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Tax Crime Does Not Pay! – List of 2017 Successful IRS Prosecutions.

April 10, 2018

Significant Prison Sentences Handed Down in 2017!
 
It’s that time of year again: tax season. The Justice Department would like to remind the public during this time of year that evading your tax obligations could end badly, with substantial fines and penalties, and even long prison sentences. 
 
Taxpayers are also reminded to be on the lookout for unscrupulous tax return preparers, who seek to inflate refunds by falsifying deductions, among other means. Even if a tax return preparer makes an error on an individual’s tax return, it is still the taxpayer’s responsibility to pay the correct taxes, and that individual may still be responsible for any unpaid taxes, interest, and fines resulting from these crimes.
 
“Tax returns are signed under the penalties of perjury, and every taxpayer is ultimately responsible for the contents of his or her own return,” cautioned Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “While the vast majority of Americans truthfully report and pay their taxes, unfortunately there are those who seek to cheat the system and take a free ride on the backs of the hard working men and women of this country. The Justice Department is committed to bringing tax evaders and those who falsely prepare tax returns to justice.”
 
Over the past year, federal prosecutors for the Tax Division and U.S. Attorney’s offices across the country have worked tirelessly with special agents of Internal Revenue Service Criminal Investigation and other law enforcements agencies to investigate and prosecute those who illegally evade their taxes.  These enforcement efforts continue year round.
 
Recent Tax Evasion Prosecutions of Individuals 
  • In July 2017, a Watertown, New York, restaurateur was sentenced to 150 months in prison for tax evasion and investment fraud.  He engaged in a scheme to evade more than $4 million in taxes and obstruct the IRS.
  • In October 2017, a Grand Junction, Colorado, business owner was sentenced to 88 months in prison for tax evasion and failing to file corporate and individual tax returns.  He had not filed a personal tax return since 1992 and had not paid individual income taxes since 1993.
  • In January 2017, a St. Louis, Missouri, tax return preparation business owner was sentenced to 27 months in prison for tax evasion.  He underreported his businesses’ gross receipts by over $1.5 million and evaded over $580,000 in tax.
  • In August 2017, a south Florida salesman was sentenced to 12 months and one day in prison for tax evasion.  From 2002 to 2015, he earned over $1.5 million in income selling hurricane resistant windows and evaded paying over $350,000 in taxes.  Except for the 2007 tax year, he had not filed an income tax return since 2002.
Recent Employment Tax Prosecutions  
  • In March 2018, the owners of a Memphis, Tennessee, staffing company, who were husband and wife, were sent to jail for failing to pay over payroll taxes and filing false tax documents.  The husband was sentenced to 75 months in prison and his wife was sentenced to one year in prison.   They failed to pay over $2.8 million in withholdings and other employment taxes to the IRS and filed false employment tax returns.
  • In October 2017, the owner of a Las Vegas, Nevada, strip club was sentenced to 24 months for evading employment taxes.  The former owner of The Crazy Horse Too evaded paying more than $1.7 million in employment taxes.
  • In July 2017, a Potomac, Maryland, doctor and entrepreneur was sentenced to 119 months and 29 days in prison for defrauding his former company’s shareholders and for failing to pay more than $7.5 million in employment taxes.

Recent Prosecutions Involving Offshore Bank Accounts 

  • In October 2017, two Tampa, Florida, business executives were sentenced to prison for 54 months and 72 months respectively for their roles in a conspiracy to defraud the United States using an offshore tax shelter scheme.   They conspired to create and promote a sham offshore tax shelter strategy marketed to clients.
  • In July 2017, a Fort Myers, Florida, businessman was sentenced to 57 months in prison for conspiring with investment advisors to hide money in offshore bank accounts.  He used secret numbered bank accounts and foreign shell companies to hide millions of dollars in order to evade more than $728,000 in U.S. taxes.
  • In October 2017, a Greenwich, Connecticut, resident pleaded guilty to failing to report to the Department of Treasury funds he maintained in foreign bank accounts.  He opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann. In 2004, the value of his foreign accounts exceeded $28 million.  For over a decade, he filed false tax returns, on which he failed to report income from his foreign accounts.

