishing, or “vishing,” particularly from scams related to federal tax liens. For those receiving phone calls out of the blue, security experts recommend asking questions of the caller but not providing any personal information. If in doubt, hang up immediately.

The IRS urges taxpayers to remain vigilant and to remember the following things about the IRS:

  • The IRS generally first contacts people by mail – not by phone – about unpaid taxes.
  • The IRS may attempt to reach individuals by telephone but will not insist on payment using an iTunes card, gift card, prepaid debit card, money order or wire transfer.
  • The IRS will never request personal or financial information by e-mail, text or social media.

Recipients of these calls should hang up before giving out any information. If anyone receives an unexpected call from the IRS that they believe to be a scam, they can report it to the Treasury Inspector General for Tax Administration (TIGTA).

Social media scams have also led to tax-related identity theft. The basic element of social media scams is convincing a potential victim that he or she is dealing with a person close to them that they trust via email, text or social media messaging.

Using personal information, a scammer may email a potential victim and include a link to something of interest to the recipient, but which contains malware intended to commit more crimes. Scammers also infiltrate their victim’s emails and cell phones to go after their friends and family with fake emails that appear to be real, and text messages soliciting, for example, small donations to fake charities that are appealing to the victims.

Individuals should know that any of their information that is publicly shared on social media platforms can be collected and used against them. One way to circumvent these scams is to review privacy settings and limit data that is publicly shared.

The IRS reminds taxpayers to keep abreast of news about fraud-related behavior. Report any instances of fraud immediately.

Income Tax Extension Deadline Is Nearing. Are Your Taxes Filed?

If you didn’t file your income taxes by May 17, 2021, and requested an extension, October 15, 2021 will be here before you know it.  If you haven’t filed your 2020 taxes yet, time is running out for the filing of returns and payment of taxes owing – although getting an extension was not an extension of time for the payment of taxes.

Taxpayers who owe tax – even those who did not request an extension – and have yet to file a 2020 tax return can generally avoid additional penalties and interest by filing the return as soon as possible and paying any balance due. Even if a taxpayer can’t afford to immediately pay the taxes they owe, they should still file a tax return as soon as possible to reduce possible penalties.

Ok, let’s face it; maybe you haven’t been motivated to finalize your taxes because you know that you are going to owe taxes and don’t want to face the reality of what that amount is.  Please do yourself a favor and get those taxes done and filed.  If you can’t pay the amount of taxes you owe, the IRS does offer options for the payment. All you have to do is ask.  Payment plans are available but you MUST reach out to the IRS. 

If you are missing information needed to complete your taxes, reach out to the source of the income to obtain a duplicate tax statement.  Usually a phone call is all that is needed to have a duplicate mailed to the address of record on the account.  You may even be able to get a duplicate tax form online by accessing your account. 

Would you like to see your IRS account?  Visit irs.gov and you have many options such as viewing your balance and payment history, paying taxes, accessing your tax records and much more.  Go to the Get Transcript area on the site. 

If you are fortunate enough to be receiving a refund, file your taxes electronically using one of the free filing options available and have your refund direct deposited to your bank account.  Otherwise, you may be waiting several months to receive your refund. 

IRS Tax Return Processing Update

The IRS National Taxpayer Advocate Service recently released the mid-year report to Congress.  Here are a couple of the highlights of the report which you may find interesting:

  • During the 2021 tax filing season, the IRS processed 136 million individual income tax returns and issued 96 million refunds totaling about $270 billion. In addition to its traditional work, the IRS was directed by Congress to issue three rounds of stimulus payments and has made about 475 million payments worth $807 billion. 
  • Although most taxpayers successfully filed their returns and received their refunds, a historically high number did not. At the conclusion of the filing season, the IRS faced a backlog of over 35 million individual and business income tax returns that require manual processing.  The backlog includes about 16.8 million paper tax returns waiting to be processed; about 15.8 million returns suspended during processing that require further review; and about 2.7 million amended returns awaiting processing. The backlog resulted largely from the pandemic-related evacuation order that restricted employee access to IRS facilities.
  • Unfortunately, only approximately seven (7%) of callers to the IRS reached a telephone assistor on the accounts management lines.  On the most frequently called “1040” line – about 85 million calls, only three percent reached a telephone assistor. 

