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Beware of Scams: Fraudulent Emails can cause IRS Problems

August 29, 2011 By

According to the Treasury Inspector General for Tax Administration (TIGTA) report on the 2010 tax returns, one of the fast raising issues relating to taxes is identity theft. There are many cases of taxpayers’ identities being used to defraud the IRS of tax refunds. This leaves the genuine taxpayers waiting for lengthy periods of time as the IRS has to sort out the mess (and in many occasions, the IRS unable to retrieve the defrauded funds). The increase of the identity theft crime has been enhanced by widespread use of modern technology, including the internet. In fact, between 2008 and 2010, there has been a five-fold increase in identity theft tax fraud cases.

There are various ways in which the identity thieves get personal information from taxpayers unawares. However, one of the more common ways they “phish” for information is by sending random emails to people, informing them that some information is needed by the IRS to complete certain transactions. These phony emails will even come with an “irs.gov” email address to give it a genuine appearance. The IRS has warned taxpayers against such correspondence, claiming that it is a system hack. They have provided information on their website to help taxpayers avoid identity theft.

For starters, the IRS does not communicate through email and will never ask for any information from you through email correspondences. They will either send a physical letter or make a telephone call if they need any personal details. You can also verify any correspondence that comes from the IRS by calling their official telephone number and seeking verification. If you receive any emails that claim to have come from the IRS, you can forward the email to phishing@irs.gov to enable the IRS to investigate further regarding the source of the email. Do not open any attachments or click any links, as such an act can cause various viruses to infiltrate your computer, allowing access to your personal information and data. Some of these viruses can spy on your personal information, interrupt online banking activities, or other gain access to other financial transactions or information.

Recently, there have been spam emails that are being circulated to random email addresses. The email will typically have the heading, “IRS Tax transfer rejected,” “Federal Tax transaction canceled,” “Rejected transaction – Federal Tax payment,” or other such related topics. The email has the official IRS logo and comes with an irs.gov email address. The email has a rejection reference number and asks you to either open a link or download a document to find out more about the reason for the rejection. It is advisable not to open the attachment or click on the link, as it is suspected to be a computer virus. The fraudulent email is similar to one that was being sent out last year targeting small businesses that was linked to a virus. The virus interjected various operations, including online banking. To avoid being scammed into these tricks, simply delete any email that claims to come from the IRS and call them directly to verify whether or not they have attempted to contact you about any IRS tax issues.

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IRS Problems Survey Reveals: Tax Cheats Mainly Single Men Under 45

August 1, 2011 By

Most taxpayers do not like paying taxes, as they reduce their spending allowance. However, though a majority of Americans will honestly pay their taxes irrespective of their sentiments towards it, there are some taxpayers who outright cheat on their tax returns to pay less in taxes or avoid paying taxes at all. Tax cheats account for a huge percentage of the tax gap every year. The IRS is constantly making audits and reviewing tax returns to catch the tax cheats to collect the due taxes, penalties, and interests from them, among doling out other punitive consequences. Tax cheats will provide understated incomes, will not disclose all incomes, or will make fictions claims on their tax returns. The extent of tax cheats ranges with some just avoiding paying a few dollars of a Use Tax on an item purchased online, while others falsify information to get thousands of dollars in tax refunds.

A survey carried out by the DDB Worldwide Communications Group has shed some light as to who are the tax cheats and why they swindle Uncle Sam. The survey was not done on actual tax defrauders as verified through the IRS but rather, through interviewing people to seek self-confessed tax cheats. The survey attempted to gather and determine any similar characteristics of those who cheat on their taxes and are willing to confess that they actually do so.

Out of those surveyed, 15% owned up to having cheated in their tax returns and about 64% of those who owned up to their actions were men. 55% of them were below 45 years of age and 35% of them were single. According to the survey, most of those who confessed to being tax cheats justified their act by stating that they were “special” and that they “deserved” to be treated as such when it came to taxation. They also felt that they were good people overall. Although the results could give an indication as to what “types” of individuals who are more prone to cheating on their taxes, it would be interesting to compare the survey results with a sample of actual tax cheats caught by the IRS audits. Whether a majority of tax cheats are willing to confess that they indeed cheat on their taxes is worth noting as well.

