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IRS Ramps up Criminal Investigations

Tuesday, May 14th, 2013

Originally posted to www.accountingtoday.com on May 10, 2013

The Internal Revenue Service’s Criminal Investigation unit released an annual report Friday showing that it increased investigations, prosecutions and convictions of tax evaders and preparers last year.

Investigations initiated and prosecution recommendations were both up nearly 9 percent in fiscal 2012 compared to the prior year, according to the report. Filings of indictments and other charging documents increased 13 percent. Meanwhile, conviction and sentencing both gained approximately 12 percent from the prior year.

Initiations of criminal investigation amounted to 5,125 cases in fiscal 2012 while the number of investigations completed was 4,937, an increase of 5 percent compared to fiscal 2011. Convictions totaled 2,634 in fiscal 2012 while the conviction rate edged up slightly to 93 percent.The IRS also investigated and prosecuted more tax preparers last fiscal year. It initiated 443 investigations in fiscal 2012, up from 371 in fiscal 2011. There were 276 prosecution recommendations in fiscal 2012, an increase from 233 in fiscal 2011. Sentencings rose to 172 in fiscal 2012 from 163 in fiscal 2011.

The 28-page report summarizes a wide variety of IRS CI activity on a range of tax-related issues during the year ending Sept. 30, 2012.

“The key to our successes is perseverance and dedication to working complex financial investigations aimed at stopping tax fraud, identity theft, offshore tax evasion, public corruption, money laundering and other financial crimes,” said IRS Chief of Criminal Investigation Richard Weber in a statement. “This annual report showcases some of the many significant cases that were completed by CI during fiscal year 2012 and the many program areas we cover as an organization. These cases are just a few examples of the thousands of investigations initiated by CI last year, as we continue to make our mark as the finest financial investigators in the world.”

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24 CURRENT AND FORMER IRS EMPLOYEES INDICTED FOR BENEFITS FRAUD

Thursday, April 18th, 2013

originally posted on www.treasury.gov – April 17, 2013

Memphis, TN – United States Attorney Edward L. Stanton III and Shelby County District Attorney General Amy Weirich announced today that 24 current and former employees of the Internal Revenue Service have been charged for crimes relating to fraudulently obtaining more than $250,000 in government benefits.

Thirteen of the current and former IRS employees have been charged federally with making false statements to obtain unemployment insurance payments, food stamps, welfare, and housing vouchers. All thirteen, individually charged in separate indictments, are alleged to have falsely stated that they were unemployed while applying for or recertifying those government benefits.

“According to the allegations in the indictment, while these IRS employees were supposed to be serving the public, they were instead brazenly stealing from law-abiding American taxpayers,” said U.S. Attorney Edward L. Stanton III. “These charges demonstrate our unwavering resolve to work with our law enforcement partners and hold accountable anyone who fraudulently obtains government benefits and violates the public’s trust.”

The 13 IRS employees charged are Angela Allison, 37; Jessica Davis, 35; Serina Gaither, 37; Teresa Jenkins, 46; Joanne Johnson, 46; Cynthia McKinney, 38; Angela Scales, 28; Dorothy Simmons, 35; Mary Weeks, 61; Evonna Yarbrough, 42, all of Memphis; Gale Baker, 54, of Cordova, TN; Shari House, 45, of Jackson, TN; and Talaria Mitchell, 35, of Southhaven, MS. Each has been charged with multiple counts of false statements, in violation of Section 1001 of Title 18 of the United States Code. A conviction under that statute can result in up to five years in prison.

The charges resulted from cooperation between numerous federal and state agencies. In addition to the U.S. Attorney’s Office and the Shelby County District Attorney General’s Office, the investigation involved the U.S. Department of Treasury Inspector General for Tax Administration; the U.S. Department of Labor Office of Inspector General, Office of Labor Racketeering and Fraud Investigations; the U.S. Department of Agriculture Office of Inspector General; the U.S. Department of Housing and Urban Development Office of Inspector General; the United State Marshals Service; the Tennessee Department of Labor and Workforce United States Attorney Edward L. Stanton III
Western District of Tennessee Development; the Tennessee Department of Human Services; the Shelby County Sheriff’s
Office; and the Memphis Housing Authority.

Eleven other former and current IRS employees were charged by the District Attorney General’s Office with theft of property over $1,000, a class D felony.  “The taxes that we pay are supposed to support our nation and assist individuals in need, not free-loaders who are gaming the system,” said District Attorney General Amy Weirich.  “Taxpayers can take comfort in knowing that we take these matters seriously and that we will prosecute these individuals to the fullest extent possible.”

