Stacie Kitts, CPA
I hate you is harsh, but warranted.
I have no reservation is saying ” I hate you if you are a tax scammer con artist.” You give the tax preparer profession a bad name and I hate you. You put taxpayers in a precarious position and I hate you. You make my job harder and I hate you. You are a disgusting low life taking advantage of low income and elderly taxpayers and I really hate you!!!!
The IRS announced a new series of scams involving tax credits. The scammers promise the taxpayer a large refund and charges a huge amount of money to prepare the return.
After the IRS rejects the taxpayers claim, the taxpayer realizes they are out the preparation fee with no recourse because the tax preparer has disappeared.
WASHINGTON — The Internal Revenue Service encouraged taxpayers to guard against being misled by unscrupulous individuals trying to persuade them to file false claims for tax credits or rebates.
The IRS has noted an increase in tax-return-related scams, frequently involving unsuspecting taxpayers who normally do not have a filing requirement in the first place. These taxpayers are led to believe they should file a return with the IRS for tax credits, refunds or rebates for which they are not really entitled. Many of these recent scams have been targeted in the South and Midwest.
Most paid tax return preparers provide honest and professional service, but there are some who engage in fraud and other illegal activities. Unscrupulous promoters deceive people into paying for advice on how to file false claims. Some promoters may charge unreasonable amounts for preparing legitimate returns that could have been prepared for free by the IRS or IRS sponsored Volunteer Income Tax Assistance partners. In other situations, identity theft is involved.
Taxpayers should be wary of any of the following:
- Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits.
- Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS.
- Unfamiliar for-profit tax services teaming up with local churches.
- Home-made flyers and brochures implying credits or refunds are available without proof of eligibility.
- Offers of free money with no documentation required.
- Promises of refunds for “Low Income – No Documents Tax Returns.”
- Claims for the expired Economic Recovery Credit Program or Recovery Rebate Credit.
- Advice on claiming the Earned Income Tax Credit based on exaggerated reports of self-employment income.
In some cases non-existent Social Security refunds or rebates have been the bait used by the con artists. In other situations, taxpayers deserve the tax credits they are promised but the preparer uses fictitious or inflated information on the return which results in a fraudulent return.
Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file with little or no documentation, have been appearing in community churches around the country. Promoters are targeting church congregations, exploiting their good intentions and credibility. These schemes also often spread by word of mouth among unsuspecting and well-intentioned people telling their friends and relatives.
Promoters of these scams often prey upon low income individuals and the elderly.
They build false hopes and charge people good money for bad advice. In the end, the victims discover their claims are rejected or the refund barely exceeds what they paid the promoter. Meanwhile, their money and the promoters are long gone.
Unsuspecting individuals are most likely to get caught up in scams and the IRS is warning all taxpayers, and those that help others prepare returns, to remain vigilant. If it sounds too good to be true, it probably is.
Anyone with questions about a tax credit or program should visit www.IRS.gov, call the IRS toll-free number at 800-829-1040 or visit a local IRS Taxpayer Assistance Center.
For questions about rebates, credit and benefits from other federal agencies contact the relevant agency directly for accurate information
REG-134235-08 provides notice of public hearing on a notice of proposed rulemaking providing guidance to tax return preparers on furnishing an identifying number on tax returns and claims for refund of tax that they prepare.
Stacie says: “I don’t know about the suspsension period mentioned below. The IRS reports that attorney Michael McCall was suspended for 24 months from practice before the IRS for writing a bogus tax opinion. Frankly, if this guy wrote a bad opinion on purpose, I think it should be a permanent suspension. But that’s just me.”
WASHINGTON — The Internal Revenue Service has accepted an offer of consent to suspension from bond attorney Michael W. McCall. Under the terms of the settlement agreement, McCall will be suspended from practice before the IRS for at least 24 months for writing a false tax opinion. Thereafter, he may petition for reinstatement.
“Practitioners have a duty to their clients, the system, and the municipal finance bond community to ensure that the tax advice they are giving their clients complies with the law and is complete and accurate,” IRS Office of Professional Responsibility (OPR) Director Karen L. Hawkins said.
McCall was engaged by a state of Washington county municipal sewer district to act as co-bond counsel and special tax counsel to write an opinion as to the tax-exempt status of the district bonds issued in October 2000 and to perform due diligence with respect to certain transactional matters relating to the bond issuance. The district issued the bonds for its utility local improvement district for a proposed commercial development. The bonds were issued in violation of state law as the utility local improvement district was located outside of the sewer district boundaries. The bonds defaulted and have been determined to be invalid.
The OPR alleged that McCall’s opinion on the tax-exempt status of the district bonds was false under Circular 230, Section 10.51(j), and that McCall’s opinion on certain transactional matters was also false under Section 10.51(j). In addition, the OPR alleged that McCall failed to perform due diligence under Circular 230, section 10.22, with respect to transactional matters related to the bond issuance, including an undisclosed payment to him from bond proceeds received by the developer.