However, from those that confessed that they are tax cheats, many of them also admitted that they were willing to cheat on a wide range of other non-tax issues. 73% of those who confessed to being tax cheats also said that they would do a “deal below the table.” A majority of them also confessed that they would be okay with keeping change from a cashier who overpaid them, picking and keeping cash dropped by a passerby, lie about their income to qualify for government aid, or make fraudulent insurance claims. About 28% of them said that they would be okay taking cash from their child’s piggy bank and keeping quiet about it. This is in contrast to only 3% of those who said that they do not cheat on taxes but could steal money from their child’s piggy bank. The survey statistics did not draw any correlation between tax cheats and income levels.

Various conclusions can be drawn from the survey. However, one of the more perceptible conclusions is that it appears that tax cheats will cheat more because of their value systems than that for any other underlying reasons.

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Dirty Dozen Tax Cheat Schemes for 2010 IRS Tax Year

July 28, 2011 By

Every year, the IRS releases top tax scams that they identify on its website. The list is used to make taxpayers aware of rogue tax schemes that are being promoted by some dubious preparers, the internet, and other sources. In the 2010 tax year, the IRS published the leading 12 tax scams. These scams list is detailed below:

  1. Unreported Offshore Incomes – The leading source of tax cheats was in unreported offshore incomes. Every year, taxpayers hide incomes from the IRS by keeping funds in overseas banks that provide strict privacy. However, the IRS has gained significant headway in getting account information for U.S. citizens from many overseas banks. The IRS has busied itself with tracking down foreign incomes as of late.
  2. Identity Theft – The 2010 tax year witnessed a five-fold increase in identity theft cases in just 3 years. Identity thieves file a return with stolen names and Social Security numbers and receive refunds that are actually due to the victims. When the actual people/the victims of identity theft file their returns, they get shocking news from the IRS, who informs them that their taxes have been already filed and a refund check had already been distributed. The IRS advises taxpayers to carefully guard their personal information to avoid these types of situations.
  3. Tax Preparer Fraud – There have been several cases of tax-preparer-fraud, including refund checks being cashed by preparers, excessive charges for services, preparers who file wrong returns, and preparers who promise large refund checks. The IRS has introduced new rules for tax preparers to strictly adhere to in order to protect taxpayers from such schemes. Tax preparers will now require a Preparer Tax Identification Number (PTIN) to operate their businesses/provide their services.
  4. Providing False Information on Tax Returns – The IRS also identified many tax returns that had deliberate false information that seek to claim fictitious credits for refund checks. The schemes use different ways of claiming refunds. In one scheme, a tax cheat used the names and Social Security numbers of dead people to file fictitious returns and claim refunds.
  5. Frivolous Rumors – The IRS has also identified many frivolous arguments being posed on the internet and in other forums that discourage individuals from filing tax returns. Some arguments claim that tax payment is voluntary or optional while others claim that the Federal Government does not have the authority to legitimately tax anyone. The IRS has provided a page on its website that addresses and debunks many (if not all) of these frivolous arguments.
  6. Social Security Fraud – The IRS has also identified a scheme where taxpayers inflate withholdings on non-taxable Social Security benefits. This way, the taxpayers end up with little to no income to report.
  7. Using Non-Profit Organizations to Avoid Taxes – There have also been a rise in the number of charity organizations that are being used as channels to hide taxes. Some of these charities are controlled by the donors. Others receive non-cash assets that are highly inflated for tax purposes. Others receive non-cash items from donors with a promise to resell the items back to the donor at a favorable price.
  8. Misuse of IRAs – There have been an increase in fraud through IRAs. Some taxpayers shift gained assets to IRAs at a lower than market value rate, thus paying a low IRS tax on the asset so that they can receive them back at retirement with no tax so as to avoid capital gain taxes.
  9. Disguised Corporations – There are taxpayers who are using corporations to claim fictitious deductions or to hide incomes for tax purposes.
  10. Filing Replacement Wage Returns – The IRS has also noted a scheme in the 2010 tax season where some taxpayers file a Form 4852 (Substitute Form W-2) to introduce fictitious changes to the correct income report filed to reduce the amount of income to be taxed.
  11. Hiding Assets in Trusts – Though Trusts can be correctly used for tax planning, there have been cases where foreign trusts have been set up to fraudulently reduce gift taxes or estate taxes. Others use such trusts to shift incomes or to have personal expenses deducted under the trust.
  12. Exaggerated Fuel and Mileage Claims – The IRS has also noted a high rate of exaggerations in the fuel and mileage tax deduction in the year 2010. Some taxpayers have claimed the deduction for mileage used for personal use of their cars rather than for strictly business use.