As a result of this report, the National Taxpayer Advocate has recommended proactive steps to work to improve services and communications with taxpayers, some of them being:

  • Improve online functionality for taxpayers.
  • Expanding the offering of customer callback technology to all IRS toll-free lines.
  • Addressing the limitations faced by taxpayers in e-filing of returns due to inability to submit supporting documentation, the ability to override software and expanding the types of returns which can be filed electronically.

While the National Taxpayer Advocate is required to submit an annual report, the IRS is required to respond within three-months.  All recommendations are submitted to the IRS Commission for review.  The report for 2020 contained 73 recommendations by the National Taxpayer Advocate Service of which the IRS has agreed to implement 48 or 66 percent of the recommendations. 

So, you may not have heard about the National Taxpayer Advocate Service before.  What is it?  What can it do?  How can it help?  The IRS provided the following explanation: 

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Your local taxpayer advocate’s number is in your local directory and at https://www.taxpayeradvocate.irs.gov/contact. You can also call TAS toll-free at 877-777-4778.  TAS can help if you need assistance in resolving an IRS problem, if your problem is causing financial difficulty, or if you believe an IRS system or procedure isn’t working as it should. Our service is free. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to https://www.taxpayeradvocate.irs.gov/.

Estimated Income Tax Payments

When you file your individual income tax return, do you usually owe taxes?  If you do, then this is an indication that you are either not having the proper withholdings from your paycheck OR if you do not receive a W-2 for income, then you should be making estimated payments.

What is the consequence if you are owing more than $1,000 in taxes when filing your return?  How does penalties and interest of an additional 50 percent of taxes sound to your budget? Penalties and interest could each amount to 25 percent of the tax owed – think about it – that could equal an additional 50 percent of taxes.

How is that possible?  Up to 25 percent for each of the failures to make estimated payments and for interest on the underpayment of taxes…  And, no one wants to see that.  So, what should you do, especially since an estimated tax payment will soon be due? 

If you are uncertain about making estimated payments, visit irs.gov and search for Form 1040-ES, Estimated Tax for Individuals.  There is a worksheet for you to plug in numbers and perform a calculation to see if you are on track for your payments.  Or, if you have wages and taxes that are being withheld, speak to your payroll department about having additional taxes withheld from your paycheck. 

There are several options available for making estimated payments.  You can have the payments paid directly from a bank account, you can pay by credit or debit card, you can use the Electronic Federal Tax Payment System, and last but not least, you can mail a check or money order to the IRS.  (If mailing the payments, I recommend that you send them via certified mail so you have a receipt for when you actually mailed the same.)

Don’t pay more in taxes than you need to, but do meet your obligations.  Remember, estimated tax payments are due April 15, June 15, September 15 and January 15.  DON’T BE LATE.

Good Information That Bears Repeating

We seem to be inundated with information to the extent that we can be overwhelmed.  What should we pay attention to? What isn’t relevant to our situation? Is the information being provided valid and authentic?  So, what should we do? 

First of all, be cautious on the source of the information.  Is it from a trusted source?  In our world today, identity theft is on the rise and many people may not have even realized their identity has been compromised until after damage has occurred.  Cybercrimes are happening all of the time.  So, what can we do to protect ourselves?  It doesn’t require a technology expert – just common sense and diligence. 

Don’t open suspicious emails.  If they are from an unknown sender, they could be damaging. 

Only provide sensitive information on secure websites.  Remember that many public web connections are not secure and expose any user to potential hacking. 

All of your hardware should be protected by firewalls and anti-virus protectors. 

Use unique passwords that are strong and unique.  And, don’t use the same password for all websites or use obvious passwords like “password”, your name, etc.  Secure passwords are usually at least 8 characters long, are a combination of letters and numbers, have upper and lower case letters and may contain a symbol. 

You can get an Identity Protection PIN from the IRS which is a six-digit code that is used when filing your federal tax returns if you suspect your identity has been compromised.

Don’t carry your Social Security card or notes with your SSN on your person.  Also, do you really need to carry every credit card you have with you?  If you have store cards, many stores will allow you to charge to your account with identification, in which case, you don’t need to carry your card.

If you have workers in your home, make certain that your confidential information is concealed and not left in the open.  If there are individuals on an extended basis, it may be pertinent to lock up sensitive information. 