Following an OPR investigation, McCall admitted to violations of Circular 230 for giving false opinions, knowingly, recklessly, or through gross incompetence (Treasury Department Circular 230, Section 10.51(j) (2000)), and for failing to exercise due diligence (Treasury Department Circular 230, Section 10.22 (2000)).
The settlement agreement included a disclosure authorization that allowed the IRS to issue this release.
WASHINGTON — As the April 15 tax deadline approaches, the Internal Revenue Service today announced initial results from its stepped-up effort involving enforcement and education to combat unscrupulous tax return preparers and protect the nation’s taxpayers.
The IRS said it has conducted more than 5,000 field visits to tax return preparers this fiscal year. In addition, the IRS has worked with the Department of Justice to pursue questionable return preparers, an effort that has led to 56 indictments, 25 convictions and 21 civil injunctions since Jan. 1, 2010.
“We are working to help ensure taxpayers receive competent and ethical service from qualified tax professionals,” said IRS Commissioner Doug Shulman. “Our efforts this tax season are part of a longer-term effort to improve the oversight of this critical part of the tax system. The vast majority of tax return preparers provide solid service, but we need to do more to protect taxpayers.”
Shulman announced in January the results of a six-month study of the tax return preparer industry, which proposed new registration, testing and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax return preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. While this longer-term effort is underway, the IRS has taken several immediate steps this filing season to assist taxpayers.
The IRS has worked closely with the Justice Department this tax season to increase legal actions against unscrupulous tax return preparers, obtaining 21 civil injunctions, 56 indictments and 25 convictions of return preparers so far in 2010. More information is available at the IRS Civil and Criminal Actions page on irs.gov. and at the Department of Justice Tax Division page on DOJ.gov.
“The IRS appreciates the strong support of the Justice Department for its efforts to pursue and shut down bad actors in the tax return industry,” Shulman said. “This effort makes a real difference for the nation’s taxpayers and helps protect the many tax professionals who play by the rules.”
“While the majority of return preparers provide excellent service to their clients, a few unscrupulous tax preparers file false and fraudulent returns to defraud the government and the tax-paying public. Those actions are illegal, and can result in substantial civil penalties as well as criminal prosecution, for both the return preparers and their customers who knew or should have known better. Taxpayers should choose carefully when hiring a tax preparer,” said John A. DiCicco, Acting Assistant Attorney General of the Justice Department’s Tax Division.
Also during this filing season, the IRS used investigative tools on a broad basis, including agents posing as taxpayers, to seek out and stop unscrupulous preparers from filing inaccurate returns. To date, the IRS conducted 230 undercover visits to tax return preparers. In addition, dozens of search warrants have been completed.
The IRS will continue to work closely with the Department of Justice to pursue civil and criminal action as appropriate.
In January, the IRS sent more than 10,000 letters to tax return preparers. These letters reminded them of their obligation to prepare accurate returns for their clients, reviewed common errors, and outlined the consequences of filing incorrect returns. The letters went to preparers with large volumes of specific tax returns where the IRS typically sees frequent errors, although simply receiving a letter was not an indication the preparer had problems.
The IRS followed up with field visits to about 2,400 tax return preparers who received these letters to discuss many of the issues mentioned in the letter. Separately, the IRS conducted other compliance and educational visits with return preparers on a variety of other issues. All told, IRS representatives visited more than 5,000 paid preparers to encourage and help them avoid filing incorrect or fraudulent returns for their clients.
The IRS will be reviewing the results of these letters and visits to determine steps for future filing seasons.
The IRS has recently begun to implement a number of steps to increase oversight of federal tax return preparers. This includes proposed regulations that would require paid tax return preparers to obtain and use a preparer tax identification number (PTIN). Later this year, the IRS will propose additional regulations requiring competency tests and continuing professional education for paid tax return preparers who are not attorneys, certified public accountants and enrolled agents.
Setting higher standards for the tax preparer community will significantly enhance protections and services for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. Other measures the IRS anticipates taking are highlighted in Publication 4832, Return Preparer Review, issued earlier this year.
Help for Taxpayers before April 15
As the tax deadline approaches, the IRS reminds taxpayers that most tax return preparers are professional, honest and provide excellent service to their clients. But a few simple steps can help people choose a good tax return preparer and avoid fraud:
- Be wary of tax preparers who claim they can obtain larger refunds than others.
- Avoid tax preparers who base their fees on a percentage of the refund.
- Use a reputable tax professional who signs the tax return and provides a copy. Consider whether the individual or firm will be around months or years after the return has been filed to answer questions about the preparation of the tax return.
- Check the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
- Find out if the return preparer is affiliated with a professional organization that provides its members with continuing education and other resources and holds them to a code of ethics.
More information is available on IRS.gov, including IRS Fact Sheet 2010-03, How to Choose a Tax Preparer and Avoid Tax Fraud.