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Tax Attorney Gets Hit By a Tax Fraud Case of Her Own

June 1, 2011 By

A nationally renowned tax attorney with a $25 million-a-year practice is now on the verge of total financial collapse after the State of California sued her for a total of $34 million with allegations that she had swindled money from thousands of her firm’s clients who were seeking tax refuge from her firm. The attorney, who had rose to stardom following her successful practice, emphatic TV commercials, and her renowned brand name – “the Tax Lady,” is now watching her career and reputation crumble before her eyes. However, it is ironic that the attorney who posed as one who is out to help people with in tax and legal problems is now facing her own ugly tax episode. Following the lawsuit, the attorney’s offices that had spanned across 23 states and had employed over 200 people were apparently closing down. The attorney also says that she is bankrupt and could not pay off her debts. However, the embattled attorney’s fiasco is far from over. Sources from the California Attorney General’s office say that the State is also pursuing contempt allegations, which are criminal charges that could toss the “Tax Lady” in jail.

On her end, the attorney insisted that she is innocent and that the California Attorney General had maliciously and falsely accused her. In a press interview that she conducted shortly after closing her office, she said that she had represented over 20,000 clients with integrity and that her current 4,000 clients were now stranded without legal representation. The “Tax Lady” also said that she would surrender her practice license to the California State Bar. The State Bar on their end stated that they had been investigating the attorney for some time now though the investigations were not yet complete, they welcomed the surrender of the license from the attorney.

According to Jerry Brown, the Governor of California, the “Tax Lady’s” firm had been charging about $4,700.00 consultation fees for tax resolution but only about 10% of those who paid these fees ever got any assistance. Many of the clients who had paid the fees complained of not getting any form of help from the firm and these allegations lead to the investigations that pursued. The Attorney General endeavored to have the $34 million returned back to clients who had paid for consultations and to have the attorney’s firm advertisements removed from television. Following the lawsuit, the court ordered the attorney not to destroy any of the evidence documentation in her possession.

The ‘Tax Lady’ consultations mainly dealt with “An Offer in Compromises” and Installation Agreements. Her firm worked to negotiate on behalf of clients for “An Offer in Compromise” so as to have tax liability of their clients forgiven by the IRS, and for “Installation Agreements” so as to have their clients tax liabilities paid in installments over a span of a couple of years.

An Offer in Compromise (OIC) is a deal that the IRS gives to a tax payer who has an outstanding tax liability. The offer reduces the tax liability of the taxpayer, depending on the discretion of the IRS, to as little as 1% of the taxes owed. An OIC is given at the discretion of the IRS and is not a right of any taxpayer. However, with proper representation, a taxpayer can win the tax waiver. To qualify for an OIC, you need to have made full disclosure and correct submission of your tax returns. The chances of winning an OIC are low (below 50% of applications) and it depends on various factors, including one’s ability to pay off the tax liability in the future and whether the tax liability is in doubt or is unfair and inequitable.

However, even if a tax attorney or tax consultant cannot win you an OIC, they can buy you time, through negotiations and appeals, to resolve your issues.

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If There’s Something Phishy About Your IRS Tax Problem

April 22, 2011 By

Don’t let the authority of the Internal Revenue Service scare you into giving someone all your money. Many scammers prey on this fear that many taxpayers have of the IRS and use their reputation as a powerful and intimidating institution that take people’s money. Although the IRS does have authority, power, and may be a little scary to you, they would not take money from you that is not legally due.

Every year, the taxpayers report scams to the IRS. People receive phone calls, e-mails, faxes, and other forms of notice which say they are from the IRS. However, many of these communications are not from the IRS and are actually from scammers. People will fraudulently use the IRS name and logo in order to seem believable and then ask for personal information, bank account information, and identification information. Do not let these fake communications fool you.

This practice is known as phishing, and the aim is to get the receiver to reveal information which will allow the scammer to commit identity theft or directly take your money.

