Posted on

IRS Plans to Use AI and Ramp Up Enforcement on Millionaires, Partnerships and Crypto

4 min read

IRS Plans to Use AIRecently, IRS Commissioner Danny Werfel spoke of changes within the IRS, announcing several initiatives focusing on high-income earners and partnerships, as well as integrating the use of AI within the agency’s work. According to the commissioner, the initiatives were made possible by additional IRS funding provided by the Inflation Reduction Act. Without the funding from this bill, the agency would not have the budget to implement these ramp-ups in enforcement.

Millionaires with Tax Debt

The new initiative on millionaires is not just because they are high-earning taxpayers; it will focus on those with open tax debt. Currently, the IRS has identified approximately 1,600 millionaires who are in debt to the IRS for $250,000 or more. The agency plans to designate agents to focus on these high-impact collection cases. A prior campaign resulted in a collection of more than $38 million in tax debt.

High-Income Earners with Foreign Bank Accounts

Another new initiative focusing on high-earning taxpayers includes ramped-up inspection for those who have foreign bank accounts and use them to evade taxes.

By law, every U.S. resident who has a financial interest in or control over a foreign financial account must disclose this information if he or she had $10,000 or more at any point in the year by filing an FBAR.

The IRS conducted an analysis and identified potentially hundreds of taxpayers who should be filing an FBAR and are not, with average balances of more than $1 million. The most egregious cases are planned to be audited in fiscal year 2024.

Partnerships and Corporations

Starting in 2021, the IRS began the initial stages of a new compliance program focusing on complex partnership tax returns. Now, the IRS is set to expand this initiative over more partnerships.

In total, the IRS has plans to open examinations on the 75 biggest U.S. partnerships. “Biggest” means these businesses have, on average, more than $10 billion in assets, so it’s safe to say small and medium size businesses won’t be affected.

Additionally, the IRS will be looking into smaller (but albeit still large) partnerships with more than $10 million in total assets that have balance sheet mismatches. The focus is on partnerships with balance sheet discrepancies where the prior year’s ending balance sheet is not equal to the next year’s opening balance sheet without any explanation. The IRS uses this as a red flag because they have found through full inspections that balance sheet issues are often the proverbial canary in the coal mine for other areas of non-compliance.

Once again, the focus will be on larger partnerships with balance sheet mismatches. The agency plans to send notices to approximately 500 partnerships. Depending on the initial follow-up, an audit may result.

Digital Assets, Including Crypto

The IRS plans to continue its virtual currency compliance campaign, educating taxpayers on the rules, regulations, and reporting obligations surrounding cryptocurrencies. The rules around the taxation of digital assets have evolved in recent years, and more and more taxpayers are invested in these types of assets.

The IRS subpoenaed transaction information from centralized exchanges and found that potentially an estimated 75 percent of taxpayers involved in crypto are non-compliant, some as a form of tax evasion and others simply from ignorance. In any case, the IRS plans to ramp up digital asset enforcement this coming year.

Artificial Intelligence

Lastly, the IRS is looking to utilize artificial intelligence to help agents do their job more effectively. The IRS is particularly interested in how AI can help flag tax returns for audit in important areas.

The agency plans to invest in the latest analytic solutions that can detect patterns, trends, and activities that are typically linked to tax evasion, thereby freeing up employees to focus on other matters.

Conclusion

Overall, the IRS’s focus is on high-income, tax-debt-burdened individuals, the largest partnerships, and sizable crypto players. This means that these enforcement campaigns shouldn’t have much of an impact on the average taxpayer. However, the growing use of AI will impact everyone from top to bottom.

Posted on

Common Financial Reporting Mistakes and How to Correct Them

3 min read

Common Financial Reporting MistakesWith accounting fraud and financial reporting mistakes creating a lack of confidence, understanding how financial reporting mistakes occur and are detected is an important topic. According to the Association for Federal Enterprise Risk Management and the U.S. Securities and Exchange Commission, the first nine months of 2018 saw 8.8 percent more accounting fraud enforcement action cases versus 2017.

Controls are procedures implemented to lower the chance of financial reporting issues. While these mechanisms are meant to prevent an overload of problems, they are not always foolproof. Corporations also are required to show that sufficient financial oversight is in place for financial records and assets by the Sarbanes-Oxley Act of 2002. There are two types of controls: preventive and detective.