The 11 charged by the state are Raya Banks, 47; Clara Cannon, 61; Alma Childers, 64; Cathryn Fair, 50; Robert Graves, 60; Mechell Hampton, 35; Nicole Nickson, 39; Diane Malone, 56; Myra Thompson, 32; Katina Thurman, 39; and Pamela Williams, 47, all of Memphis. The federal cases are being prosecuted for the United States Attorney’s Office by Assistant United States Attorney Jonathan Skrmetti. The state cases are being prosecuted for the Shelby County District Attorney General’s Office by Kirby May.

# # # #

The charges and allegations contained in the indictment are merely accusations, and the defendants are considered innocent unless and until proven guilty.

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IRS Releases the Dirty Dozen Tax Scams for 2013

Tuesday, March 26th, 2013

IR-2013-33, March 26, 2013

WASHINGTON — The Internal Revenue Service today issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

“This tax season, the IRS has stepped up its efforts to protect taxpayers from a wide range of schemes, including moving aggressively to combat identity theft and refund fraud,” said IRS Acting Commissioner Steven T. Miller. “The Dirty Dozen list shows that scams come in many forms during filing season. Don’t let a scam artist steal from you or talk you into doing something you will regret later.”

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

The following are the Dirty Dozen tax scams for 2013:

Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

Combating identity theft and refund fraud is a top priority for the IRS, and we are taking special steps to assist victims. For the 2013 tax season, the IRS has put in place a number of additional steps to prevent identity theft and detect refund fraud before it occurs. We have dramatically enhanced our systems, and we are committed to continuing to improve our prevention, detection and assistance efforts.

The IRS has a comprehensive and aggressive identity theft strategy employing a three-pronged effort focusing on fraud prevention, early detection and victim assistance. We are continually reviewing our processes and policies to ensure that we are doing everything possible to minimize identity theft incidents, to help those victimized by it and to investigate those who are committing the crimes.

The IRS continues to increase its efforts against refund fraud, which includes identity theft. During 2012, the IRS prevented the issuance of $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

This January, the IRS also conducted a coordinated and highly successful identity theft enforcement sweep. The coast-to-coast effort against identity theft suspects led to 734 enforcement actions in January, including 298 indictments, informations, complaints and arrests. The effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012. The Criminal Investigation unit has devoted more than 500,000 staff-hours to fighting this issue.

We know identity theft is a frustrating and complex process for victims.  The IRS has 3,000 people working on identity theft related cases – more than double the number in late 2011. And we have trained 35,000 employees who work with taxpayers to help with identity theft situations.

The IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and an assistance guide. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information.  This includes any type of electronic communication, such as text messages and social media channels.  The IRS has information that can help you protect yourself from email scams.

Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But, some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

The IRS also has created a new web page to assist taxpayers. For tips about choosing a preparer, red flags, details on preparer qualifications and information on how and when to make a complaint, visit www.irs.gov/chooseataxpro.

Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

IRS.gov has general information on reporting tax fraud. More specifically, you report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes a return address.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. 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 the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

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 and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, 38,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS continues working on a wide range of international tax issues and follows ongoing efforts with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected $5.5 billion so far from people who participated in offshore voluntary disclosure programs since 2009.

“Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

Scammers prey on low income individuals and the elderly and members of church congregations with bogus promises of free money. They build false hopes and charge people good money for bad advice including encouraging taxpayers to make fictitious claims for refunds or rebates based on false statements of entitlement to tax credits. For example, some promoters claim they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college. Con artists also falsely claim that refunds are available even if the victim went to school decades ago. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

There are also a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Beware: Intentional mistakes of this kind can result in a $5,000 penalty.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. As in the case of a recent disaster, Hurricane Sandy, the IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

  • To help disaster victims, donate to recognized charities.
  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
  • Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits  a contribution from you. Scam artists may use this information to steal your identity and money.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

False/Inflated Income and Expenses

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions.  This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit although they were not eligible. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

False Form 1099 Refund Claims

In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments 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.

Falsely Claiming Zero Wages

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. 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 may also 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 variations of this scheme. Filing this type of return may result in a $5,000 penalty.

Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable 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 of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel have 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 a trust arrangement.

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Obama, Republicans Plan Last-Minute Talks on Sequestration

Thursday, February 28th, 2013

Originally posted to reuters.com – February 28, 2013

Positions hardened on Wednesday between U.S. President Barack Obama and Republican congressional leaders over the budget crisis even as they arranged to hold last-ditch talks to prevent harsh automatic spending cuts beginning this week.

Looking resigned to the $85 billion in “sequestration” cuts starting on Friday, government agencies began reducing costs and spelling out to employees how furloughs will work.

Expectations were low that a White House meeting on Friday between Obama and congressional leaders, including Republican foes, would produce any deal to avoid the cuts.

Speaking to a business group, Obama said the cuts could shave 0.6 percentage points or more from already anemic growth and urged executives to pressure Congress into compromising on a broad deficit reduction package.