These precautions are not difficult nor require much effort.  Be diligent, cautious and alert.  Protect yourself.  Don’t allow yourself to become a victim.

Love Notes from the IRS

This year, tax season was extended to May 17, 2021; an extra month to file those Forms 1040 or to request an extension to file.  You may have timely filed the Form 1040 or Form 4868 for an extension, but you receive a notice from the IRS about your return not being filed timely or that your extension request cannot be granted because it was not timely filed.  Or, perhaps you received a notice that you owe penalties for late filing and/or payment.

You know you filed on time, so what do you do? 

First of all, DO NOT ignore the notice you receive.  You should promptly respond to each and every notice, even if you feel you have received the same in error.  In the notices, there is an address for you to respond to via mail and usually a phone number to call regarding the notice.  Those are your two options.  However, I warn you, if you call the IRS, be prepared to either wait on hold for a while or get an announcement that their call volume is great and to call back later.

My suggestion is to communicate via written means.  This gives you a paper trail.  How should you proceed?  Well, hopefully you have some confirmation of the filing of your return, either through software you used to prepare the return acknowledging the filing and acceptance of the return, or if you filed on paper, you mailed the return via Certified Mail.  The green and white certified mail receipt is your proof of filing.  Further, if it was mailed by certified mail, you are able to go onto the USPS website and track your mailing.  You will be able to get verification that the packet was received by the USPS and the delivery information.  This is the only way to verify the mailing of a return.  If you use a commercial courier service, the IRS does not necessarily recognize their tracking as proof of filing.

OK, so what should you send in response to the notice?  Include a complete copy of the notice with a letter explaining how you filed your return and include any confirmation of filing documentation – certified mailing slip or printout from your software.  If you owed taxes and paid via check or credit card well before the due date, provide proof of payment which will show that your taxes were timely paid. 

Hopefully, you have this documentation to prove that you were not delinquent and the IRS erred in sending the notice.  Yes, it is frustrating, but there is no other way.  You can keep on top of your account with the IRS by going to their website and getting a transcript of your account at www.irs.gov/individual/get-transcript.  (If your taxes were prepared by a paid preparer, they are not able to get the transcript information for you.  However, if they filed your return electronically, they can provide you with the electronic filing information.) 

Don’t feel bad if you don’t get such a love note from the IRS – remember, no news is good news!!!!

Paying the Right Amount of Taxes

Take a look at your paystub and you realize the amount of taxes that are being withheld from your pay.  It can be disheartening, but that is the way we pay our taxes if we are employed.  If you don’t get a paycheck with withholdings, then you may be required to make estimated payments throughout the year.  Why can’t we hold on to our money until the payment is due?

Well, in the US, our income taxes are basically on a pay-as-you-go method.  We are expected to pay as we receive the income.

But, what happens when there are not enough taxes paid on your account throughout the year?  Well, you could be subject to penalties and/or interest for failure to pay or underpayment.  Paying even more is harder yet. 

So, what can you do to ensure that enough taxes are being paid to avoid any interest and/or penalties?

First of all, if you are a W-2 employee, make certain that your employer is withholding sufficient taxes.  If you want to do an analysis, go to IRS.gov and access the Tax Withholding Estimator.  With the entry of certain information, you can be provided with guidance on the amount of taxes that you should be having withheld.  Your employer’s payroll individual can also further assist you.

If you are not a W-2 employee, then you are most likely (or should be) making estimated payments to cover your tax liability.  If you underpay or fail to pay, you can be subject to penalties and/or interest as well.  The amount to be paid is usually based on your prior year’s tax liability.

While we all like to receive a refund, your refund is non-interest bearing.  Careful consideration should be given to having the proper amount of taxes withheld so that you are not having excess withholdings or if you are making the appropriate estimated payments.  On the flip side, you want to make certain that you are having sufficient withholdings or making sufficient estimated payments so that you avoid penalties and/or interest for underpayment.  Why pay additional amounts in the way of interest or penalties that you otherwise wouldn’t have to pay?

Keep in mind that if you have life-changing events – birth of a child, adoption, marriage, death of a spouse or dependent child – you may require a re-evaluation of your withholdings long before you realize the impact when filing your income tax returns in the first quarter of the year.

Safe Deposit Boxes

Do you have a safe deposit box?  If so, do you know what is in it?  Do you need it? 