Recent Prosecutions of Attempts to Obstruct the IRS 

  • In July 2017, a Loveland, Colorado, businessman and delicatessen owner was sentenced to 24 months in prison for conspiring to file fraudulent claims for tax refunds.  He conspired with his return preparer to file three tax returns that claimed more than $1 million in bogus refunds, of which the IRS paid $350,765.  He spent the funds on precious metals and coins, a truck, jewelry, luxury travel, and sporting equipment.
  • In November 2017, a Greensboro, North Carolina, resident was sentenced to 37 months in prison for corruptly endeavoring to obstruct the IRS.  He filed several fraudulent tax returns with the IRS that included fake income and withholdings, which claimed over $750,000 in fraudulent refunds. He also filed documents with the Guilford County Register of Deeds purporting to renounce his United States citizenship and proclaiming to be a sovereign citizen.
  • In October 2017, a Boynton Beach, Florida, resident was sentenced to 30 months in prison for obstructing the IRS.  He filed fraudulent personal tax returns with the IRS that sought more than $5.6 million in fraudulent refunds, of which the IRS paid more than $485,000.  He used the funds to purchase a house and multiple vehicles, including a Jaguar and Mercedes Benz.
 Have a Tax Problem?
 
 
Contact the Tax Lawyers at
Marini & Associates, P.A. 
 
 for a FREE Tax Consultation 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

Even in Times of Declining IRS Tax Audits, It is Beneficial to Know How Are Tax Returns Selected for Audit?

April 10, 2018

The number of tax returns examined by the IRS drops every year, to the point where the agency now audits just 0.5 percent of all returns, but that still amounts to over a million adversely affected taxpayers.

In order to determine how to respond to an IRS Tax Audit, it is helpful to understand how tax returns are selected for examination. The IRS selects returns for examinations in several ways, some based upon objective criteria coded into a carefully protected computer program and others based upon old fashioned investigation work. 
Selection for an IRS Audit does not always suggest there’s a problem. The IRS uses several different methods:
  1. Random Selection and Computer Screening?  Sometimes returns are selected based solely on a statistical formula. The IRS compares your tax return against “norms” for similar returns. The IRS develop these “norms” from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. The IRS uses this program to update return selection information.
Many returns are selected through the use of a computer program called the Discriminant Function System (DIF). This program scores each return that is filed for potential error based upon past IRS audit experience. The returns receiving high scores are made available for examination. IRM 4.1.3.2 (10-24-06). The DIF formulas are listed in the Law Enforcement Manual, which is not publicly available.
    1. The Discriminate Function (DIF) score is the product of a mathematical formula for identifying and selecting returns for examination.
    2. The program scores tax returns using a formula based on historic information obtained from specific examination programs. A high DIF score indicates a high potential for adjustment.
    3. The Service periodically conducts compliance studies to update and reformulate its basis for audit selection formulas. 
    4. Different types of taxpayers and returns are subject to different DIF formulas. While the specifics of the program are not public, certain items appear to cause a return to be selected for examination, such as:

                                                               i.      Participation in a Tax Shelter,
                                                              ii.      A large Charitable Contributions,
                                                            iii.      A Home Office Deductions
                                                            iv.      A Large Travel & Entertainment Expense (e.g. Sky Box. etc.) or
                                                             v.      A Large Automobile Expense.

Returns selected under the DIF program are then manually screened, so that attachments to the return and other data that a computer cannot detect can be properly considered.
Other returns are selected at random under current national or regional studies, such as the National Research Program (NRP), the successor to the Taxpayer Compliance Measurement Program (TCMP). The results of these examinations are used to measure and evaluate taxpayer compliance and to revise the DIF program. NRP and TCMP audits.
Alternatively, the IRS may receive information from other federal agencies. (See IRM 4.6.2 (8-1-02)) and they may also receive information through federal-state programs (See IRM 4.1.4.2.4 (10-24-06)). 

  1. Related examinations – The IRS may select your returns when they involve issues or transactions with other taxpayers, such as Business Partners or Investors, whose returns were selected for audit. This is affectionately referred to as an “Audit by Infection.”
  2. Review After Selection by IRS - After selection, an experienced auditor reviews the return. They may accept it; or if the auditor notes something questionable, they will identify the items noted and forward the return for assignment to an examining group.
a.       Filing an amended return does not affect the selection process of the original return. However, amended returns also go through a screening process and the amended return may itself be selected for audit.

b.      A refund is not necessarily a trigger for an audit, but it could trigger an examination.

4.      Information Provided by 3rd Parties – The Service also relies on information provided by third parties, such as banks, brokers and employers. Much of this information is required to be reported by payers of certain types of income on Forms W-2 or 1099.
     