WASHINGTON — The Internal Revenue Service today issued its 2010 “dirty dozen” list of tax scams, including schemes involving return preparer fraud, hiding income offshore and phishing.
“Taxpayers should be wary of anyone peddling scams that seem too good to be true,” IRS Commissioner Doug Shulman said. “The IRS fights fraud by pursuing taxpayers who hide income abroad and by ensuring taxpayers get competent, ethical service from qualified professionals at home in the U.S.”
Tax schemes are illegal and can lead to imprisonment and fines for both scam artists and taxpayers. Taxpayers pulled into these schemes must repay unpaid taxes plus interest and penalties. The IRS pursues and shuts down promoters of these and numerous other scams.
The IRS urges taxpayers to avoid these common schemes:
Return Preparer Fraud
Dishonest return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by promising refunds that are too good to be true. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued injunctions ordering hundreds of individuals to cease preparing returns and promoting fraud, and the Department of Justice has filed complaints against dozens of others, which are pending in court.
To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of steps for future filing seasons. These include a requirement that all paid tax return preparers register with the IRS and obtain a preparer tax identification number (PTIN), as well as both competency tests and ongoing continuing professional education for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents.
Setting higher standards for the tax preparer community will significantly enhance protections and services for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. Other measures the IRS anticipates taking are highlighted in the IRS Return Preparer Review issued in December 2009.
Hiding Income Offshore
The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.
IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. While special civil-penalty provisions for those with undisclosed offshore accounts expired in 2009, the IRS continues to urge taxpayers with offshore accounts or entities to voluntarily come forward and resolve their tax matters. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution.
Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. IRS impersonation schemes flourish during the filing season and can take the form of e-mails, tweets or phony Web sites. Scammers may also use phones and faxes to reach their victims.
Scam artists will try to mislead consumers by telling them they are entitled to a tax refund from the IRS and that they must reveal personal information to claim it. Criminals use the information they get to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.
Taxpayers who receive suspicious e-mails claiming to come from the IRS should not open any attachments or click on any of the links in the e-mail. Suspicious e-mails claiming to be from the IRS or Web addresses that do not begin with http://www.irs.gov should be forwarded to the IRS mailbox: email@example.com.
Filing False or Misleading Forms
The IRS is seeing various instances where scam artists file false or misleading returns to claim refunds that they are not entitled to. Under the scheme, taxpayers fabricate an information return and falsely claim the corresponding amount as withholding as a way to seek a tax refund. Phony information returns, such as a Form 1099-Original Issue Discount (OID), claiming false withholding credits usually are used to legitimize erroneous refund claims. One version of the scheme is based on a false theory that the federal government maintains secret accounts for its citizens, and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS.
Nontaxable Social Security Benefits with Exaggerated Withholding Credit
The IRS has identified returns where taxpayers report nontaxable Social Security Benefits with excessive withholding. This tactic results in no income reported to the IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.
Abuse of Charitable Organizations and Deductions
The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets including situations where several organizations claim the full value for both the receipt and distribution of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.
Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance.
Abusive Retirement Plans
The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited.
Disguised Corporate Ownership
Corporations and other entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number.
Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.
Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS.
Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme. Filings of this type of return may result in a $5,000 penalty.
Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and to hide assets from creditors, including the IRS.
The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.
Fuel Tax Credit Scams
The IRS receives claims for the fuel tax credit that are excessive. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But other individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and potentially subjects those who improperly claim the credit to a $5,000 penalty.
How to Report Suspected Tax Fraud Activity
Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.
Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.
Monica Lawver over at The Tax CPA has some great commentary regarding this IRS release. You should check it out. She provides some interesting insight on regulating the profession in her post The Three Rules.
WASHINGTON — A Certified Public Accountant has been suspended for twelve months from practice before the Internal Revenue Service by the Office of Professional Responsibility for providing false or misleading information in connection with the preparation of his clients’ tax returns.
“Practitioners have a duty both to their clients and to the system to insure taxpayers are complying with tax laws and filing complete and accurate tax returns,” Karen L. Hawkins, Director of the Office of Professional Responsibility said.
Robert A. Loeser, a certified public accountant from Houston, Texas, assisted his clients to lower their tax bills by claiming false business expenses on tax returns he prepared.
For no legitimate business purpose, Loeser’s clients were advised to forward funds from their businesses to two corporations Loeser controlled. The corporations then rebated the funds to his clients. Loeser prepared the clients’ books and business tax returns expensing and deducting the entire amounts that were paid to the corporations.
The IRS alleged Loeser violated Circular 230 by giving false or misleading information to the Department of Treasury and the IRS.
The settlement agreement included a disclosure authorization that allowed the Office of Professional Responsibility to issue this release.
The Office of Professional Responsibility (OPR) establishes and enforces standards of competence, integrity and conduct for tax professionals — enrolled agents, attorneys, CPAs, and other individuals and groups covered by Treasury Circular 230.