As the name implies, preventive controls are devised to avert mistakes before they happen. Methods include ongoing training, worker evaluations, and mandating different layers of authorization for transactions.

Detective methods look at the granular accounting steps. Having internal and external audits performed and comparing real-world activity against what’s been budgeted or forecasted are two ways to implement this approach. However, performing account reconciliation where the business’ financial data is compared against third-party documentation can provide near real-time insight into what is actually occurring. This includes analyzing checks and cash the business has collected and documented on their books but that may not be reflected on bank statements. Another factor in the reconciliation process is checks the company has sent out that have not been processed by the business’ vendors, etc.

Since detective controls alert companies to errors after the fact, it is important that they are conducted in a timely manner – daily, monthly, quarterly, or annually. If there’s a discrepancy between the company’s ending cash balance and the bank’s monthly statement, there might be differing balances. This can be due to the financial institution’s service fees and checks taken into account by the business that aren’t yet reflected on the financial institution’s statement.  However, other cases of discrepancies could point to signs of fraud. 

According to the University of California Los Angeles, there are many ways to split tasks. Doing this is integral to successful mitigation of errors and unauthorized behavior because it deters the likelihood of multiple workers collaborating. Specifically, when it comes to authorizations, reconciliations, and responsibility for the assets, it is a high priority for businesses to break tasks up among multiple workers.

Examples include dividing the duties between opening the mail/preparing a list of checks to review and the individual who deposits the checks. The individual who oversees accounts receivables should be separate from the person who creates a list of checks received. It’s not advisable for a sole employee to initiate, approve, and record a transaction. Similarly, reconciling balances, handling assets, and reviewing reports should not be done by a single employee. A minimum of two individuals should be available to handle any transaction.

While the most diligent accounting professional has made a mistake from time to time, learning how to identify financial reporting mistakes can reduce the likelihood of even rare mistakes being unknowingly shared with others.

Sources

https://www.aferm.org/erm_feed/wrong-numbers-the-risks-of-inaccurate-financial-statements/

Posted on

Securing Your Identity: The Role of Decentralized Identity Systems in Data Breach Prevention

4 min read

How to Securing Your IdentityData breaches have been on the rise as cybercriminals keep coming up with new ways to steal user-sensitive information. Just in the second quarter of 2023, 110.8 million user accounts were breached. Of these accounts, 49.8 million were from the United States, accounting for 45 percent of the global figure. However, amid the rising threats, a revolutionary concept known as decentralized identity systems has created a solution to reduce data breach cases.

Data Breaches and the Current State of Identity Management

A data breach happens when unauthorized individuals or entities gain access to sensitive information, often for malicious purposes. These breaches can happen to anyone, from individuals to large corporations, and they come with severe consequences that could include financial losses, reputation damage, and identity theft.

The current identity systems are centralized and have inherent vulnerabilities and limitations. These centralized identity systems involve a central authority, such as a government agency or a corporation, storing and managing individuals’ personal information. This means that if a hacker breaches the central authority’s security, he or she gains access to a vast amount of sensitive data.

Furthermore, since the centralized systems often collect extensive personal information, the practice raises concerns about data privacy. The entities storing user data predominantly control and monetize it, which has led to discomfort and distrust among users.

The centralized systems also create a fragmented user experience. This is because different platforms, such as social media, online retailers, news websites, etc., require users to create accounts. Users then must juggle multiple usernames, passwords, and data formats, complicating the digital experience. Businesses also incur high costs associated with ensuring secure systems, the latest infrastructure, and compliance.

How Decentralized Identity Systems Can Help Prevent Data Breaches

Decentralized identity systems are an alternative to centralized identity management. These systems put individuals in control of their own digital identities. The decentralized identity systems are enabled by technologies such as Web3, a concept based on a trust framework for identity management. Web3 evolution has led to decentralized identifiers, and this allows for secure management of user data and authentication through blockchain wallets.

Using blockchain technology ensures the security and immutability of identity data. Once information is added to the blockchain, it cannot be altered or deleted without the user’s consent.

However, they allow users to have control over their identity information. Users choose what data to share and with whom, enhancing privacy and security. There is no need for third parties to verify user identity.

Since users store data on their devices or a location they choose, it eliminates single points of failure. Instead of a centralized authority, identity data is distributed across a decentralized network of nodes. Additionally, these systems use advanced cryptographic keys, allowing only the user to access their data.