“Whether that can be done in the next two days – I haven’t seen things done in two days in Washington in quite some time,” Obama told the Business Council, which is composed of chief executives of major U.S. corporations. “The good news is that the public is beginning to pay attention to this.”

Public services across the country – from air traffic control to food safety inspections and education – might be disrupted if the cuts go ahead.

Put into law in 2011 as part of an earlier fiscal crisis, sequestration is unloved by both parties because of the economic pain it will cause, but the politicians cannot agree how to stop it.

A deal in Congress on less drastic spending cuts, perhaps with tax increases too, is needed by Friday to halt the sequestration reductions, which are split between social programs cherished by Democrats and defense spending championed by Republicans.

Obama stuck by his demand that Republicans accept tax increases in the form of eliminating tax loopholes enjoyed mostly by the wealthy as part of a balanced approach to avoiding sequestration.

“There is no alternative in the president’s mind to balance,” White House spokesman Jay Carney told reporters.

Obama wants to end tax breaks for oil and gas companies and the lower “carried interest” tax rate enjoyed by hedge funds.

But Republicans who reluctantly agreed to raise income tax rates on the rich to avert the “fiscal cliff” crisis in December are in no mood for that.

“One thing Americans simply will not accept is another tax increase to replace spending reductions we already agreed to,” said Senate Republican leader Mitch McConnell.

In one of the first concrete effects of the cuts, the administration took the unusual step of freeing several hundred detained illegal immigrants because of the cost of holding them.

Republicans described that move by Immigration and Customs Enforcement (ICE) as a political stunt aimed at scaring them into agreeing to end the sequestration on Obama’s terms.

The issue looked like it might become more controversial on Wednesday when the Associated Press reported that the Homeland Security Department official in charge of immigration enforcement and removal had announced his resignation on Tuesday just after news of the immigrants’ releases came out.

But ICE said the report was “misleading.” The official, Gary Mead, told ICE weeks ago of his retirement in April after 40 years of federal service, a spokeswoman said. Earlier, Carney denied the White House had ordered the immigrants’ release.

Friday’s White House meeting will include McConnell and the other key congressional leaders: Senate Democratic leader Harry Reid, House of Representatives Democratic leader Nancy Pelosi, and House Speaker John Boehner, the top U.S. Republican.

‘BELATED FARCE’?

The chances of success were not high.

One congressional Republican aide criticized the White House for calling the meeting for the day the cuts were coming into effect. “Either someone needs to buy the White House a calendar, or this is just a – belated – farce. They ought to at least pretend to try.”

Unlike during other fiscal fights in Congress, the stock market is taking the sequestration impasse calmly.

U.S. stocks rose, with major indexes posting their best daily gains since early January, as Federal Reserve Chairman Ben Bernanke remained steadfast in supporting the Fed’s stimulus policy and data pointed to economic improvement.

On Thursday, the Senate is expected to vote on competing Democratic and Republican ideas for replacing the sequestration. Both measures are expected to be defeated.

The Republican plan unveiled late on Wednesday would let the sequestration go into effect on Friday, but require Obama to submit an alternative $85 billion spending reduction plan to Congress by March 15, thus allowing more flexibility on how the cuts would be carried out.

Congress would have until March 22 to reject the proposal, in which case the original sequestration would remain in place. Democrats were still studying it. But on Tuesday, Senate Majority Leader Harry Reid said new revenues needed to be part of any substitute plan.

The Democratic proposal would replace the across-the-board cuts mainly with tax increases on the rich coupled with spending cuts. Some of those would be achieved by eliminating crop subsidies for large agricultural companies. More savings would be through minor defense cuts in later years.

Republicans have vowed to block any tax increases for deficit reduction.

Bernanke said sequestration was too drastic an approach for reducing the budget deficit.

“What I am advising is a more gradual approach. I’m not saying we should ignore the deficit. I am not saying we shouldn’t deal with long-term fiscal issues, but I think that from the perspective of our recovery, a more gradual approach would be constructive,” he told a House Financial Services Committee hearing.

Among many warnings from the Obama administration of possible damage to public services, the Air Force said its Thunderbirds exhibition flying team is expected to be grounded if sequestration happens.

The Pentagon will put most of its 800,000 civilian employees on unpaid leave for 22 days, slash ship and aircraft maintenance and curtail training.

But the full weight of sequestration will take place over seven months, allowing Obama and the Republicans time to work out a deal after the cuts begin this week.

White House spokesman Carney said sequestration would officially start just before midnight on Friday night if no deal were reached.

Government agencies began to tell employees how sequestration will force them to take furloughs. The Environmental Protection Agency acting head, Bob Perciasepe, told employees in an email that the agency did not know how much of its budget will be cut but it was working on an estimate of 5 percent.