WASHINGTON — The Internal Revenue Service released the 2010 version of its discussion and rebuttal of many of the more common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws.
Anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read the 80-page document, The Truth about Frivolous Tax Arguments.
The document explains many of the common frivolous arguments made in recent years and it describes the legal responses that refute these claims. It will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties.
Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.
IRS highlighted in the document about 40 new cases adjudicated in 2009. Highlights include cases involving injunctions against preparers and promoters of Form 1099-Original Issue Discount schemes and injunctions against preparers and promoters of false fuel tax credit schemes.
From The Stupid Preparer Files – Woman Claims Connecticut Residents are Not Subject to Federal Income Tax – a Good Post From the Past
[I do love this story – another good post from the past]
By Stacie Clifford Kitts, CPA
I do enjoy reading about how stupid some tax preparers can be. It’s like a tax preparation train wreck. You know the kind you want to slow down to see. Moreover, the messier the scene, the harder it is to look away.
Nevertheless, regardless of how many stories I read, I am still amazed at tax preparers who are willing to go to jail over some income tax. Honestly, the blatant stupidity is genuinely mind numbing.
A favorite concerns a Connecticut woman, Sunita Buddhu who took over her father’s tax practice following his incarceration. Yes, I said it, his incarceration. Daddy went to jail for -get this – producing counterfeit checks from his place of business. The same business where he also prepared tax returns.
Now what do you suppose she told her father’s tax clients? Ummmm – I am sorry that my dad’s in jail – but no worries, I can still prepare your tax return, no need to worry about that fake check thingy.
Apparently, whatever she said worked because she continued preparing returns. But more baffling even than her clients who agreed to let her continue to work on their returns, is why she agreed to step in. Now let’s see, dad is in jail for fraud, ya think there might be a problem with his tax practice? Ya think- just maybe?
Well yes Sunita, there did appear to be a problem. Following her father’s incarceration, the IRS started a tax preparer investigation and proceeded to audit over 600 returns she and her father had prepared.
Oh, but now the story really gets good. As a result of the investigation, Ms. Buddhu decided it would be a good idea to file amended returns for her clients moving false and obviously disallowed Schedule C deductions to Schedule A. Huh, okay if the deductions are bogus, which apparently they were, hello – they are still bogus regardless of the schedule they’re on. Duh.
But wait, there’s more.
Undaunted, her behavior gets even more bizarre when she informs her clients that the IRS does not have the authority to conduct examinations of Connecticut resident’s tax returns. Okay, talk about frivolous arguments. What is so special about Connecticut?
But wait, there’s more.
She also told her clients that because they were residences living and working in the United States, they were only required to pay social security taxes, but were not subject to income tax. Yep that’s right, according to the Buddhu’s only non-resident aliens are subject to income tax.
But wait, there’s more. Oh, I do love this one.
She actually prepared letters that she mailed to the IRS stating her frivolous tax arguments 1) the IRS did not have jurisdiction over Connecticut residents and 2) U.S. residents living and working in the U.S. were not required to pay income tax.
Unfortunately, not only will this crazy out of control tax preparer suffer from this train wreck but so will her clients. They are now responsible for paying the additional taxes and associated penalties and interest that resulted from the audits of their returns. And at least one client had to barrow against their house to pay the debt to the IRS.
The IRS urges people to use care and caution when choosing a tax preparer. Remember, you are legally responsible for what’s on your tax return even if it was prepared by an another individual or firm.
Most tax return preparers are professional, honest and provide excellent service to their clients. However, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients. Therefore, it’s important to find a qualified tax professional.
The following tips will help you choose a preparer who will offer the best service for your tax preparation needs.
- Check the person’s qualifications Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
- Check on the preparer’s history Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys.
- Find out about their service fees Avoid preparers that base their fee on a percentage of the amount of your refund or those who claim they can obtain larger refunds than other preparers.
- Make sure the tax preparer is accessible Make sure you will be able to contact the tax preparer after the return has been filed, even after April 15, in case questions arise.
- Provide all records and receipts needed to prepare your return Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.
- Never sign a blank return Avoid tax preparers that ask you to sign a blank tax form.
- Review the entire return before signing it Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.
- Make sure the preparer signs the form A paid preparer must sign the return as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.
You can report abusive tax preparers and suspected tax fraud to the IRS on Form 3949-A, Information Referral or by sending a letter to Internal Revenue Service, Fresno, CA 93888. Download Form 3949-A from IRS.gov or order by mail at 800-829-3676.
WASHINGTON –– The Internal Revenue Service kicked off the 2010 tax filing season today by issuing the results of a landmark six-month study that proposes new registration, testing and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.
To bring immediate help to taxpayers this filing season, the IRS also announced a sweeping new effort to reach tax return preparers with enforcement and education. As part of the outreach effort, the IRS is providing tips to taxpayers to ensure they are working with a reputable tax return preparer.
