IRS Puts Reins on Stingray Technology

IRS Puts Reins on Stingray Technology

It will be Christmas time soon and thoughts often turn to gift giving and getting. For some, the gift they would like most is the latest high tech toy. This year one of the hottest tech gifts is the Hoverboard. Next year it could be a personal rocket ship. Boys will be boys, and they tend to enjoy imagining themselves starring in a James Bond flick with the latest technology at their fingertips.

The boys at the IRS are no different, although some of them are surely lamenting the potential limitations placed on their toy commonly knows as the Stingray. The Stingray is a cell phone surveillance device that can mimic a wireless cell tower, intercepting signals and giving the user private cell data of anyone in the area. Special agents with IRS Criminal Investigations have used this device since 2011 to track down some big time tax criminals.

Under pressure from the Justice Department, the IRS has begun drafting rules that would require their employees to obtain a warrant before using this controversial device. Of course a warrant requires a finding of probably cause by a judge, and if you’ve ever seen any crime shows on TV you know it’s a pain to have to get a warrant.

The IRS apparently has only one Stingray now, but they ordered a second one back in July. It hasn’t arrived yet, which I’m sure has the CI boys as anxious as 8-year-olds on Christmas Eve.

Congrats! You're a Partner with the IRS

Congrats! You're a Partner with the IRS

On March 19, 2015 IRS Commissioner, John Koskinen, brought together representatives from the IRS, the states, and the private sector tax industry in what he called the Security Summit Group to discuss ways to combat identity theft and, specifically, identity theft that results in tax fraud. Private sector representatives included the likes of CEOs of leading tax prep firms, software developers, and payroll processors. For the first two months, the SSG met “continuously” to collaborate and brainstorm. One of the ideas that has come out of these meetings is that there is no silver bullet for putting an end to identity theft and that we need to adopt a “multi-layered and coordinated approach.” Another big idea, announced by Koskinen in a statement yesterday, is that there is a key Security Summit partner that, until now, has been left out of the equation: YOU.

We’ve made a great deal of progress for the upcoming tax season, and it shows just how much we can accomplish working together. But to keep making progress, there is another partner we need to bring on board, and that’s the taxpaying public. In fact, that’s why we’re announcing this new effort, called “Taxes-Security-Together.” We all have a part to play in fighting identity theft.

Koskinen says that now is the best time to begin this new initiative. I’m paraphrasing here, but he basically says that there will be a bunch of new electronic devices bought over the next couple months (ok, Christmas time, I follow), and people will be doing their taxes and making other transactions on these devices (um, people do their taxes on phones? really?) and a significant number of these potential ID theft portals will fall into the hands of people who don’t know how to use them, and it behooves us to help them to use them safely. This seems like a really tenuous “slippery slope” kind of thought process here, but ok. Now I’m interested to know if identity theft typically spikes in December or something.

But, needless to say, it feels pretty awesome to be a member of the Security Summit Group. I’m waiting eagerly by the mailbox for my badge and lanyard. As a member in good standing of the SSG, I would like to commend the Commissioner on his Taxes-Security-Together initiative. It sounds like fun. However, I also would like him to tell me how he plans on getting these messages out to those who really need to hear them. I will prepare now for what promises to be a barrage of public service announcements via YouTube, Facebook, and wherever else the IRS has a presence. But if you’re not connected with the IRS online somehow, either by “liking” or “following” or subscribing to their emails, just how are you going to catch wind of these tips and announcements? And between a tax professional and the general public, who do you think would benefit most from hearing them? There is no one silver bullet, but at least some bullets should hit some targets for this initiative to be successful.

IRS Makes Plans with Private Sector to Curb Future Cyber Attacks

John Koskinen, Commissioner of the IRS, announced yesterday in a press conference that his agency is making plans to join forces with states and the entire private tax industry to combat cyber tax criminals like the ones who recently accessed taxpayer data through the “Get Transcript” application of the IRS website.  It’s the whole “it takes a village” concept applied to the ongoing battle to protect sensitive information on the internet. Government and industry plan to share information in ways they have never done before.