      Unreported income is perhaps the easiest-to-avoid red flag and, by the same token, the easiest to overlook. Any institution that distributes an individual’s income will report it to the IRS, and the more income sources you have, the greater the difficulty in keeping track.

      Old brokerage accounts are commonly overlooked, as are Form 1099s and distributions from a college savings account to pay tuition. 


      The IRS will typically receive a copy of all the tax forms that you do, including distributed income. The IRS will match the reported items to a person’s return. If they see something missing, they will automatically conduct at least a letter audit. 
 

5.     Referrals by IRS Agents - Referrals may also be made by other examining agents. For example, the return of a party related to another taxpayer being audited, such as the partners of a partnership being audited may also be selected for audit. The Service also may investigate tips regarding potential noncompliance, and select those returns for audit as a result.

 

6.     Other IRS Audit Triggers - Examinations may also be triggered a variety of other ways, such as, by mathematical errors or missing information. Also, a claim for refund can potentially trigger an examination. 
a.       Foreign Accounts 
 
The Foreign Account Tax Compliance Act has strict reporting requirements for foreign
bank accounts. The law requires overseas banks to identify American asset holders
and provide information to the IRS.
 
Individuals must report foreign assets worth at least $50,000 on Form 8938.
 
It used to be you didn’t have to report it; you just had to check a box that you had one.
Now you have to not only check the box, you have to identify the institution and the
highest dollar amount the account was at the previous year.
 
 
 
The regulations demand openness, which in turn increases the likelihood of an audit.
That’s because of a perception that taxpayers with foreign accounts are trying to hide
income offshore.
 
Compliance with the law increases the likelihood of an audit, and noncompliance can
result in stiff penalties and significant legal liabilities.
 
b. Overstated Business Expenses
 
The IRS will give a close look to excessive business tax deductions.
The agency uses occupational codes to measure typical amounts of travel by profession,
and a tax return showing 20% or more above the norm might get looked at.
 
Also, take-home vehicles are you consider strictly business, so a specific employer
purpose for allowing the employeetaking the vehicle home should be documented.
 
Generally speaking, the IRS can be strict about mixing business and personal expenses.
Meals and entertainment can be allowable, but exceeding the occupational norm by a
great amount invites an audit. Meals and entertainment oftentimes can be a blurred line, so
be sure to document what is and isn't a personal expense.
 
c. Earning More than $200,000
 
Last year the IRS audited about 1% of those earning less than $200,000, and almost 4% of
those earning more, according IRS data. Raise the threshold to $1 million and the
percentage of audited tax returns increases to 12.5%.
 
The same patterns exist when it comes to business tax returns: 1% of corporations with
less than $10 million in assets, compared with 17.6% above that threshold.
 
Higher incomes are likely to result in more complex tax returns that are more likely to
contain audit triggers. More importantly, the IRS wants to maximize return on investment,
something the agency gets better at every year:
 

The IRS has broad authority to examine tax returns. An understanding of the rights and responsibilities of both taxpayers and the examining agent can help reduce the scope of a tax audit or examination and can lead to a more favorable disposition.

 
Have a Tax Problem?
 


Contact the Tax Lawyers at
Marini & Associates, P.A.
 
 
 for a FREE Tax Consultation 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

Hiding $ Offshore on IRS Dirty Dozen List

April 3, 2018

Avoiding taxes by hiding money or assets in unreported offshore accounts remains on the IRS “Dirty Dozen” tax scams for 2018, the agency said in IR-2018-64.

This long-running scheme to hide money in international accounts to avoid paying taxes has been a major focus for the IRS in recent years. Taxpayers should remain wary of these schemes given the continuing focus on this by the tax agency and the Justice Department. 

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, including offshore schemes. Many of these schemes peak during filing season as people prepare their tax returns or seek help with their taxes.

As the IRS intensified efforts on offshore issues in recent years, many taxpayers have voluntary disclosed their participation in these schemes.

There have been more than 56,400 disclosures and the IRS has collected more than $11.1 billion from the Offshore Voluntary Disclosure Program (OVDP) since it opened in 2009. With applications dwindling in recent years to a few hundred annually, the IRS announcedearlier this month the voluntary program will end Sept. 28.

In addition, another 65,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations. The IRS conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

Illegal scams can lead to significant penalties as well as interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by attempting to hide income in offshore banks, brokerage accounts or nominee entities. They then access the funds using debit cards, credit cards or wire transfers. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as bankers and others suspected of helping clients hide their assets overseas.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward to voluntarily disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations.