“As tax season begins, most Americans will turn to tax return preparers to help with one of their biggest financial transactions of the year. The decisions announced today represent a monumental shift in the way the IRS will oversee tax preparers,” said IRS Commissioner Doug Shulman. “Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation’s tax system. In addition, we are taking immediate action to step up oversight of tax preparers this filing season.”
Based on the results of the Return Preparer Review released today, the IRS recommends a number of steps that it plans to implement for future filing seasons, including:
- Requiring all paid tax return preparers who must sign a federal tax return to register with the IRS and obtain a preparer tax identification number (PTIN). These preparers will be subject to a limited tax compliance check to ensure they have filed federal personal, employment and business tax returns and that the tax due on those returns has been paid.
- Requiring competency tests for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents who are active and in good standing with their respective licensing agencies.
- Requiring ongoing continuing professional education for all paid tax return preparers except attorneys, CPAs, enrolled agents and others who are already subject to continuing education requirements.
- Extending the ethical rules found in Treasury Department Circular 230 — which currently only apply to attorneys, CPAs and enrolled agents who practice before the IRS — to all paid preparers. This expansion would allow the IRS to suspend or otherwise discipline tax return preparers who engage in unethical or disreputable conduct.
Other measures the IRS anticipates taking are highlighted in the 55-page report released today.
Currently, anyone may prepare a federal tax return for anyone else and charge a fee. While some preparers are currently licensed by their states or are enrolled to practice before the IRS, many do not have to meet any government or professionally mandated competency requirements before preparing a federal tax return for a fee.
First Step: Letters to 10,000 Preparers
The initiatives announced today will take several years to fully implement and will not be in effect for the current 2010 tax season. In the meantime, the IRS is taking immediate action to step up oversight of preparers for the 2010 filing season.
Beginning this week, the IRS is sending letters to approximately 10,000 paid tax return preparers nationwide. These preparers are among those with large volumes of specific tax returns where the IRS typically sees frequent errors. The letters are intended to remind preparers to be vigilant in areas where the errors are frequently found, including Schedule C income and expenses, Schedule A deductions, the Earned Income Tax Credit and the First Time Homebuyer Credit.
Thousands of the preparers who receive these letters will also be visited by IRS Revenue Agents in the coming weeks to discuss their obligations and responsibilities to prepare accurate tax returns. This is part of a broader initiative by the IRS to step up its efforts to ensure paid tax return preparers are assisting clients appropriately. Separately, the IRS will be conducting other compliance and education visits with return preparers on a variety of issues.
In addition, the IRS will more widely use investigative tools during this filing season aimed at determining tax return preparer non-compliance. One of those tools will include visits to return preparers by IRS agents posing as a taxpayer.
During this effort, the IRS will continue to work closely with the Department of Justice to pursue civil or criminal action as appropriate.
Steps Taxpayers Can Take Now to Find a Preparer
In addition to the stepped-up oversight of preparers, Shulman also announced a new outreach effort to help make sure taxpayers choose a reputable preparer this filing season. That’s particularly important because taxpayers are legally responsible for what is on their tax returns — even if those returns are prepared by someone else.
“Taxpayers should protect themselves from unscrupulous preparers,” Shulman said. “There are some simple steps people can take to choose a reputable tax preparer.”
Most tax return preparers are professional, honest and provide excellent service to their clients. Shulman offered the following points for taxpayers to keep in mind when selecting a tax return preparer:
Consider whether the individual or firm will be around months or years after the return has been filed to answer questions about the preparation of the tax return.
More information about choosing a tax return preparer and avoiding fraud can be found in IRS Fact Sheet 2010-03, How to Choose a Tax Preparer and Avoid Tax Fraud.
Resources for Taxpayers this Filing Season
This filing season, the IRS has many free resources to help taxpayers prepare and file their returns.
IRS.gov has a variety of features to help taxpayers. There’s a special section to help taxpayers get information on a variety of Recovery tax benefits. The web site also has information for people who lost a job or experienced financial problems in 2009.
IRS.gov also has information to help people track their refund.
IRS.gov will once again host the IRS Free File program, which allows virtually everyone to file their taxes for free through the web site. Free File and the rest of the IRS e-file program will open later this month.
More filing season resources are available on IRS.gov:
1040 Central: Help for Individual Filers
Tax Breaks in the American Recovery and Reinvestment Act
Lost your job or the victim of foreclosure? The IRS can help in difficult situations
E-file and Free File
Taxpayer assistance centers
WASHINGTON — The Internal Revenue Service today announced the issuance of proposed and temporary regulations and related revenue rulings addressing the use or disclosure of tax return information by tax return preparers.
The regulations and related revenue rulings under section 7216 enable tax return preparers to more effectively provide a range of services that taxpayers would ordinarily expect from tax return preparers. Generally, these services benefit taxpayers, increase voluntary compliance and improve tax administration.
