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Volume 4, Issue 2, February 2006

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"Watch Out for the Tax Season Scams" – 2006 Version

Tax scams emerge every tax season, with each year bringing either a new scam or a novel twist on an old one. This year is no exception, and Kemper CPA Group LLP wants to ensure that you are aware of some of the tax scams that are surfacing this year. Courtesy of the IRS ‘Dirty Dozen’ tax scams listing, here are a few of the newer ones on the list:

IRS “Officials” sending ‘phishing’ emails – this scam involves identity thieves claiming to be IRS officials. The thieves are trying to trick you into divulging personal information such as bank account or social security numbers via ‘phishing’ emails. They even have an official-looking email address: tax-refunds@irs.gov. The IRS never uses email to obtain information from taxpayers – therefore, you should not respond to any such email messages. You may also call the IRS at 1-800-829-1040 if you wish to confirm the authenticity of any communication claiming to come from the IRS.

Misuse of Trusts – the use of trusts has recently come under scrutiny by the IRS, which, at present, is actively investigating 200 trust promoters. Be aware that transferring your assets into a trust does not always eliminate or reduce tax liability. If you are thinking about a trust, contact the professionals at Kemper CPA Group LLP, who can discuss the tax implications of trusts and help you choose the right option for your situation.

‘Zero Wage’ Return – This is a new form of an old scam, in which a taxpayer includes with their return either a substitute W-2 form, or a “corrected” 1099 Form that shows zero, (or little), wages or other income. The taxpayer may also include a statement indicating he or she is rebutting information submitted to the IRS by the organization providing the original W-2.

Click here to review the complete list of the IRS’ “Dirty Dozen” tax scams. If you have any questions or concerns about your tax return, contact the friendly professionals at  your local Kemper CPA Group LLP office.

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The Domestic Production Activities Deduction

The domestic production activities deduction, which was created by the American Jobs Creation Act of 2004, provides a tax benefit for certain domestic production activities, including manufacturing tangible personal property, computer software, sound recordings, and some films and the construction and substantial renovation of real property including infrastructure. The deduction provides a tax savings against income attributable to domestic production activities, and is available to corporations, individuals, and pass-thru entities (S Corporations, partnerships, estates, and trusts).

For 2005 and 2006, the deduction is equal to 3% of the lesser of qualified production activities income or taxable income for the taxable year. The deduction allowed for a taxable year is limited to 50% of the W-2 wages paid by the taxpayer during the calendar year that ends in the taxable year.

For 2007 through 2009, the percentage increases to 6%; for 2010 and after, the percentage increases to 9%.

In order for gross receipts to be considered in calculating qualified production activities income, the gross receipts must be the result of a production activity – the lease, rental, sale, license, exchange or other disposition of the property – occurring in whole or in significant part in the United States. Additional rules govern the production of some films, computer software, sound recordings, utilities, and food and beverages.

Taxpayers who are experiencing either a current-year loss on domestic production activities or an overall operations loss will not be able to take the deduction.

Taxpayers are required to determine the portion of gross receipts that are domestic production gross receipts and the portion that are not domestic production gross receipts and must use a reasonable allocation method to make this determination. If you would like more information on the domestic production activities deduction or need assistance calculating the domestic production activities deduction, contact the tax professionals at Kemper CPA Group LLP.

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Identity Theft and Tax Records

Not all identity thieves steal your personal data in order to rack up credit card charges or take control of your financial accounts – some just want your Social Security Number (SSN) so that they can get a job.

Social Security Numbers are bought and sold, and when an individual uses your SSN, and his or her employer reports W-2 wages earned, it may appear to the IRS that you have not reported all of your income on your tax return.

If the thief files a tax return with your number before you send your tax return, the IRS will think that your return is a duplicate, and that you have already filed your return and have received any refund due.

If you receive a notice from the IRS that states that more than one return was filed for you or that IRS records indicate that you received wages from an employer unknown to you, be alert to possible identity theft, and notify the IRS immediately by responding to the name and number printed on the notice. The IRS will work with you and the Social Security Administration to help take care of the problem.

