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
By Stacie Kitts, CPA
When I read a story about someone who appears to have been messing with the tax system for some thirty years, it makes me wonder…..who in the heck did their taxes, and why did it take so long to get busted.
The Orange County District Attorney is reporting that James and Dorothy Klinger, owners of Jamo’s Gardening and Modern Tree Services Inc. are charged with 28 counts of failing to file a return with intent to evade tax, 28 counts of willful failure to pay taxes, and some felony counts for lying about their business to a worker’s compensation insurance company.
These two are looking at spending the rest of their lives in prison if convicted.
They appear to have used an old school tax crook technique and kept two sets of books. You know, one that showed the “real” dollars and one that was a work of fiction.
Was it worth it? You decide….
They are accused of underreporting about $3.6 million in income and $3 million in wages. This translates to about 1.9 million that should have been paid over in taxes (give or take) that they got to keep – for a little while anyway.
I don’t know about you, but $2 million isn’t enough money to risk a 40 year prison sentence. Am I Right!?
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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: firstname.lastname@example.org.
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.
Okay – so what does that mean?
It means that if you are trying to hide income in a foreign account, your bank is going to tattle on you to the Internal Revenue Service.
So…..If you do have cash or an investment in a foreign account – or have signing authority over a foreign account, you need to make sure you are properly reporting it to the IRS.
Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts is for this purpose. The Form is due and must be received by the IRS no later than June 30 each year. And, if you don’t file it – be ready to receive a whopping $10,000 fine.
In addition, all foreign income must also be reported on your income tax return.
However, there is some good news. The IRS has recently announced a new voluntary disclosure program that allows U.S. taxpayers until September 23, 2009 to disclose any previously unreported accounts and income. Here’s some more good news, if you follow the guidelines of the program, the IRS promises not to refer you to the Department of Justice for criminal prosecution.
For more information, take a look at these frequently asked questions offshore activities.
Since not reporting your offshore activity can subject you to criminal prosecution by the Department of Justice, it is HIGHLY recommended that you learn what your responsibility is concerning this type of activity.
Note: The filing relief deadline has been extended to June 30, 2010 for taxpayers who need to file an FBAR report for 2008, 2009 or earlier calendar years if they meet the following criteria:
1) persons with signature authority over, but no financial interest in, a foreign financial account, and
2) persons with a financial interest in, or signature authority over, a foreign commingled fund.
See notice 2009-62 for more information
Helio Castroneves the winner of the 5th Dancing with the stars competition, and a two time winner of the Indianapolis 500 may find himself dancing with inmates following his indictment on conspiracy to defraud the United States for income tax evasion.
The seven count indictment includes charges that Mr. Castroneves filed false federal income tax returns for the years 1999 through 2004 by using offshore corporations to hide income and evade paying taxes.
Visit the Department of Justice web site to read more about the alleged scheme. http://www.usdoj.gov/tax/txdv08884.htm
It’s true that a good tax preparer has a forward thinking mentality with the objective of avoiding taxes where possible.
Good preparers take the time to learn their client’s long term goals and with that knowledge structure tax strategies that minimize income tax exposure.
Buts let’s face it, if your business is profitable, you will pay income taxes at some point. Any tax advisor who is telling you that he or she can eliminate your tax liability or that you will never pay income taxes is most likely promoting an illegal tax evasion scheme.
Here are some recent examples of illegal activity:
Nevada Federal Court Permanently Bars Las Vegas Man From Promoting Sham-Trust Scheme
A tax scheme promoted in California and other states resulted in an injunction order requiring the promoter to give the government a list of the names, addresses, and Social Security numbers of customers for whom he prepared income tax documents over the past ten years.
Justice Department Sues To Shut Down San Diego-Area Tax Preparation Firm
IRS Estimates that National City Tax Preparation Firm Cost Government $18 million
Department of Justice News Release on Suit against Five Jackson Hewitt OutletsApril 3, 2007 — The U.S. Government Sues Jackson Hewitt Tax Preparation Franchises in Four States, Alleging Pervasive Fraud.
Fraudulent Telephone Tax Refunds, Abusive Roth IRAs Top Off 2007 “Dirty Dozen” Tax ScamsIR-2007-37, Feb. 20, 2007 –– Also new to the “Dirty Dozen” are abuses involving the American Indian Employment Credit, domestic shell companies and structured entities.
Tax Return Preparer FraudFS-2007-12, January 2007 — Taxpayers should use caution when engaging professional tax return preparers and learn the warning signs of potential fraud.
Tax evasion refers to any intentional method employed to illegally evade paying the tax that you owe. Tax evasion is subject to criminal prosecution.
Here are some examples of tax evasion:
Not filing a Personal Income Tax return when required
Filing a frivolous tax return. [a return with information that is untrue or incomplete]
Not reporting taxable income, such as the income received from being paid “under
Claiming fraudulent deductions [which could include deductions for items that don’t exist
or that don’t qualify as deductions under the tax law.]
Claiming personal expenses as business expenses.
What are some of the penalties of tax evasion?
Tax Evasion Penalties:
Failure-to-file penalty. Up to a maximum of 25% of the tax due
Failure-to-pay penalty: Up to a maximum of 25% of the tax due
Tax Penalty for frivolous return: $500 penalty.
Accuracy-related penalty: An accuracy-related penalty of 20% applies to any
underpayment due to: Negligence or disregard of rules or regulations or Substantial
understatement of income tax.
Filing late: Up to a maximum of 25% of the tax due.
Fraud: up to a maximum of 75% of the tax due.
Return over 60 days late is the smaller of $100 or 100% of the unpaid tax.
Paying tax late: Up to a maximum of 25% of the tax due.
Combined penalties: If both the failure-to-file penalty and the failure-to-pay
penalty (discussed earlier) apply in any month, the 5% (or 15%) failure-to-file
penalty is reduced by the failure-to-pay penalty. However, if you file your
return more than 60 days after the due date or extended due date, the
minimum penalty is the smaller of $100 or 100% of the unpaid tax.
Accuracy-related penalty: The penalty is equal to 20% of the underpayment.
– You underpay your tax because of either “negligence” or
– You “disregard” the rules or regulations or
– You substantially understate your income tax. .
Fraud: If there is any underpayment of tax on your return due to fraud, a penalty of
75% of the underpayment due to fraud will be added to your tax.
You may be subject to criminal prosecution and need to go to trial for actions such as:
Willful failure to file a return or
Supply information or
Pay any tax due or
Fraud and false statements or
Preparing and filing a fraudulent return
Remember to always consult with your tax advisor regarding your income tax needs.
Stacie Clifford is licensed by the California Board of Accountancy.