In my years of estate administrations, I have seen safe deposit boxes containing very valuable items such as jewelry, coins, silver and cash all the way to empty utility envelopes and the “stuffers” that we used to get every month. 

Thoughts on safe deposit boxes have changed over the years by both the people who rent boxes as well as the financial institutions. 

So, what should you keep in a safe deposit box?  Here are some things to consider:

  • First and foremost, you should only keep items in a safe deposit box that cannot be or would be difficult to replace. For instance, fine jewelry that is not worn very often, collector items and documents that, without an original, would present problems. 
  • Cash held in a safe deposit box does nothing for you except enable you to retrieve cash without any tracing.  However, even with low interest rates, wouldn’t it be better if your cash was in an account that earned at least a little interest?
  • Some of the best items to be protected in a safe deposit box would be birth, death, adoption, military, marriage, divorce, citizenship records; legal documents that are not filed with a county or state office that would be difficult to recreate (deeds and mortgages for real estate are filed with the local counties and once filed, the original is not as important as copies are available from the county); and motor vehicle titles (however, if you lose one, it can be replaced with some patience and persistence). 
  • Sentimental family mementoes may be irreplaceable and you may wish to preserve them in a safe deposit box. 
  • If you are storing valuable items in a safe deposit box, do you have them insured?  The banking institution does not insure them and it is your responsibility to have them insured against theft or casualty loss.

Things that should NOT be kept in a safe deposit box include:

  • Cash
  • Letter of last instruction, living will/health care directive, power of attorney.  If these items are needed, they are not easily accessible if held in a safe deposit box due to the open hours of the financial institution.
  • There is much support and opposition as to whether a Last Will and Testament should be kept in a safe deposit box.  It has been long standing that in the event of a death, the next of kin should be able to access the decedent’s safe deposit box with a death certificate and identification so that a Will, cemetery deed and life insurance policy could be retrieved.  However, some financial institutions now require a court order in order to access a safe deposit box before the appointment of an estate representative.
  • With the need to provide more forms of identification, a passport kept in a safe deposit box may not be as accessible as desired. 

So, what should you do?  First of all, evaluate your situation.  Do you have a spouse?  Do you live alone?  Where is the best location for you to protect your “valuables or important items”?  With regard to estate planning documents – wills, powers of attorney, living wills – some attorneys will offer the added service of keeping the originals.  Many law offices utilize digital memorialization of their estate planning documents and could issue a certified copy of the same if needed.  Where is your safe deposit box located?  Would a fireproof safe/box be sufficient? 

Whatever you decide is the best option for you, make certain that a trusted person is aware of the location of your important documents if access to them is needed. 

Saying “I DO”

You or someone you know is planning or has taken the step to say “I DO”.  Marriage changes many things and taxes is one of them. Newlyweds should know how tying the knot can affect their tax situation.  And the effect happens long before you file your first “Married, filing jointly” income tax return.  Here are some things to remember:

  • If you are changing your name upon marriage, notify the Social Security Administration as soon after the wedding as possible.  You want to make certain that their records have been updated before you file your return and expect to receive a refund.  If not, your refund could be delayed.  To update information, taxpayers should file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.

  • If you will be changing your address, you should notify the IRS by filing Form 8822 – Change of Address and by filing a change of address form with the US Postal Service.

  • You may need to consider your withholdings from your wages.  It is necessary that you give your employer a new Form W-4 within 10 days of your marriage (this is something that could be done in advance and you request your employer to hold implementation of the updated information until after your wedding).  Failure to do so could result in improper withholdings, which is better to address sooner rather than possibly learning of an added tax liability when you file your first joint income tax return.  The Tax Withholding Estimator on IRS.gov provides helpful information in this regard. 

  • Even though married filing jointly is usually more beneficial, the option of married filing separately is an option.  If filing separately, there are certain consistencies between the returns that must be made, such as both spouses must either file using the standard deduction or using itemized deductions.  Each spouse cannot make their own selection. 

  • Even if you marry on New Year’s Eve, you are considered to have been married for the entire year. 

  • Being newly married may subject you to scams, so be cautious.  Remember that the IRS will send a notice via USPS and won’t call you or email you.  (All the more reason to file that Form 8822.)

Best wishes for many years of wedded bliss. 

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