The proposed and temporary regulations enable tax return preparers to use or disclose tax return information without explicit taxpayer consent in certain limited circumstances. Tax preparers can contact their clients regarding tax law developments that may affect the clients. They can also disclose information in connection with the potential sale or purchase of a tax return preparer’s business and during the process of conducting client conflict-of-interest checks.
Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department request comments on the clarity of the proposed rules, how they can be made easier to understand and the administrability of the rules in the proposed regulations. All comments will be made available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments.
[Stacie says: be careful, don’t open e-mails from the IRS – the attachments are linked to “bogus” web pages which will download a really bad virus onto your computer.”]
In recent weeks, a phony e-mail claiming to come from the IRS has been circulating in large numbers. The subject line of the e-mail often states that the e-mail is a notice of underreported income. The e-mail may contain an attachment or a link to a bogus Web page directing taxpayers to their “tax statement.” In either case, when the recipient opens the attachment or clicks on the link, they download a Trojan horse-type of virus to their computers.Malicious code (also known as malware), of which the Trojan horse is but one example, can take over the victim’s computer hard drive, giving someone remote access to the computer, or it could look for passwords and other information and send them to the scammer. The scammer will then use whatever information they gather to commit identity theft, gain access to bank accounts and more.
The IRS does not send unsolicited e-mails to taxpayers about their tax accounts. Anyone who receives an unsolicited e-mail claiming to come from the IRS should avoid opening any attachments or clicking on any links. People can report suspicious e-mails they receive which claim to come from the IRS to a mailbox set up for this purpose, firstname.lastname@example.org. Those who believe they may already be victims of identity theft should find out what do by going to the U.S. Federal Trade Commission’s Web site, OnGuardOnLine.gov.
More information on e-mail scams may be viewed on How to Report and Identify Phishing, E-mail Scams and Bogus IRS Web Sites and Suspicious e-Mails and Identity Theft.
By Stacie Clifford Kitts, CPA
Ever wonder what kind of people hide money in Swiss bank accounts? Well here is your chance to get a glimpse into the world of some people who really did it.
There must have been some sweat’ in going on over at these tax cheats house’s when it was announced that a deal was struck to give them up.
I just can’t understand the motivation of the people on the below list. The dollar amounts that were hidden and that are now subjecting the account holders to prosecution – just not worth it in my mind.
I know, we are talking a few million dollars in most cases and that is a large amount of cash – no doubt. Nevertheless, let us put it into perspective, the risk is jail, a 50% penalty, plus the tax that should have been paid including associated penalties and interest.
Besides, if I had a million dollars or so after tax, (which these tax cheats would have) I am confident that I would be happy with that. Yes – a cool million is okay with me. Moreover, I think the rest of the “average” folk out there would agree with me.
Don’t’ get me wrong, I’m never going to turn down a few million dollars if it is offered (legally this is). However, if in a different life I was willing to risk jail over some crime that I was contemplating, the payoff would have to be some astronomical amount of money, so much in fact, that I would never get away with it because everyone on the planet would be looking for me.
So the good news for me, I will never be on a “cheat” list because the compensation will never – ever be enough to justify the risk.
Oct. 5, 2009 — Roberto Cittadini of Bellevue, Wash., pleaded guilty to filing a false tax return and admitted to concealing nearly $2 million in Swiss bank accounts. Cittadini, a retired sales manager for Boeing, failed to file a Report Foreign Bank and Financial Accounts (F-BAR) for 2001 through 2003.
Sept. 25, 2009 — Juergen Homann of Saddle River, N.J., pleaded guilty to failure to file a Report of Foreign Bank or Financial Accounts and accepted responsibility for concealing more than $5 million in Swiss bank accounts.
Aug. 14, 2009 — John McCarthy was charged with failing to inform the government of a Swiss bank account as part of a scheme to move at least $1 million from the United States into Swiss bank accounts with the goal of avoiding the payment of federal income taxes.
July 28, 2009 — Jeffrey P. Chernick, of Stanfordville, N.Y., pleaded guilty to charges of filing a false tax return. Chernick, who owns a corporation which represents toy manufacturers in China and Hong Kong, accepted responsibility for concealing more than $8 million in Swiss bank accounts.
June 25, 2009 — UBS client, Steven Michael Rubinstein of Boca Raton, Fla., pleaded guilty to filing a false tax return for tax year 2004. On April 1, 2009, Rubinstein was charged with filing a false tax return that intentionally failed to disclose the existence of a Swiss bank account maintained by UBS of which he was the beneficial owner and failed to report any income earned on that account.
April 14, 2009 — Robert Moran, of Lighthouse Point, Fla., pleaded guilty to a criminal information charging him with filing a false income tax return. Moran accepted responsibility for concealing more than $3 million in assets in a secret bank account at UBS in Switzerland.
