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How Tax Preparers Can Protect Taxpayers

As part of the IRS Security Summit, on July 6 the Service published a fact sheet for the "Protect Your Clients, Protect Yourself" effort. The IRS campaign encourages CPAs, attorneys, enrolled agents and other tax preparers to take specific steps to protect clients from identity thieves and tax fraudsters. Many of these security suggestions will also be helpful for individual taxpayers.
  1. Protect Taxpayer Data - Do not leave computers or other systems unsecured. If you change your computer or hard drive, ensure that any client information is properly erased or the hard drive is physically destroyed. You should periodically change your passwords. If you use email to send tax information, you should use a secure system or an encryption method.
  2. Physical Security - Limit staff access to computers and flash drives. If a staff person leaves your business, he or she must no longer be given access, particularly to any network servers. You should train your staff members in security. Do not permit visitors to have access to client information on computers and servers. Lock offices or server rooms when they are not in use.
  3. Security Plans - You should develop a written plan for security and conduct periodic security reviews. New staff should be subject to background checks. It is also important to limit access by your staff to computers and servers. Only the staff members who are actually working on client tax materials should have access.
IRS Commissioner John Koskinen approved the effort to encourage good practices by tax preparers. He stated, "We have more than 700,000 tax preparers in this country, with many of those taking good security precautions. But cyber criminals are continuing to evolve, using new technology, ruses, and scams. The tax community handles large volumes of sensitive personal and financial information. We need every tax professional to stay on top of their security to protect taxpayers as well as their businesses."

Tax Proposals of Other Presidential Candidates


Editor's Note: As a service to readers, your editor has previously covered tax proposals of the presumptive presidential nominees for the two major parties. While the Qunnipiac University polls show minor parties to have 2% to 8% of the probable vote, many of their tax proposals will be part of the election debate this fall. These diverse tax proposals are shared as an educational service for our readers.

Third party candidates for the office of U.S. President may not win, but often use their media exposure to advance tax proposals for America. The Libertarian Party, Green Party, Constitution Party and Reform Party candidates offer a variety of tax proposals.

The nominee of the Libertarian Party is Gary Johnson, former Governor of New Mexico. At a CNN "Town Hall" Session, he indicated that he favored elimination of the IRS and repeal of individual and corporate taxes. His main proposal is enacting a consumption tax such as the "Fair Tax."

Johnson stated, "If we have zero corporate tax in this country, I believe that tens of millions of jobs will be created. Why would you start up and grow a business anywhere but the United States, given a zero corporate tax rate?"

Johnson claims that his new tax proposal would be revenue neutral.

The presumptive presidential nominee of the Green Party is Jill Stein, a physician from Massachusetts.

She agrees with the Green Party platform that advocates, "tax cuts for working families, the poor and middle class, and higher taxes for the richest Americans." The Green Party platform suggests that "Wall Street, big corporations and the rich" should pay higher taxes and should be limited in their use of complicated tax code subsidies.

The Green Party also proposes a tax on "polluters for the damage that they have created."

Darrell Castle is a Tennessee attorney and presidential nominee of the Constitution party. He proposes eliminating the IRS. In contrast to other candidates who claim the IRS should be eliminated and a consumption or value-added tax (VAT) should be passed, Castle opposes a VAT and would replace all other taxes with tariffs and excise taxes. If additional revenue is needed, he suggests that each state would be required to make an additional tax payment based on population. The Constitution Party would continue to tax corporations and accepts a fuel excise tax to pay for roadways and infrastructure.

The Reform party claims that it is a "moderate, centrist, and popular populist party that sits in the center of the political spectrum." It suggests that new taxes encourage economic development, be fundamentally fair, eliminate corporate loopholes and provide sufficient revenue for "essential federal government operations."

The Reform Party has not yet selected its presidential nominee.

Tax Reform and Consumption Taxes


On June 24 House Ways and Means Chairman Kevin Brady (R-TX) and Speaker Paul Ryan (R-WI) held a press conference to explain their proposal "A Better Way for Tax Reform." One of the proposed changes is a "destination-basis" tax on imports. This is not a full-fledged value-added-tax (VAT), but is a type of consumption tax.

The Tax Foundation published a study this week and compared the U.S. and OECD (Organization for Economic Cooperation and Development) levels of taxation. If the U.S. enacts comprehensive tax reform in 2017, the ratio of personal income taxes to consumption taxes will be debated.

The following table shows the current tax revenue sources for the USA and OECD.


Editor's Note: The OECD systems rely on value-added taxes for substantial revenue. The proposed tax reform acts for 2017 do not have a VAT, but move toward a higher level of revenue from consumption taxes.

Applicable Federal Rate of 1.8% for July -- Rev. Rul. 2016-17; 2016-27 IRB 1 (17 June 2016)


The IRS has announced the Applicable Federal Rate (AFR) for July of 2016. The AFR under Section 7520 for the month of July will be 1.8%. The rates for June of 1.8% or May of 1.8% 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 2016, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published July 8, 2016

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