As a tax relief attorney, I don’t know a lot about computers and information technology.  If the top level guys at the IRS are IT ninjas, I’m probably a yellow belt noodle maker.  But commingling of IRS and private sector data makes me nervous, if that’s what they’re talking about doing.  I understand the desire to cooperate on this monumental task of stopping international cyber-criminal syndicates, but I feel like a little separation between public and private sector computer systems is healthy.  It seems to my naive mind that the more connected they are, in the event of a large-scale hack, the more likely we all go down together.

Here are a few nice words from Koskinen’s press conference:

[A]ny organization in the public or private sectors with IT systems and sensitive data faces a battle that seems to grow every day. The nation’s tax system is no different….No single organization can go it alone….None of us has a silver bullet to defeat this enemy….Working together we can achieve results that none of us, working alone, could accomplish.

Such an American thing to do, don’t you think?  Everyone joining forces and working together to defeat a common enemy and prevent a crisis.  I hope this is a step in the right direction and not just the IRS telling us what we want to hear.  The upside to all this for the IRS is that the next time their systems are compromised, maybe they can share the blame with businesses and states.

Founder of Happy's Pizza Chain Convicted of Tax Crimes

Happy Asker, the CEO and founder of a popular Michigan-based pizza chain has been convicted of conspiracy to defraud the United States government and 32 counts of tax crimes, including 28 counts of aiding and assisting the filing of false tax returns.  This pizza chain has over 100 locations and has been around for about 20 years.

Asker headed a “systematic and pervasive tax fraud scheme,” with employees and franchise owners, which involved underreporting gross sales and passing along the unreported income to key employees, franchisees, and Asker himself.  It also appears as though he was not very cooperative during the investigation, purposely misleading IRS Criminal Investigation agents in interviews.

Most of the Happy’s Pizza stores are located in Michigan and Ohio, although there is one store down in El Cajon, CA.  I had never heard of this chain before, so I tried to dig up what I could on the founder with the funny moniker.  There really isn’t much on the web about this guy.  Maybe he wanted it this way.

 

Singer Lauryn Hill is Going to Prison for Tax Crimes

Looks like our girl Lauryn Hill is going to spend some time in prison for her tax crimes.  She pleaded guilty last year to failing to pay taxes on about $2.3 million during a 5-year period.

Here’s a breakdown of what tax fraud got her.  She’ll have to:

  1. Pay what she owes to the IRS ($1,006,517)
  2. Pay a $60,000 fine
  3. Three months in federal prison
  4. Three month house arrest with electronic monitoring
  5. One year of supervised release

Hill says she recently cut a deal with Sony, but I wonder how the creative juices are going to flow staring at the inside of a prison cell for 3 months and then being stuck inside for another 3 months.  She will probably be allowed to work while serving her home confinement term, but may be given a curfew and restriction on travel.

I hope Hill does release new music and I hope she makes a lot of money so she can pay her tax debt.  Based on the public comments I have seen, she does not appear to harbor any bitterness or anger against the government.  But with any luck, maybe we’ll hear tax themes and undertones in her new music.  That would be nice.

IRS Records Prove AROD is a Bad Guy in Boston

According to a recent Boston Globe review of Internal Revenue Service (IRS) filings New York Yankee Alex Rodriguez is a bad guy. A Boston news source depicting a Yankee as a bad guy is hardly surprising. What interests me, as a tax attorney, is that the basis for hatred for Rodriguez this time is not baseball related; it is based on IRS records. According to the Boston Globe, nonprofit organizations are generally expected to donate 65 to 75 percent of their revenues to their designated charitable causes. The remainder of their revenues are supposed to be used to pay their necessary expenses and reasonable salaries of nonprofit employees. This was not the case for Rodriguez’s non-profit organization, according to the Globe.

In 2006, Rodriguez hosted a charity poker tournament that helped the A-Rod Family Foundation raise $403,862 for charity. How nice! However, according to IRS reports, barely 1 percent of the money raised were actually paid to charity. Specifically, only $5,000 was paid to Jay-Z’s Shawn Carter Scholarship Fund and only $90 was paid to a Little League baseball team in Miami; how charitable. The not for profit organization subsequently stopped submitting financial reports to the IRS, and was then stripped of its tax-exempt status. Again, AROD is a bad guy … no shocker … just surprised the revelation was tax based.