Legal Actions to Date
Aug. 21, 2009 — Former UBS banker Bradley Birkenfeld was sentenced to 40 months in prison. Birkenfeld worked as a private banker for UBS AG and assisted an American billionaire real estate developer evade paying $7.2 million in taxes.
Aug. 20, 2009 — Hansruedi Schumacher and Matthias Rickenbach were indicted for conspiring to assist wealthy American clients conceal their assets by establishing sham offshore entities. Schumacher was an executive manager at Neue Zuercher Bank (NZB), a private Swiss bank. Rickenbach was a Swiss attorney who advised U.S. clients.
Feb. 18, 2009 — UBS AG, Switzerland’s largest bank, entered into a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the Internal Revenue Service (IRS).
Nov. 12, 2008 — Raoul Weil, a senior executive of a large Swiss bank, was charged with conspiring with other executives, managers, private bankers and clients of the banking firm to defraud the United States.
June 30, 2008 — The Justice Department filed papers seeking an order from a federal court in Miami, Fla., authorizing the Internal Revenue Service (IRS) to use a John Doe summons to request information from Zurich, Switzerland-based UBS AG about U.S. taxpayers who may be using Swiss bank accounts to evade federal income taxes.
Dec. 12, 2007 — Igor Olenicoff, president and owner of Olen Properties Corporation, pleaded guilty to filing a false tax return for tax year 2002 related to foreign bank accounts he failed to disclose to the IRS. According to Olenicoff’s plea agreement, during the years 1992 through 2004, Olenicoff owned, controlled and had signatory authority over financial accounts outside of the United States.
[Stacie says: From the IRS website – some good reads – well if you think Rev Rulings can be considered a good read ]
The IRS provides two items of guidance to help taxpayers who are victims of losses from Ponzi-type investment schemes.
Revenue Ruling 2009-9 provides guidance on determining the amount and timing of losses from these schemes, which is difficult and dependent on the prospect of recovering the lost money (which may not become known for several years).
Revenue Procedure 2009-20 simplifies compliance for taxpayers by providing a safe-harbor means of determining the year in which the loss is deemed to occur and a simplified means of computing the amount of the loss.
For an overview of this guidance, see IRS Commissioner Doug Shulman’s March 17, 2009, testimony before the Senate Finance Committee on tax issues related to Ponzi schemes.
QUESTIONS AND ANSWERS
Note: the answer to Q3 was updated on April 8, 2009.
Q1. I invested my money directly in an investment that turned out to be a Ponzi scheme. How do I deduct my loss?
Q2. I invested in a Ponzi scheme through an intermediary such as a partnership. How do I claim my loss?
A. Partnerships ordinarily flow through all of their items of income, loss and deduction to their partners and do not pay tax or receive refunds at the partnership level. The partnership should provide you with a statement (on Schedule K-1 or a substitute), separately stating flow-through items of the partnership, including the theft loss deduction, which you will then include on your own return. You may need to request an extension to file your return. The partnership should also advise you of its gross business receipts, which will help you determine whether you are eligible to carry back a 2008 theft loss as a net operating loss for up to five years instead of the normal three years for theft and casualty losses. See Revenue Procedure 2009-19.
Q3. I invested in a Ponzi scheme through a trust. How do I claim my loss?
A. The tax consequences for taxpayers with investments through trusts will vary depending upon the type of trust arrangement. Certain trusts, known as grantor trusts, do not ordinarily pay tax or receive refunds at the trust level. Instead, the items of income, loss or deduction of the trust appear on the grantor’s own individual tax return. The most common form of grantor trust is a revocable trust, but certain irrevocable trusts may also be treated as grantor trusts, depending on the grantor’s powers over the trust. If a trust is not a grantor trust, then it may pay tax or receive a refund at the trust level, depending on the distributions it makes to its beneficiaries. These non-grantor trusts will take the theft loss into account on their own returns, but beneficiaries will generally receive an indirect benefit from the loss, to the extent that the loss allows the trust to make greater tax-free distributions to the beneficiaries.
You may wish to consult a tax professional for assistance.
I’m not sure who Chloe Dowley is or Chloe’s level of expertise, but I do know that she has written some articles that were published on Yahoo’s Education pages. I became aware of Chloe when an article she had written for Yahoo! Education – here’s the link http://education.yahoo.net/degrees/articles/featured_8_careers_to_help_lower_your_stress_meter.html was forwarded to me by someone who like me is an accountant. This other accountant was awe struck by the content and wanted to get my opinion. The title of the article is: “Need a Less Stressful Career? Here are Eight Secrets to Work Zen”.
Cool – work zen sounds good. Right?
Chloe goes on to explain that one must understand the enemy [I assume she is referring to the readers current job] and she describes a nail biting stressed out employee who is sitting in front of his computer at 11 p.m. at night trying to meet a work deadline. But no fear, Chloe has an answer for how to fight off this terrible enemy – train for a new – less stressful career. And what job do you suppose was her top pick for eliminating those late night nail biting scenarios? You guessed it – why not be an accountant…and better yet…why not earn that accounting degree on line.