“What might that mean for our employees? If the sequester order requires a 5.0% cut, the impact could be up to 13 furlough days,” he said. That would likely mean four furlough days by June 1, he said.

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IRS Intensifies National Crackdown on Identity Theft; Part of Wider Effort to Protect Taxpayers, Prevent Refund Fraud

Thursday, February 7th, 2013

originally posted to IRS Newswire February 7, 2013

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WASHINGTON – Continuing a year-long enforcement push against refund fraud and identity theft, the Internal Revenue Service today announced the results of a massive national sweep in recent weeks targeting identity theft suspects in 32 states and Puerto Rico, which involved 215 cities and surrounding areas.

The coast-to-coast effort against 389 identity theft suspects led to 734 enforcement actions in January, including indictments, informations, complaints and arrests. The effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012.

The January crackdown, a joint effort with the Department of Justice and local U.S. Attorneys offices, unfolded as the IRS opened the 2013 tax season. IRS Criminal Investigation expanded its efforts during January, pushing the total number of identity theft investigations to more than 1,460 since the start of the federal 2012 fiscal year on Oct. 1, 2011.

“As tax season begins this year, we want to be clear that there is a heavy price to pay for perpetrators of refund fraud and identity theft,” said IRS Acting Commissioner Steven T. Miller. “We have aggressively stepped up our efforts to pursue and prevent refund fraud and identity theft, and we will continue to intensely focus on this area. This is part of a much wider effort underway for the 2013 tax season to stop fraud.”

The national effort with the Justice Department and other federal, state and local agencies is part of a larger, comprehensive identity theft strategy the IRS has embarked on that is focused on preventing, detecting and resolving identity theft cases as soon as possible.

The identity theft effort – which intensified in January as the 2013 filing season opened – involved 734 enforcement actions related to identity theft and refund fraud. The effort led to actions taking place throughout the country involving 389 individuals. The effort included 109 arrests, 189 indictments, informations and complaints, as well as 47 search warrants.

In addition to the criminal actions, IRS auditors and criminal investigators conducted a special compliance effort starting on Jan. 28 to visit 197 money service businesses to help make sure these businesses are not assisting identity theft or refund fraud when they cash checks.  The compliance visits occurred in 17 high-risk places identified by the IRS covering areas in and surrounding New York, Philadelphia, Atlanta, Tampa, Miami, Chicago, Houston, Phoenix, Los Angeles, San Diego, El Paso, Tucson, Birmingham, Detroit, San Francisco, Oakland and San Jose.

A map of the locations and additional details on the January enforcement actions and compliance visits are available on IRS.gov. The latest updates on the identity theft enforcement efforts and individual cases are available on a special Identity Theft Schemes page on IRS.gov. More information on enforcement actions can be found on a DOJ Tax Division page.

The identity theft push over the last several weeks reflects a wider effort underway at the IRS. Among the highlights:

  • The number of IRS criminal investigations into identity theft issues more than tripled in fiscal year 2012. The IRS started 276 investigations in fiscal year 2011, a number that jumped to 898 in fiscal year 2012. So far in fiscal year 2013, there have been more than 560 criminal identity theft investigations opened.
  • Total enforcement actions continue to rapidly increase against identity thieves. This category covers actions ranging from indictments and arrests to search warrants. In fiscal year 2012, enforcement actions totaled 2,400 against 1,310 suspects. After just four months in fiscal 2013, enforcement actions totaled 1,703 against 907 suspects.
  • Sentencings of convicted identity thieves continue to increase. There were 80 sentencings in fiscal year 2011, which increased to 223 in fiscal year 2012.
  • Jail time is increasing for identity thieves. The average sentence in fiscal year 2012 was four years or 48 months – a four-month increase from the average in fiscal year 2011. So far this fiscal year, sentences have ranged from 4 to 300 months.

More information on IRS Criminal Investigation efforts is available on IRS fact sheet FS-2013-12.

In addition to the national “sweeps” effort announced today, IRS work on identity theft and refund fraud continues to grow. For the 2013 filing season, the IRS has expanded these efforts to better protect taxpayers and help victims.

To stop identity thieves up front, the IRS has made a significant increase for the 2013 tax season in the number and quality of identity theft screening filters that spot fraudulent tax returns before refunds are issued. The IRS has dozens of identity theft screens now in place to protect tax refunds.

These efforts helped the IRS in 2012 protect $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

By late 2012, the IRS assigned more than 3,000 IRS employees — over double from 2011 — to work on identity theft-related issues. IRS employees are working to prevent refund fraud, investigate identity theft-related crimes and help taxpayers who have been victimized by identity thieves. In addition, the IRS has trained 35,000 employees who work with taxpayers to recognize identity theft indicators and help people victimized by identity theft.