Cook County Politician on Trial for Tax Evasion

I don’t know anything about William Beavers, the Cook County commissioner, but at age 78 shouldn’t he be living on a golf course somewhere in Arizona?

Instead Beavers is being tried for tax evasion.  Prosecutors allege that between the years 2006 – 2008 he took well over $200,000 from his campaign coffers and gambled it away at his favorite Indiana casino.  Beavers is not on trial for using campaign money for personal expenses, which is illegal in and of itself.  Instead he is on trial for failing to report the money as income.  Remember, to avoid IRS tax problems, all income must be reported, even illegal source income.  I suppose the misappropriation issue is a separate case.

The defendant has pleaded not guilty.  He previously announced that he would be testifying in his own defense once the prosecution had rested, but it looks like he will not take the stand afterall.  Beavers’ tax attorneys are trying to make the case that the money taken from his campaign was actually a series of loans that Beavers intended to pay back.  But so far there is no documentary evidence to substantiate this claim.

It’s Who You Know

Federal tax refund fraud is a growing problem that has the IRS on its toes.  Over the past few years the IRS has intensifyied its efforts to combat refund fraud, but it has been a challenge for the IRS to keep pace.

Some tax criminals are unsophisticated, inexperienced solo operations that are just not very good at what they do.  These are the people we end up reading about in the news after IRS Criminal Investigation nails them.  The more successful tax fraud schemes involve multiple moving parts, or so they think.  For example, when the unsophisticated, inexperienced individual fraudster is well-connected — if he has the right kind of friends — he believes that his potential for swindling the government will increase exponentially.

And if one of his connections happens to be a banker, then he thinks he’s golden.  Hilda Josephine Hernandez-McMullen, a former employee of Wells Fargo Bank, pleaded guilty to seven felony counts of bank fraud.  She admitted to assisting members of an identity theft and tax fraud ring that had sought $25 million in false refunds.  She opened bank accounts for people knowing the information provided to her was inaccurate and she cashed fraudulent checks totalling about $38,000.

Ten members of the fraud ring were charged, and Hernandez-McMullen herself is looking at 30 years in prison for each count of bank fraud if she receives the maximum sentence.  Not so golden afterall…

Tax Protestors: Keep your Distance

Tax protestors typically turn to a handful of “canned” arguments regarding the government’s lack of authority to levee taxes.  These arguments are typically not very successful.  When tax protestors refuse to pay taxes based on these flawed legal positions, they are typically hit with a barrage of penalties and interest on top of their tax debt, and some even do prison time.  But tax protestors who are also former IRS agents? — not very typical.

That’s what makes the story of Sherry Peel Jackson so interesting.  She worked for seven years as an IRS revenue agent, then she went into private practice as a CPA, then she spent four years in prison for failure to file tax returns, and now she tours around promoting the books she wrote in prison about the illegalities of income taxes.

Don’t believe anyone who tells you that taxes are illegal.  You will want to avoid these people like the plague.  The tax protestor groups are a sham and can cause you some serious tax problems.

Procedure for Reporting Tax Law Violations Needs Work

Maybe it’s because of the recent unprecedented IRS whistleblower payout, but people seem to be eager to turn others in for tax law violations these days.  Nevermind their own tax problems.  Of course most of the inquiries I see come from the estranged spouse or the “friend” seeking revenge.

The best way to report IRS problems involving fraud and other tax law violations is by completing and filing IRS Form 3949-A.  But according to TIGTA, Form 3949-A is too complicated for most taxpayers to be able to complete thoroughly and accurately.  And many are also using the form for something other than its intended purpose.

TIGTA studied a sampling of 530 forms 3949-A and identified some serious problems:

  • 27 percent could not be processed because they didn’t provide sufficient details (not surpising since the form asks for things like the social security number and birth date of the person you are reporting)
  • 21 percent were incorrectly used to report identity theft (some IRS service centers were actually instructing taxpayers to use this form for ID theft when, in fact, they should be filing Form14039, the ID Theft Affidavit)
  • Forms that reported “other issues” not covered by F3949-A were often shredded by IRS personnel instead of being forwarded to the appropriate IRS function