Decentralized identity systems are already making an impact in various industries, such as healthcare, financial services, and government services. The security benefits of decentralized identity include:

  • Enhanced Security

Decentralized identity systems offer robust security measures. With data stored on a blockchain, it becomes exceedingly difficult for hackers to breach the system. Even if one node is compromised, the decentralized nature of the network ensures that other nodes maintain the integrity of the data.

  • Privacy Control

Users regain control over their personal information. They decide what data to share and retain the ability to revoke access at any time. This puts an end to excessive data collection by corporations and governments.

  • Reduced Identity Theft and Fraud

Decentralized identity systems make it incredibly challenging for fraudsters to impersonate individuals or access their data. This significantly reduces the risk of identity theft and related fraudulent activities.

  • New Economic Models
    Decentralized identity models can create new economic models where consumers are awarded when they choose to share their data with service providers.

While decentralized identity systems offer promising solutions, they are not without challenges. The widespread adoption of decentralized identity systems presents scalability challenges. Another challenge is usability, as complexity can deter individuals and businesses from embracing this technology. The need for a regulatory framework is another challenge, as it is necessary to address factors related to legal and compliance.

Conclusion

Decentralized identity systems offer hope in an age where data breaches are a constant threat. These systems can revolutionize how users secure their digital identities by putting control back into individuals’ hands. While challenges exist, the benefits of enhanced security, privacy control, and reduced fraud make decentralized identity systems a promising solution in the ongoing battle against data breaches.

Posted on

Sanctioning Terrorist Activities by Iran, Accelerating Disaster Assistance and Expanding Healthcare Opportunities for Native Americans

3 min read

HR 589, HR 3152, S 1528, S 70, S 460, S 1271MAHSA Act (HR 589) – The Mahsa Amini Human Rights and Security Accountability (MAHSA) Act is a bipartisan bill that was introduced on Jan. 27 by Rep. Jim Banks (R-IN). The purpose of this bill is to impose sanctions on the leaders of Iran for supporting human rights abuses and terrorism. The sanctions block both property and visas owned by certain foreign individuals and entities affiliated with Iran. The bill passed in the House on Sept. 12 and currently resides in the Senate.

Fight CRIME Act (HR 3152) – This bipartisan bill was introduced by Rep. Michael McCaul (R-TX) on May 9. It imposes visa- and property-blocking sanctions specific to Iran’s missile-related activities, including acquiring, developing, transporting, or deploying missiles or related items, such as drone technologies. These sanctions also may be imposed on adult family members of people directly involved, as well as foreign individuals and entities that engage in transactions and knowingly provide support for the Missile Technology Control Regime (MTCR). This legislation was passed in the House on Sept.12 and is under consideration in the Senate.

Disaster Assistance Simplification Act (S 1528) – This bipartisan bill aims to facilitate streamlined information sharing among federal disaster assistance agencies, accelerate life-saving assistance to disaster survivors, and expedite the ability for communities to recover from disasters, as well as other purposes. The legislation was introduced by Sen. Gary Peters (D-MI) on May 10 and was passed in the Senate on July 27. It is presently under review in the House.

Tribal Trust Land Homeownership Act of 2023 (S 70) – Introduced by Sen. John Thune (R-SD) on Jan. 25, this bill mandates that the Bureau of Indian Affairs expedite processing and completion of residential and business mortgage applications within certain deadlines (e.g., provide approval or disapproval within 20 or 30 days, depending on the type of application). The bipartisan bill passed in the Senate on July 18 and is currently under consideration in the House.

Urban Indian Health Confer Act (S 460) – This Act, introduced by Sen. Tina Smith (D-MN) on Feb. 15, passed in the Senate on July 18 and is currently in the House. Its purpose is to expand the requirements of the Indian Health Service (IHS) on matters relating to both American Indians and Alaskan Natives. At present, the IHS is required to confer only with urban Indian organizations. However, this new bill would mandate that the U.S. Department of Health and Human Services (HHS) ensure that the IHS and other agencies consult on matters related to the Indian Health Care Improvement Act, as well as other healthcare provisions for Native Americans. The Act passed in the Senate on July 26 and has been forwarded to the House.