Yikees – is she kidding?
I can only assume that Chloe is not now, and never has been, an accountant. And I am dying to find out her source, her research, or well – just anything to support her conclusion. But before I chastise Chloe any further, I must admit that the apparent [or alleged] ignorance displayed by Chloe and Yahoo Education tends to be somewhat typical of many people who are not accountants. In fact, it’s almost a pathetic cliché. Many people believe [and apparently Chloe included – and I’m paraphrasing here] that an accountant who is “well-organized” and who has a knack for numbers and who can balance a profit and loss sheet, can enjoy a restful escape from the stresses of deadlines and negative office politics.
Oh – M’ – God – again, I have to ask – is she kidding?
Chloe – Chloe – Chloe – in the industry [the accounting industry] this particular brand of ignorance is commonly known as the “expectation gap”. In other words, this gap represents the difference between the realities of an accountant’s job and what non-accountants perceive is the accountant’s job.
Really. What I think Chloe is alluding to in her article – is a low stress – accounting related job – such as a bookkeeper or maybe even an accounting clerk [neither job which requires college degrees]. But Chloe, there is a world of difference between those types of jobs and the job of a college educated accountant.
Let me pose a couple of obvious questions. This one is easy – What is one of the most powerful tools that an investor, banker, or manager can use to make investment and/or strategic decisions about a company? That’s right – the company’s financial information. And where does that financial information come from? Right again – the accountants. And here is where it gets sticky for a lot of people – and this is related to job functions – the bookkeepers are the people who organize the accounting information and record the numbers on the financial statements. But the accountant is the person who analyzes those numbers and then forms conclusions based on those numbers – calculating and balancing the numbers and dropping them into an accounting program is but a tiny step in the path to the final product.
Also, here is something else to think about…..accountants have a lot more influence in the average person’s day to day life than you might think. Just about everything that you can see or touch involved an accountant at some point – someone who analyzed or calculated something related to every aspect of every product that you buy. And a bad accountant can cause serious harm to a company– ummm, need some evidence – ever heard of WorldCom or Enron?
Now let’s talk about the principles that govern the rules of accounting [I’m not talking about writing checks or making deposits and then posting those transactions to an accounting software system…Noooo. I’m talking about understanding the rules of accounting and working in the capacity of a college educated “Accountant”.] The principles to which I am referring are known as the Generally Accepted Accounting Principles. These accounting principles are governed by a hierarchy of rules that include the following:
Financial Accounting Standards or FASB statements
Accounting Research Bulletins (ARB)
FASB Technical Bulletins
AICPA industry Audit and Accounting Guides
AICPA Statements of Position
Consensus Positions of the Emerging Issues Task Force
SEC and FASB Staff Positions
AICPA AcSEC Practice Bulletins
AICPA Accounting Interpretations
FASB Implementation Guides
FASB Staff Positions
FASB Concepts Statements
AICPA Issues Papers
International Accounting Standards Committee Statements
GASB Statements, Interpretations, and Technical Bulletins
Pronouncements of other professional associations and regulatory bodies
AICPA Technical Practice Aids
[and don’t get me started on the tens of thousands of tax laws]
I have to tell you, mastering these rules is often an arduous process that takes many years. And if you are afraid of a 60+ hour work week – then my advice is to stay away from the accounting degree – on line or not. I don’t think I can say this enough – accounting is much more involved than entering numbers into a financial statement. The information that an accountant produces is more than just a balanced profit and loss statement. It involves critical thinking, professional judgment, it requires exceptional interpersonal skills, it’s a constant leaning process that requires a significant commitment to the career, and usually more than a mere forty hour work week.
Sadly, the accounting industry of late, appears to be overrun by people who have adopted the Chloe attitude assuming that the job of an accountant is a stress free 9 to 5 job [ and not a career] full of work Zen. These same people seem to have learned little if any technical skills from the colleges that they attended and frankly may be damaging the accounting industry. Seasoned accountants are continually complaining about the quality of the recently graduated accountants that are hovering around the job scene.
Accounting is a challenging and rewarding career choice that provides opportunities to grow professionally while also providing some flexibility. But accounting is NOT for the faint of heart nor is it for anyone looking for a stress free job. Because let’s face it – accounting is not stress free – and anyone who tells you that it is – is not being honest with you – or is not a true accountant.
The job is layered with daily, weekly, monthly, quarterly, and yearly deadlines imposed by regulatory bodies, creditors, investors and company management. It requires the knowledge of hundreds and thousands of different rules and even laws.
So Chloe, before you entice people to the career with promises of work Zen and a restful escape, please consider that you are promoting an environment that causes frustration and anxiety for the seasoned accountants who understand the job requirements and who are prepared to make the proper commitment to the career.