“We are strengthening our processing systems to watch for identity theft and detect refund fraud before it occurs,” Miller said. “And we continue to put more resources on helping people who are victims of identity theft and resolve these complex cases as quickly as possible.”

Taxpayers can encounter identity theft involving their tax returns in several ways. One instance is where identity thieves try filing fraudulent refund claims using another person’s identifying information, which has been stolen. Innocent taxpayers are victimized because their refunds are delayed.

To help taxpayers, the IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and a special guide to assistance. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

If a taxpayer receives a notice from the IRS indicating identity theft, they should follow the instructions in that notice. A taxpayer who believes they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. The taxpayer should contact the IRS Identity Protection Specialized Unit at 800-908-4490.  The taxpayer will be asked to complete the IRS Identity Theft Affidavit, Form 14039, and follow the instructions on the back of the form based on their situation.

Taxpayers looking for additional information can consult the special identity protection page on IRS.gov.

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IRS Expands Eligibility for Worker Reclassification Program

Monday, January 28th, 2013

originally posted 1/28/2013 on ww.cpa2biz.com

Worker status is a hot-button issue at the IRS. While you prepare 2012 returns, consider this program to limit your clients’ exposure in an employment tax audit.

On Dec. 18, the IRS announced a revision to its voluntary classification settlement program (VCSP) that provides partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat workers as employees. This program provides an opportunity for clients to address past noncompliance and for practitioners to limit their exposure.

Original VCSP

On Sept. 21, 2011, the IRS announced a VCSP to enable employers to prospectively treat workers as employees (Announcement 2011-64 and Delegation Order 4-50). This program was an attempt by the IRS to address a prevalent problem in tax compliance: employers treating workers incorrectly as independent contractors instead of employees, which reduces employment costs and the corresponding payment of employment taxes. The VCSP encouraged voluntary compliance by:

  • Removing the complex administrative procedures required to retroactively correct worker status;
  • Allowing the employer to pay 10% of the employment tax liability that may have been due on the compensation paid to the workers for the most recent tax year, determined under the reduced rates of Sec. 3509(a). In most situations, the VCSP payment would be about 1% of the reclassified compensation for the most recent year;
  • Removing penalties and interest on the liability; and
  • Providing the employer amnesty from an employment tax audit on prior years in relation to the reclassified workers.

The 2011 VCSP requires that taxpayers apply for the program using Form 8952, Application for Voluntary Classification Settlement Program. To qualify, taxpayers are required to:

  • File all required Forms 1099 for the previous three tax years before the application;
  • Not be under any type of IRS audit or examination by the U.S. Department of Labor or by a state government agency for worker classification issues; and
  • Agree to extend the assessment statute of limitation for employment taxes for three years for the first, second, and third calendar years after the VCSP closing agreement is completed.

The IRS reported last summer at the 2012 IRS Tax Forum that it received only 623 applications for the VCSP. After gathering feedback on the program, the IRS in December made modifications to the VCSP in Announcement 2012-45. It also announced the VCSP Temporary Eligibility Expansion, which will allow taxpayers that have not filed all their Forms 1099 for the previous three tax years to participate in the VCSP under less-generous terms of relief.

Modifications to VCSP

In the Announcement 2012-45, the IRS modified the VCSP to:

  • Permit a taxpayer under IRS audit, other than an employment tax audit, to be eligible to participate in the VCSP;
  • Clarify the current eligibility requirement that a taxpayer that is a member of an affiliated group (within the meaning of Sec. 1504(a)) is not eligible to participate in the VCSP if any member of the affiliated group is under employment tax audit;
  • Clarify that a taxpayer is not eligible to participate in the VCSP if the taxpayer is contesting in court the classification of the class or classes of workers from a previous audit by the IRS or the Department of Labor; and
  • Eliminate the requirement that a taxpayer agree to extend the period of limitation on assessment of employment taxes as part of the VCSP closing agreement with the IRS.

However, to be eligible for relief under the program, a taxpayer is still required to have consistently treated the workers as nonemployees and must have filed all required Forms 1099, consistent with the nonemployee treatment, for the previous three years with respect to the workers to be reclassified.

VCSP Temporary Eligibility Expansion

To make the VCSP available to more taxpayers, the IRS also announced the VCSP Temporary Eligibility Expansion (the temporary VCSP) in Announcement 2012-46. Taxpayers that are otherwise eligible for the original VCSP (after the modifications in Announcement 2012-45), but have not filed all required Forms 1099 for misclassified workers for the previous three years, are eligible for the temporary VCSP. However, the temporary VCSP is only available to taxpayers that file their application to participate in the program on or before June 30, 2013, and it comes with costs for taxpayers.