FEND Off Fentanyl Act (S 1271) – The objective of this bill is to impose sanctions on individuals, cartels and transnational criminal organizations involved in trafficking illicit fentanyl and related products. The legislation was introduced by Sen. Tim Scott (R-SC) on April 25 and was assigned to the committee for review on June 21. This bipartisan bill is co-sponsored by 32 Republicans, 32 Democrats and two Independents. It has a high probability of being passed by both houses and enacted by the president.

Posted on

Widow/er Social Security Benefits

5 min read

Widower Social Security BenefitsA widow or widower is eligible for a survivor’s benefit from Social Security even if they never worked – as long as the deceased spouse qualified for benefits based on his or her own income record. Also, note that surviving spouses must have been married to their most current spouse for at least the nine months prior to their passing or for 10 years if the couple was divorced.

When Can You Claim?

A widow/er may apply for benefits once she turns age 60, age 50 if she qualifies as disabled or if she is responsible for the care of a child under age 16 (or a mentally or physically disabled child aged 16 or older). However, if the widow/er applies for a surviving spouse’s benefit starting at age 60/50, that benefit will be permanently reduced from the maximum amount available if she were to wait until her own full retirement age.

What Is Full Retirement Age for the Widow/er?

For anyone born from 1945 to 1955, their full retirement age (FRA) is 66. If born between 1955 and 1959, FRA increases by two months each year from age 66 to 67. FRA is age 67 for anyone born in 1960 or later.

How Much Can You Get?

First and foremost, all Social Security beneficiaries receive the highest benefit for which they qualify. Therefore, if a surviving spouse would receive a higher benefit from her own record of earnings than that of the deceased spouse, then that’s the amount she will receive.

If the deceased was receiving Social Security disability benefits when he passed, the survivor benefit is based on the deceased’s disability benefit.

Normally, the spousal benefit equals half the benefit of the higher-earning spouse. However, the surviving spouse’s benefit equals 100 percent of what the deceased worker would have received, including any delayed retirement credits he earned by postponing benefits to age 70.

The minimum surviving spouse benefit at age 60 is 71.5 percent of the available amount. This represents a permanent loss of 28.5 percent of the benefit available at FRA. The widow/er benefit is reduced for each month shy of his or her own FRA, so the closer they get to FRA before applying, the higher the benefit. The amount freezes once they begin drawing benefits, although it will increase incrementally based on cost-of-living adjustments.

The maximum benefit a widow/er may receive is 100 percent of what the deceased spouse would receive if he was still alive. However, that amount may already be reduced. For example, if the deceased began drawing benefits at age 62 instead of waiting until FRA, then that is the maximum benefit the widow/er is eligible for. If she begins drawing early before her own FRA, that benefit will be reduced further.

Ideally, the deceased will not have started receiving Social Security before his death. In this scenario, even if he died in his 50s, his maximum benefit is what he would have received at FRA. Now it’s up to the widow/er to time her survivor benefit – she can wait until her own FRA or take a permanently reduced benefit.

Delay Strategy

One strategy a widow/er may want to consider is to begin her own benefit at age 62, even if it is less than what she would draw as a survivor. Then, she can delay drawing the survivor benefit until it grows higher – ideally, the highest benefit at her FRA.

If the widow/er does not have her own benefit from earnings or can’t live on that amount alone, she may want to withdraw income from other sources, such as retirement savings or an annuity. While that may reduce her overall net worth, it’s important to remember that the Social Security benefit continues for life, so it may be worthwhile to get the highest benefit possible. Other accounts, such as an IRA or 401(k), will stop paying out income once they are depleted.

If the widow/er has a stronger earnings record, another option is to begin drawing the survivor’s benefit early and delay taking her own benefit until FRA or age 70, to receive a higher benefit for life based on her own record. Once she applies for her own benefit, the payout will increase to a higher amount.

Seek Professional Advice

Knowing when to begin drawing a widow/ers benefit can be challenging. The best option is usually based on factors such as other income resources and even the widow’s health. If in poor health and not expected to live many years, it may be wise to begin the survivor’s benefit as soon as possible. Otherwise, it’s probably better to wait and get a higher payout for as long as she lives.

Another thing to keep in mind is that if the widow/er doesn’t know the deceased spouse’s FRA benefit at the time of death, she is not likely to find out until age 60. The Social Security shuts down the deceased’s account at death and won’t reveal the benefit until the widow/er is of qualifying age to begin receiving it. It’s always a good idea for both spouses to check (and share with each other) their accrued benefits each year so that they have accurate numbers to plan with in case one spouse passes away.