The IRS is well aware that these practices occur and has published a list of red flags to help you identify a scam before becoming a victim. Furthermore, the IRS never initiates communications with taxpayers through e-mail, and will therefore never send a message about your tax account. If someone sends you an e-mail indicating they are from the IRS or telling you to go to an IRS website, do not reply, open attachments, or click links provided through the e-mail. Attachments could contain malicious code and links could lead you to a site asking you for information which will lead to identity theft. If you have already received an e-mail and responded or clicked on a link, go to the IRS website and enter the term “identity theft” into the keyword search box for further information. Furthermore, if you receive other forms of communication like a phone call, fax, or letter from someone who claims to be an IRS employee and you are suspicious, you can call 1-800-829-1040 to ask the IRS if they have a legitimate need to contact you and report any phony correspondences. If you have a legitimate IRS problem, you will be able to openly work it out with the IRS and will never have to release passwords and certain secret access information.

If you think you have encountered a scheme, you can report it on the IRS tax website. More details about how to report phishing schemes are available under the keyword search “phishing.”

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Prisoners Get More Income Tax Relief than they are Due

March 14, 2011 By

Most would agree that privacy matters and stealing is harmful. Apparently, a lot of prisoners have created a conflict between these two “laws of life” when it comes to filing federal income taxes.

Over the past few years, federal inmates have been taking advantage of “the system” and filing false income tax returns, receiving income tax relief and returns which they are not entitled to. The IRS recognized this problem and put a price tag on it of approximately $295 million in false claims, meaning it costs more honest taxpayers more money. Over the last five years, the number of fraudulent income tax returns filed from prison has tripled despite some efforts to put a stop to it.

The IRS has been hesitant to exchange information with the Federal Bureau of Prisons for fear of lawsuits based on prisoners’ privacy, even after a law written in 2008 gave the IRS the authority to give tax information to the Bureau. The Bureau was still worried that there would be privacy issues and decided to get the Justice Department involved. The IRS was not happy about this because the information which they had just given to the Bureau would then be shared with another party.

However, the IRS and the Bureau of Prisons seem to have reached an understanding, and signed a memorandum to prove it. Their “memorandum of understanding” indicates that the two departments will cooperate in trying to bring an end to the actions of these felons.

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How to Avoid Your Tax Debt on $50 Million – For a Few Years, Anyway

February 21, 2011 By

Father and son duo Mauricio Cohen and Leon Cohen-Levy were sentenced to ten years in prison for failing to pay their tax debt on $50 million of income. The IRS claims that Cohen and Cohen-Levy hid $150 million in assets by using shell corporations and offshore accounts. The IRS is warning others who are using or considering using similar methods to really think about what they are doing.

“The IRS is vigorously pursuing unreported income in hidden offshore accounts,” stated the IRS. “We urge citizens to consider whether tax fraud is worth the price of going to jail.”

To hide their money, the pair used Swiss HSBC accounts, the IRS claims. The IRS has also stated that they hid expensive assets, including two homes, several cars, and a yacht. The cars included a Ferrarri Testarossa, a Porsche Carrerra GT, and a Rolls Royce Phantom, which is advertised as “built to order”.

One of the crimes Cohen and Cohen-Levy committed to avoid their tax debt was funneling $33 million, made on the sale of a hotel in New York under the Flatotel brand. The money was put into accounts in the Bahamas, Panama, and other locations, and the father and son decided not to report the income to the IRS. That sale was ten years ago.

Even Cohen and Cohen-Levy’s non-U.S. citizen status did not save them from having to pay taxes, as taxpayers do not have to be U.S. citizens to be responsible for filing.

What may have seemed like a good idea at the time has landed the men in jail with a sentence of ten years and the IRS appears poised to continue tracking down similar criminals. The IRS instituted an amnesty plan to encourage people with offshore accounts to come forward before facing criminal charges, but the amnesty plan will not be in place forever…

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Can Your Tax Debt Turn Into Identity Theft?

December 21, 2010 By

If you get a surprise call from a tax collector during this upcoming tax season, be aware that it may not be legitimate. Many people were getting behind on their taxes, and in 2004, the IRS hired third parties to determine delinquency and collect taxes. Dishonest scammers quickly took advantage of this new setup by posing as third party tax collectors on the phone. They use believable scripts and sound knowledgeable and professional, easily scaring taxpayers into submission. Under this façade, the actors obtained bank or credit card information to collect “payments” toward their victim’s debt. With this information, they are able to perform identity theft, exploiting a person’s credit and financial information for personal or institutional gain.