The payment for the temporary VCSP is higher than the payment under the original VCSP. Under the temporary VCSP, employers would pay 25% of the employment tax liability that may have been due on the compensation paid to the workers for the most recent tax year, determined using the reduced rates of Sec. 3509(b). In contrast to the original VCSP, which uses Sec. 3509(a) rates, the temporary VCSP uses slightly higher Sec. 3509(b) rates.

For example, for 2011 and 2012 tax years, the Sec. 3509(a) reduced rates were 10.28%, while Sec. 3509(b) rates were 12.91%. Under both programs, the reduced rates are in sharp contrast to the full potential employment tax liability that employers could owe for FICA and backup withholding: 41.3% (Internal Revenue Manual §4.23.8.13.1).

Applicants must self-assess a reduced Form 1099 nonfiling penalty. This penalty is between $50 and $100 per unfiled Form 1099, depending on the number of total unfiled forms, according to the IRS worksheet provided under the temporary VCSP. The maximum penalty is $10,000. The reduced penalty under this program is also in contrast to typical IRS procedures. In IRS examinations, the standard penalty for unfiled information statements is up to $100 per form, with a maximum penalty of up to $1.5 million ($500,000 for small businesses). If the IRS determines that the employer intentionally failed to file the information statements, the penalty increases to $250 per unfiled form, with no maximum.­

To participate in the temporary VCSP, taxpayers must meet the eligibility requirements; apply using Form 8952 and following the instructions under Announcement 2012-46; and enter into a closing agreement with the IRS. As noted above, taxpayers must file their application to participate in the temporary VCSP on or before June 30, 2013.

How to help your clients

The IRS is completing a three-year study on employment tax noncompliance and will continue to focus on proper worker classification and employment tax audits. Participating in the temporary VCSP will cost clients more than participating in the original VCSP, but for many taxpayers, it will provide the opportunity to address a substantial area of past noncompliance at much less cost than an employment tax audit. Here’s how practitioners can help clients.

First, investigate a client’s exposure to worker reclassification. Review the client’s payments, including vendor files, checks issued, cash payments, and Form 1099 recipients. Determine whether the client has filed Forms 1099 on these workers in prior years. If the client has unfiled Forms 1099 for prior years, the temporary VCSP might offer the client an opportunity to reduce Form 1099 penalties and enable full compliance going forward.

Next, consider the VCSP. The IRS has provided worksheets to quantify the client’s liability for both the original VCSP and the temporary VCSP. The tax computation for the original VCSP is on Form 8952. The worksheet for the temporary VCSP is in Announcement 2012-46. If an application is filed for the temporary VCSP, closely follow the application instructions found in Part V of Announcement 2012-46.

The temporary VCSP might allow access to the VCSP for clients that didn’t initially qualify for the program, based on Form 1099 noncompliance. Opting into either version of the program could limit a client’s exposure in an employment tax audit. Many practitioners are concerned that the IRS will share VCSP application information with other state and federal agencies. The IRS explicitly states that it will not share the information with states or the Department of Labor. The IRS also states that submitting a VCSP application will not trigger an IRS audit.

With the temporary VCSP, the IRS is offering an unusual and temporary opportunity to taxpayers. When practitioners are closing their clients’ 2012 books and preparing information statements and tax returns, they should take advantage of this program to limit clients’ audit exposure and correct any worker misclassification issues. The IRS is likely to continue focusing its enforcement resources on proper worker classification. Practitioners can help clients start the new year in compliance and avoid this potentially costly issue.

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Start of Tax Season Delayed Until Jan. 30; Later for Some Taxpayers

Monday, January 14th, 2013

originally posted on www.journalofaccountancy.com – January 8, 2013

The IRS announced on Tuesday that it plans to open the 2013 filing season and begin processing many individual income tax returns on Jan. 30 (IR-2013-2). However, not all taxpayers will be able to start filing tax returns on that date.

The IRS says it will be able to begin accepting tax returns on Jan. 30 after updating forms and completing programming and testing of its processing systems to account for most of the tax law changes enacted Jan. 2 by the American Taxpayer Relief Act of 2012, H.R. 8. The IRS says that this will allow “the vast majority of tax filers—more than 120 million households” to start filing tax returns on Jan. 30. The delayed start of tax season applies to both electronic and paper returns. The IRS had originally planned to open electronic filing of tax returns on Jan. 22.

The IRS says that on Jan. 30 it will be able to accept tax returns affected by the late change in the alternative minimum tax (AMT) exemption amount as well as three other major extended provisions: The state and local sales tax deduction (Sec. 164(b)), the higher education tuition and fees deduction (Sec. 222), and the deduction for certain expenses of elementary and secondary schoolteachers (Sec. 62).