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Roth IRAs

The Roth IRA is similar to other IRAs, in that it allows you to contribute and accumulate funds for retirement while enjoying some tax

advantages; however, because the Roth IRA is funded with post-tax dollars, not pre-tax dollars like the traditional IRA, you don’t pay taxes on the income when you make qualified withdrawals during retirement. Be aware that restrictions and penalties apply for non-qualified withdrawals that are taken prior to the age of 59 1/2.

The Roth IRA is available to individuals whose earned income falls under these limits:

$160,000 if you file married filing jointly

$110,000 if you file as single, head of household, or married filing separately and did not live with a spouse during the year

Yearly contribution limits are as follows:

For 2005, eligible individuals can contribute $4,000, with an additional $500 catch-up contribution for those age 50 and over

For 2006, eligible individuals can contribute $4,000, with an additional $1,000 catch-up contribution for those age 50 and over

You can roll over, or convert, a traditional IRA into a Roth IRA by paying taxes on the value of the account as if it were income. If you haven’t contributed to a Roth IRA for 2005, it’s not too late – Contributory Roth IRAs for 2005 must be set up by April 15, 2006.

There are many details to consider before deciding if a Roth IRA is the right retirement plan for you, and you should consult your financial advisor before making this decision. Contact Kemper Capital Management LLC for all of your investing needs.

Investment advisory services offered by KCPAG Financial Advisors LLC, a registered investment advisor. Securities officered through Securities America, Inc., a registered broker/dealer. Member NASD/SIPC. Thomas A. Moore, John D. Porter, Polly Reynolds, Shawna D. Horne, Jeffery C. Holt, CA insurance Lic. #0E38034, Jessica Daugherty, Sheila R. Lautenbacher, Joseph M. Mendes, CA Insurance Lic. #0C62535, Regina S. Hughes, Gregory Meador, Marcia Elder, Registered Representatives. Insurance services offered through KCPAG Insurance Services LLC. Kemper Capital Management LLC and its subsidiaries are not affiliated with Securities America.

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Do You Have a Solutions Partner?

At Kemper Technology Consulting, a division of Kemper CPA Group LLP, developing innovative solutions for our clients’ unique business situations is at the heart of our business. As technology has evolved over the last fifty years, so has our ability to pinpoint solutions that meet, and oftentimes exceed, your company’s distinctive needs.

Kemper Technology Consulting brings a strong technology and accounting background to your business, giving you a total package for success. We recognize that we are only as successful as our collective clientele; therefore, we are committed to bettering our range of solutions through education, professional certifications, and the experience that comes from 47 years in business.

The solutions that we provide are as diverse as the clients we serve:

When a national oil company was given a list of calculation ‘tags’ believed to be obsolete and marked for deletion, our technology consultants developed a Macro Program in Microsoft Excel that automated the process of searching for these tags, used in several hundred Excel spreadsheets. The software-based solution of automating the process of searching for these macro ‘tags’ allowed the client to save several hundred man-hours and tens of thousands of dollars in cost.

When a regional health care provider needed assistance with their network and support software, but also needed to link to a satellite office via a secure connection, we were able to provide a variety of technology services not typically provided by networking service companies. In addition to implementing a VPN (Virtual Private Network) to save on software costs and increase employee communication, our technology consultants provided network infrastructure administration, disaster recovery support, and accounting software support.

We provide tailored solutions utilizing products from Microsoft, Sage Software, Hewlett Packard, Symantec, Cisco, Novell, Gateway, Intuit and many others.

At Kemper Technology Consulting, we can provide solutions to your business challenges that will increase efficiency, productivity and profitability. To find out more, contact your local Kemper Technology Consulting office or email us at ktc@kcpag.com.

Kemper Technology Consulting
Robinson, IL
618-546-5633
www.kempertc.com
Evansville, IN  •  Indianapolis, IN  •  Paducah, KY  •  Effingham, IL

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Please be advised that, based upon current Internal Revenue Service (IRS) rules and standards, the advice herein is not intended to be used, nor can it be used, as the sole basis for decisions. Additional issues may exist that could affect the treatment of the individual transactions, and this narrative does not provide a conclusion with respect to all such issues.

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