The IRS quickly became aware of these occurrences, though, and took steps to prevent people from exploiting the IRS’s power and taxpayer’s fear of IRS problems. Now, the IRS sends a letter to people who a legitimate collector will be calling. When possible, they provide the representative’s name who will be calling. Also, the IRS only accepts checks made to the United States Treasury, and any other requests for checks should be regarded as fraudulent.

There are also some tax debt settlement companies which will exploit the complicated processes of the IRS to make quick cash from taxpayers by offering their services. If a company or individual overpromises, check them out before talking to them. If it is unclear where their office is or if they have bad reviews, pay attention to these obvious red flags and protect yourself. When seeking to pay or to get help for your tax debt, follow your gut feeling regarding whether you should trust the person you are talking to. The IRS is not out to get you, they are out to collect debt rightfully owed to them by federal law.

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IRS Audits | Tax Scams

December 7, 2010 By

IRS Audits

IRS is Aware of Tax Scams

The IRS goes out of its way to pick up and recognize all scams to circumvent the payment of tax to Uncle Sam. There are many scams doing the rounds and are being carried out by both professionals and ordinary taxpayers.

One scam that keeps coming up is the abuse of retirement plans. When transactions are utilized to circumvent the restrictions on contributions to IRAs and those that aren’t correctly reported as allocated early are noticed by the IRS. Don’t listen to advisers who support the moving of appreciated resources at lower than reasonable market value into IRAs or IRA owned companies to avoid yearly payment restrictions. Also avoid the utilization of restricted liability companies to take part in prohibited activities.

The formation of corporations and other bodies operating to camouflage ownership or financial activity by the improper utilization of a third party to claim an employer identification number occurs in certain states. This is disguised corporate ownership and is illegal. It is done to make possible the underreporting of earnings, non-filing of tax returns, money laundering, terrorist financing, fictitious deductions and participation in listed transactions. The IRS and state authorities are working together to bring such entities and owners to book.

A common illegal practice is to file a fake earnings-related information return (e.g. Form 4852) to substitute (Form W-2) or a revised Form 1099 to dishonestly lower taxable earnings to zero. The submission of a declaration refuting wages and taxes reported by a taxpayer is also an illegal tactic.

In order to avoid IRS retaliation there are some “scam-sters” who incorporate a clarification on Form 4852 that gives legitimate language about the meaning of wages or mentions a paying company that won’t deliver a rectified Form W-2 as an excuse. This could lead to a fine of $5,000 from the IRS.

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Tax Scams Lead To IRS Audits

November 30, 2010 By

Recognize Tax Scams

Taxpayers know not to file misleading or false tax forms. However, there are scam artists who do this to deliberately defraud the IRS and benefit themselves. The most common form of abuse is to formulate information on a return in order to make a bogus claim for that amount. The OID (Original Issue Discount Form 10990 is often used to back up refund requests that are wrong. There is a mistaken belief the federal government keeps undisclosed accounts for US citizens and that an OID 1099 gets access to that money if issued to creditors as well as the IRS. This is an example of completing misleading tax forms and fake filing.

The IRS looks out for returns showing Social Security Benefits with extreme safeguarding. This means the IRS does not have to be informed on the return. Usually, the stated income and safeguarded amount are wrong. This tactic of using non-taxable Social Security Benefits with extreme safeguarded credit could get you a fine of $5,000.

It is illegal to abuse tax-exempt organizations. You may not guard assets or income from being taxed nor the efforts of donors to keep control over donations of assets or the income from a bequeathed property. Donations are either overvalued or the organization tells the donor he or she can buy back the items at a cost stipulated by the donor. Obligatory fines for erroneous evaluations and stipulated new meanings for eligible evaluations and qualified tax appraisers requesting charitable donations.

Some promoters encourage strange and difficult claims in order to circumvent owed taxes. Schemes that appear better than reality are usually unlawful. Taxpayers can see a list of ‘frivolous legal positions’ list by the IRS. These arguments have been dismissed by the court. It is the taxpayer’s right to contest tax responsibilities but not by disregarding IRS regulations or the law.

For more information on Tax Scams or IRS Audits, visit

http://www.tax.gov/Individual/audits

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