Some returns delayed

Because of the need for more extensive form and processing systems changes, many taxpayers will not be able to file returns until February or March. For example, the IRS says taxpayers who claim residential energy credits or general business credits or who depreciate property will not be able to file starting Jan. 30. However, the IRS in its press release downplays this delay, claiming that most of these taxpayers “typically file closer to the April 15 deadline or obtain an extension.”

Forms that will require more extensive programming changes include Form 5695, Residential Energy Credits, Form 4562, Depreciation and Amortization, and Form 3800, General Business Credit. The IRS is promising to post a full list of the forms that it will not accept until later on its website. The list was not yet available as this item went to press.

The IRS will announce a specific date when it will start accepting these forms in the near future.

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‘Fiscal cliff’ Talks at a Stalemate Over Tax Hikes

Thursday, December 13th, 2012

originally published in the Washington Post

As the White House and Republican leaders enter the final month of negotiations to avoid a year-end “fiscal cliff,” both sides struck an uncompromising tone Sunday, as warnings mounted that they will be unable to forge an agreement to stop an automatic series of deep spending cuts and large tax hikes that could push the economy into recession.

Following private meetings last week, the senior negotiators for the White House and the Republicans took to the airwaves Sunday to accuse the other side of intransigence and to demand that the opposition concede on the central question of how much to raise taxes on the wealthy.

“Right now, I would say we’re nowhere, period. We’re nowhere,” House Speaker John A. Boehner (R-Ohio) said on “Fox News Sunday.” Boehner added that the Republicans have offered a way to break the stalemate — by compromising on an overhaul of the tax code that would limit deductions that disproportionately benefit the rich.

But Treasury Secretary Timothy F. Geithner rejected that proposal Sunday, insisting that the wealthy pay higher tax rates and that Republicans come forward with a plan that meets that requirement. “There’s no path to an agreement that does not involve Republicans acknowledging that rates have to go up on the wealthiest Americans,” he said on NBC’s “Meet the Press.”

While it had always seemed likely that the two sides would reach a stalemate before finally coming to agreement — as has been the pattern over the past two years — lawmakers and congressional aides tracking the back-and-forth said there’s a growing probability that no deal will be reached in time to avoid the fiscal cliff.

“I think we’re going over the cliff,” Sen. Lindsey O. Graham (R-S.C.) said on CBS’s “Face the Nation.”

Geithner appeared on five Sunday morning news shows — and Boehner on one — amid an intensifying public-relations blitz related to the fiscal cliff. President Obama took his first domestic trip since winning reelection to the Philadelphia suburbs on Friday to press Republicans, which was followed by a Boehner news conference.

This week, Obama will gather with governors and make a speech to the Business Roundtable, a lobby group representing big business, to urge lawmakers to embrace his tax proposals. Boehner will meet with governors and rally with small-business owners against tax increases.

The debate over how to raise taxes on the wealthy is part of the broader discussion over how to reduce federal borrowing over the next decade. At the end of the year, tax rates are scheduled to increase on nearly all Americans, raising hundreds of billions of dollars of new tax revenue but costing the average family about $2,000 a year in take-home pay.

Obama wants to freeze tax rates for most Americans while allowing them to rise as high as 39.6 percent for the wealthiest people — defined as earning over $250,000 per year. That will reduce federal borrowing by about $1 trillion over a decade.

“There’s just no reason why 98 percent of Americans have to see their taxes go up because some members of Congress on the Republican side want to block tax rate increases for 2 percent of the wealthiest Americans,” Geithner said Sunday.

Then next year, Obama wants to overhaul the tax code to clean out deductions and loopholes that benefit the rich and some sectors such as the financial industry. That, the administration estimates, would generate about $600 billion in savings over a decade.Republicans, meanwhile, do not want to raise taxes on anyone. But in the wake of their electoral defeat last month, they have acknowledged that the wealthy will have to pay more. They want to raise about $800 billion in new revenue over the decade through an overhaul of the tax code that limits deductions. Higher rates, they say, will dissuade work and investment and hurt small businesses, and thus be a drag on economic growth.

Both sides agree that as a principle, keeping tax rates low while eliminating deductions is better than increasing tax rates. But Democrats say it’s not possible to preserve enough spending on government programs without raising well over $1 trillion in new tax revenues during the next decade — and they don’t believe it’s possible to do that without raising rates on the wealthy, raising taxes on the middle class, or dramatically scaling back worthwhile deductions such as the one for charitable giving.

Last week, in a private meeting with Boehner, Geithner made the Obama administration’s opening bid in the fiscal cliff talks — largely a reprisal of policies the administration has already advocated. In addition to $1.6 trillion in new tax revenue, the proposal called for $600 billion in spending cuts, a majority of it from Medicare and Medicaid, as well as a new policy to allow the president to raise the statutory limit on federal borrowing without a majority of Congress approving.

