Yearly Archives: 2021

The Internal Revenue Service today began its "Dirty Dozen" list for 2021 with a warning for taxpayers, tax professionals and financial institutions to be on the lookout for these 12 nefarious schemes and scams.

This year's "Dirty Dozen" will be separated into four separate categories:

• pandemic-related scams like Economic Impact Payment theft;
• personal information cons including phishing, ransomware and phone "vishing;"
• ruses focusing on unsuspecting victims like fake charities and senior/immigrant fraud; and
• schemes that persuade taxpayers into unscrupulous actions such as Offer In Compromise mills and syndicated conservation easements.

The agency compiled the list into these categories based on who perpetuates the schemes and who they impact. In addition to today's scams the IRS will highlight the other schemes over the next three days.

The IRS urges all taxpayers to be on guard, especially during the pandemic, not only for themselves, but also for other people in their lives.

"We continue to see scam artists use the pandemic to steal money and information from honest taxpayers in a time of crisis," said IRS Commissioner Chuck Rettig. "We provide this list to alert taxpayers about common scams that fraudsters use against their victims. At the IRS, we are dedicated to stopping these criminals, but it's up to all of us to remain vigilant to protect ourselves and our families."

Taxpayers are encouraged to review the "Dirty Dozen: list in a special section on IRS.gov and should be alert to these scams during tax filing season and throughout the year.

Economic Impact Payment theft

A continuing threat to individuals is from identity thieves who try to steal Economic Impact Payments (EIPs), also known as stimulus payments.

Taxpayers should remember that the IRS website, IRS.gov, is the agency's official website for information on payments, refunds and other tax information.

Unemployment fraud leading to inaccurate taxpayer 1099-Gs

Because of the COVID-19 pandemic, many taxpayers lost their jobs and received unemployment compensation from their state. However, scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Payments made on these fraudulent claims went to the identity thieves.

The IRS reminds taxpayers to be on the lookout for receiving a Form 1099-G reporting unemployment compensation that they didn't receive.

Additional protection to help protect taxpayers

IRS makes IP PINs available to all taxpayers – adding another layer of security

To help taxpayers avoid identity theft, the IRS this year made its Identity Protection PIN (IP PIN) program available to all taxpayers. Previously it was available only to victims of ID theft or taxpayers in certain states. The IP PIN is a six-digit code known only to the taxpayer and to the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayer's personally identifiable information.

Using an IP PIN is, in essence, a way to lock a tax account. The IP PIN serves as the key to opening that account. Electronic returns that do not contain the correct IP PIN will be rejected and paper returns will go through additional scrutiny for fraud.

Reducing fraud

The IRS and its Security Summit partners in the states and the private-sector tax community have made changes to help reduce identity theft-related refund fraud that are noticeable to the average person filing a return.

Multi-factor authentication can help

It is important for taxpayers filing in 2021 to know that online tax software products available to both taxpayers and tax professionals will contain options for multi-factor authentication. Multi-factor authentication allows users to better protect online accounts. One way this is accomplished is by requiring a security code sent to a mobile phone in addition to the username and password used to access the account.

Read more at: Tax Times blog

In a memo LB&I-04-0621-0005 (6/16/2021), the IRS's Large Business & International division (LB&I) has said it is extending the suspension of information document request (IDR) enforcement procedures through September 30, 2021, and that other exam activities will continue under normal procedures (with some exceptions) through September 30, 2021. An IDR is issued on IRS Form 4564, Department of the Treasury/Internal Revenue Service Information Document Request. It is a form that the IRS uses during a tax audit to request information from the taxpayer.

• In March 2020, LB&I said that IDR enforcement procedures would be suspended through July 15, 2020. (IRS memo: Approval for Deviation from IDR Process and Enforcement Control Number: LB&I-04-0320-0007 (3/25/2020))
• In April 2020, LB&I clarified its compliance priorities for the period ending July 15, 2020. Generally, LB&I would not begin new return examinations before July 15, 2020. However, LB&I managers had the discretion to open an examination into prior year, subsequent year and related returns associated with an existing examination. 
• In a December 2020 memo, LB&I said it was extending, in general, the suspension of IDR enforcement procedures through June 30, 2021.