Third-Party Reporting

Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements between the U.S. and partner jurisdictions, automatic third-party account reporting has entered its third year The IRS continues to receive more information regarding potential non-compliance by U.S. persons because of the Department of Justice’s Swiss Bank Program. This information makes it less likely that offshore financial accounts will go unnoticed by the IRS.

With the OffshoreVoluntary Disclosure Program coming to a close on Sept. 28, the IRS reminded taxpayers there is a limited amount of time to take advantage of this option.

 Have Undeclared Income from an Offshore Account?
 
Want to Know if the OVDP Program is Right for You?

 
 
Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
at: www.TaxAid.com or www.OVDPLaw.com or
Toll Free at 888-8TaxAid (888) 882-9243

Read more at: Tax Times blog

IRS ‘Dirty Dozen’ List of Tax Scams for 2018

April 3, 2018

The Internal Revenue Service concluded its annual "Dirty Dozen" list of tax with scams with its IR-2018-66 with a warning to taxpayers to remain vigilant about these aggressive and evolving schemes throughout the year.

This year's “Dirty Dozen” list highlights a wide variety of schemes that taxpayers may encounter throughout the year, many of which peak during tax-filing season. The schemes can run the gamut from simple refund inflation scams to technical tax shelter deals. A common theme throughout these: Scams put taxpayers at risk.

Taxpayers need to guard against ploys to steal their personal information. And they should be wary of shady promoters trying to scam them out of money or talk them into engaging in questionable tax schemes.

Taxpayers should always keep in mind that they are legally responsible for what is on their tax return even if it is prepared by someone else. Consumers can help protect themselves by choosing a reputable tax preparer.

Here is a recap of this year's "Dirty Dozen" scams:

Phishing: Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or tax refund. Don’t click on one claiming to be from the IRS. Be wary of emails and websites that may be nothing more than scams to steal personal information. (IR-2018-39)

Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things. (IR-2018-40)

Identity Theft: Taxpayers should be alert to tactics aimed at stealing their identities, not just during the tax filing season, but all year long. The IRS, working in the Security Summit partnership with the states and the tax industry, has made major improvements in detecting tax return related identity theft during the last two years. But the agency reminds taxpayers that they can help in preventing this crime. The IRS continues to aggressively pursue criminals that file fraudulent tax returns using someone else’s Social Security number. (IR-2018-42)

Return Preparer Fraud: Be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest, high-quality service. There are some dishonest preparers who operate each filing season to scam clients, perpetuating refund fraud, identity theft and other scams that hurt taxpayers. (IR-2018-45)

Fake Charities: Groups masquerading as charitable organizations solicit donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally-known organizations. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. (IR-2018-47)

Inflated Refund Claims: Taxpayers should take note of anyone promising inflated tax refunds. Those preparers who ask clients to sign a blank return, promise a big refund before looking at taxpayer records or charge fees based on a percentage of the refund are probably up to no good. To find victims, fraudsters may use flyers, phony storefronts or word of mouth via community groups where trust is high. (IR-2018-48)

Excessive Claims for Business Credits: Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities or satisfy the requirements related to qualified research expenses. (IR-2018-49)

Falsely Padding Deductions on Returns: Taxpayers should avoid the temptation to falsely inflate deductions or expenses on their tax returns to pay less than what they owe or potentially receive larger refunds. Think twice before overstating deductions, such as charitable contributions and business expenses, or improperly claiming credits, such as the Earned Income Tax Credit or Child Tax Credit. (IR-2018-54)

Falsifying Income to Claim Credits: Con artists may convince unsuspecting taxpayers to invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers should file the most accurate tax return possible because they are legally responsible for what is on their return. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties. (IR-2018-55)

Frivolous Tax Arguments: Frivolous tax arguments may be used to avoid paying tax. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes despite being repeatedly thrown out in court. The penalty for filing a frivolous tax return is $5,000. (IR-2018-58)

Abusive Tax Shelters: Abusive tax structures are sometimes used to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2018-62)

Offshore Tax Avoidance: Successful enforcement actions against offshore cheating show it’s a bad bet to hide money and income offshore. People involved in offshore tax avoidance are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. (IR-2018-64)

Have an IRS Tax Problem?  

 

     

     Contact the Tax Lawyers at 

    Marini & Associates, P.A. 

     

     
    for a FREE Tax Consultation 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

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