That would come on top of $1 trillion in spending cuts that were agreed to in 2011 and $800 billion in savings from the end of the wars in Afghanistan and Iraq.

Republicans dismissed the proposal as laughable. “I was flabbergasted. I looked at him and said, ‘You can’t be serious,’ ” Boehner said Sunday. “I’ve just never seen anything like it. You know, we’ve got seven weeks between Election Day and the end of the year, and three of those weeks have been wasted with this nonsense.”

The White House also has opened the door to a compromise that would increase rates on upper-income earners by less than the full amount they are scheduled to rise next year, when the top brackets rise from 33 to 35 percent and 35 to 39.6 percent. But Republicans have not agreed.

“It’s welcome that they’re recognizing that revenues are going to have to go up, but they haven’t told us anything about how far rates should go up, how far revenues should go up,” Geithner said.

Beyond openness to new revenues through an overhaul of the tax code, Republicans insist on significant savings from the nation’s health-care entitlements, as well as Social Security.

In talks with Boehner in the summer of 2011 over a deal to slow borrowing, Obama was willing to adopt a stingier formula for making cost-of-living adjustments to Social Security. But in this round of talks, the White House says it won’t make any changes to the program.

“We are prepared to, in a separate process, look at how to strengthen Social Security, but not as part of a process to reduce the other deficits the country faces,” Geithner said.

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Rihanna Sues Accounting Firm

Tuesday, July 10th, 2012

originally posted on AccountingToday.com on July 5, 2012

Pop singer Rihanna has filed a lawsuit against her former accounting firm, Berdon LLP, claiming the firm drained tens of millions of dollars in revenues from her tours.

The singer filed suit Thursday under her real name, Robyn Fenty, according to the Associated Press, alleging that the firm took 22 percent of the total revenue from four tours over five years while only paying her 6 percent. She claimed the firm paid itself a percentage of the gross tour income, while failing to put in place financial controls to encourage her to rein in her own expenses. A Berdon spokesperson said the firm does not comment on pending litigation.

Rihanna also blamed the firm for an audit of her taxes by the Internal Revenue Service, claiming she needed to spend a significant amount of money to correct the firm’s errors and negligence.

She claimed in her lawsuit that she had hired Berdon in 2005 when she was only 16 years old and was trying to begin her singing career in Barbados.

Rihanna alleges that the firm breached its agreements, engaged in misconduct and malfeasance, created entities without considering the effect on her taxes, paid itself excessively large commissions, neglected to document revenue and expenses or implement a proper budget. The Grammy-winning singer also claimed the firm gave her poor advice when she purchased a home for $6.9 million in 2009 and failed to warn her that she was losing money on her tour and could not afford the expensive home. In addition to her former accounting firm, Rihanna is also suing two former accountants from Berdon, Michael Mitnick and Peter Gounis, according to the New York Post.

The “Disturbia” singer discharged the firm in September 2010 and said she fared much better during her “Loud” tour last year, in which her net profits surpassed 40 percent of the tour’s total revenues.

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Big tip: Ohio waitress gets tax refund check for nearly half million; laughs and gives it back

Monday, June 4th, 2012

originally posted on WashingtonPost.com on June 2, 2012

If only it was a tip.

Veteran Cleveland waitress Ginny Hopkins grabbed her mail on her way to work and found a federal tax refund check for nearly $435,000. She “laughed out loud,” then took the check with her to Johnny’s Downtown Restaurant to show around.

She enjoyed the speculation for a couple days about what she could do with the apparent windfall. Her granddaughters were thinking tickets to see the popular boy band One Direction. She had other ideas.

“Grandma hasn’t had a vacation in 28 years,” she said. “I would have gone to Hawaii.”

It was all in fun. On Thursday, she said, she instead went to the Internal Revenue Service office in Cleveland with the check.

“I’m here to give you a half million dollars,” she recounted telling employees. She said she had to show them a photo ID.

“Like anybody would walk in and just give them a big check,” she said. She said the IRS employees politely told her the mistake would be investigated internally. A message was left Saturday at the IRS office.

A waitress for 40 years, she wouldn’t say how much she earned last year, but laughed and replied: “Not enough to warrant a refund like that.”

She said she had originally filed her return in January with her son’s help, but an electronic filing glitch caused information on her return to get deleted. She filed an amended return in April, claiming a $754 refund.

She still hasn’t gotten that. She said the IRS folks gave her information for checking on the status of her refund.

She said next year, she’ll file her return requesting direct deposit of her refund.

Hopkins, who spoke by telephone Saturday before heading to her job for her sixth day of work in the week, said she wasn’t sure what she would do if another $434,712 suddenly showed up in her bank account next year.

“I’d have to start balancing my checkbook a lot better, I can tell you that,” she said.

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