In addition, in general, the LB&I exam activities would continue under normal procedures (with some exceptions) through June 30, 2021 "and thereafter." Exceptions to this rule were:

1. Appointments (whether in person or virtual) could be scheduled depending upon the facts and circumstances of the taxpayer. While in-person contact was allowed, IRS would continue to support performing its work virtually to accommodate its employees or taxpayers who may have concerns with in-person contact, which may require the need for statue extensions. Virtual appointments would continue to be conducted by WebEx or teleconference. 
2. The hold on new Discriminate Analysis Score (DAS, a computer model the IRS uses to score examination potential for corporate returns with total assets of $10 million or more) cases would continue. IRS managers would have discretion in approving prior, subsequent, and related returns associated with an existing DAS examination.

The IRS has extended the guidance in the December 2020 memo through September 30, 2021. While the December 2020 memo said that the LB&I exam activities would continue under normal procedures (with some exceptions) through June 30, 2021 "and thereafter," the new memo says that the LB&I exam activities will continue under normal procedures (with some exceptions) through September 30, 2021. It deletes the "and thereafter" language.

This memo extends the approval period to deviate from IDR enforcement procedures and applies to the IDR enforcement process for taxpayers who are unable, due to the COVID-19 pandemic, to respond timely to an IDR. Notwithstanding this deviation, managers retain the discretion to continue with the IDR enforcement process when in their judgment the interests of tax administration warrant, for example cases with short statues or fraud development. 

Have IRS Tax Problems?

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

Read more at: Tax Times blog

 On June 22, 2018 we posted Understanding IRS Tax Audits - Part I where we discussed that careful advance preparation can help reduce the scope of a tax audit or examination and can lead to a more favorable outcome. Although a thorough understanding of the underlying facts and applicable law is a must, understanding IRS procedures is critical to preserving a taxpayer’s rights.

Understanding IRS Tax Audits - Part II

We have summarize below and in Parts I & III some of the more important IRS procedural rules and guidelines governing civil IRS examinations and audits, including: how returns are selected for examination; a brief description of the types of civil examinations; an explanation of the tools available to IRS examining agents and revenue agents; dispositions in IRS audits or examinations and, if necessary, where to seek relief from an unfavorable result in an examination or audit.

Interacting with the IRS Agent

When possible, the taxpayer’s representative, not the taxpayer, should interact with the agent. Indeed, in most cases, the meetings should take place at the representative’s office, not the taxpayer’s place of business. Direct contact between the agent and the taxpayer (or taxpayer’s employees) should be minimized. Agents are trained in interviewing techniques designed to elicit information. They will ask open ended questions, and will listen carefully to the responses. Taxpayers who meet with an agent should be careful to answer only the question asked.

Absent having been served an administrative summons, a taxpayer has the right to refuse to be interviewed. Although, historically examining agents have been reluctant to press for taxpayer interviews, examining agents have become more aggressive in seeking taxpayer interviews and using summonses to compel them. If interviewed pursuant to a summons or otherwise, the taxpayer has a right to counsel and may assert appropriate privileges.

Care should be taken to create a complete record of all information provided to the examining agent. Maintain a detailed record of all documents and records provided to the examining agent. Maintain a record of any oral communication with the agent whether in person or by telephone. Confirm any material oral agreements in writing.

How Agents Gather Information

During the examination, the agent may request various types of documentation to verify items of income and expense on the return, including records, such as receipts, invoices, books, and worksheets. Revenue agents may also review prior or subsequent tax returns or the returns of related taxpayers.

Generally, agents have broad powers to compel production of relevant information. Nevertheless, certain types of information may be subject to privilege or otherwise not subject to compelled production. Once provided, the privilege is likely to have been waived. For example, an agent may ask to see invoices to substantiate a deduction claimed for professional services, such as accounting or legal fees. The descriptions of the services provided could contain information leading to another adjustment. If the descriptions of the services may be privileged, the taxpayer may be able to withhold the actual invoices in favor of some other proof of payment, or may be able to provide redacted invoices.

There has been much discussion about whether tax work papers can be so compelled. Tax work papers prepared in connection with the preparation of the tax return can be reviewed. However, audit accrual work papers, which may reflect opinions and estimates related to questionable items on the return, present a more complex question. Agents are cautioned in the Internal Revenue Manual to exercise restraint in this area, but the Service is becoming more aggressive, particularly where listed transactions are involved.

Keep in mind that the taxpayer’s books and records may contain confidential information of another taxpayer, such as IP or the terms of a contract. The taxpayer may be under a contractual obligation to keep this information confidential. If the agent can not be convinced to accept redacted documents, the taxpayer may want to decline to produce the document unless an administrative summons is issued compelling its disclosure.

An agent will typically request documents and other information by issuing an Information Document Request (Form 4564). Initial requests at the beginning of an examination are typically fairly broad with subsequent requests focusing on specific issues. Keep careful track of IDR requests and items produced. Always maintain a duplicate copy of any documents that are provided and include a transmittal letter with any response describing the documents produced.

If a taxpayer fails to produce requested items, the Service can summons a taxpayer or third party for books, records or testimony. Agents are directed to make an attempt to obtain information informally before issuing a summons. Agents are instructed to consider issuing a summons when a taxpayer fails to make requested records available within a reasonable period of time; where the records submitted are known or suspected to be incomplete and the examining agent believes that additional records containing relevant and material matter may be in the possession of the taxpayer or a third party; and when the examining agent is in doubt as to the availability of pertinent records and wishes to obtain oral testimony as to what records may exist and their location.

When an administrative summons is issued, the summoned person must personally appear at the time and place specified with any requested items. The summoned person has the right to counsel, the right to assert the attorney-client privilege, and the right to raise the self-incrimination privilege under the 5th Amendment. The IRS can issue administrative summonses to third parties believed to hold relevant information. Notice of summons issued to a third party must be given to the taxpayer within 3 days of the date on which service is made to the third party and no less than 23 days before the summons return date. This is to allow the taxpayer sufficient time to file a petition to quash.
If a summoned party ignores the summons or otherwise fails to fully comply, the Service may bring legal proceedings to enforce the summons in federal district court. A court will generally enforce a summons if there is a legitimate purpose for the examination; the information demanded may be relevant to that purpose; the information is not already in the possession of the Service; the information or document is not privileged and the Service has complied with the applicable administrative requirements of the Code and regulations.

To be continued... Understanding IRS Tax Audits - Part III

  
Contact the Tax Lawyers at 

Marini& Associates, P.A. 

 

 

for FREE Tax HELP Contact Us at:

www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243

Read more at: Tax Times blog

According to the DoJ, a Texas attorney and former member of the Idaho legislature, John O. Green, and his client, Texas inventor Thomas Selgas, were sentenced yesterday for conspiracy to defraud the United States and tax evasion. 

Selgas and Green were convicted by a jury in Federal District Court in Dallas on Jan. 15, 2020. According to the evidence presented at trial, Selgas conspired with Green, an attorney licensed to practice in Texas, to defraud the United States by obstructing the IRS’s efforts to assess and collect Selgas’s taxes. 

Selgas and his wife owed approximately $1.1 million in taxes that Selgas refused to pay. When the IRS sought to collect those taxes, Selgas concealed, with the assistance of Green, substantial funds by using Green’s Interest on Lawyers Trust Account (IOLTA) rather than using financial accounts in Selgas’s own name. 

An IOLTA is an escrow bank account used by a lawyer to hold money in trust for clients. 

From 2007 to 2017, Selgas deposited proceeds from the sale of gold coins and other income into Green’s IOLTA. At the direction of Selgas, Green would then use that escrow account to pay the personal expenses of Selgas and his wife, including their credit card bills. 

This use of the IOLTA concealed Selgas’s income from the IRS and thwarted its ability to identify funds he possessed, which could be used to offset the taxes owed. 

Selgas and Green also filed a false tax return on behalf of MyMail Ltd., an intellectual property development and licensing partnership Selgas co-founded, omitting a substantial portion of the partnership’s actual income. 

In addition to the term of imprisonment, U.S. District Judge Karen Gren Scholer ordered Selgas to serve three (3) years of supervised release and to pay approximately $1,323,776.92 in restitution to the United States. 

Judge Scholer ordered Green to serve three (3) years of supervised release and to pay approximately $679,501.50 in restitution to the United States. 

Have a Criminal Tax Problem?

Read more at: Tax Times blog