IRS Tax Scam Tips

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Every tax season the IRS warns taxpayers of tax-time scams and how to avoid them.  The IRS says that “tax scams proliferate during the income tax filing season.”  This year the filing season begins January 31st.  I hope taxpayers take this to heart, but I also hope that they remain vigilant throughout the entire year.

People often ask me if business picks up during tax time, and I usually explain that the IRS’ collection machine runs 24/7 and 365 days per year.  The IRS Collections Department doesn’t really have a “season” so to speak; they work year-round.  We do tend to get more phone calls during the first few months of the year, but this is due to the fact that the tax season is when people tend to think more about their tax issues.  The thought of having to file income taxes again naturally leads to the next thought of having to do something about the prior tax years and tax debts already on the books.

I suppose that a similar phenomenon occurs with tax scammers.  They definitely do their dirty work around the clock and any time of the year.  But they know that they will have more success during the income tax filing season.  Poor, unsuspecting taxpayers are just more likely to pick up the phone, divulge confidential information, and open spammy emails during this time of year.

The common-sense advice that the IRS gives each year can be summarized as follows: Don’t give out your personal information such as passwords, PINs, credit card or bank info via emails or over the phone.  This is not how the IRS operates, and if you do get a phone or email request for such information, it is probably a scam.

Billionaire evades prison time for evading millions in taxes.

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Back in September 2013, we reported that your Beanie Babies in the attic may become more valuable because Beanie Baby creator, Ty Warner, was facing charges for evading his federal taxes. Last week Judge Charles Kocoras “sentenced” billionaire (with a “B”) Warner to two-years probation and 500 hours of community service for his tax crimes.

The sentence, or lack-there-of, is actually a bit surprising. The government often seeks harsh punishment in high profile cases knowing that punishing the infamous will have a chilling effect on less substantial, but still costly, tax crimes committed by regular citizens. Judge Kocoras rejected such punishment in this case based on Warner’s “good works” in society.

Warner pleaded  guilty to tax evasion and paid a civil penalty of $53.6 million for failing to report$3.2 million in income on a secret Swiss bank account that held as much as $93.6 million in assets. Unfortunately for Warner, he attempted to avoid prosecution and take advantage of one of the government’s many offshore voluntary disclosure amnesty programs, but was denied tax relief. In addition to the civil penalty already paid by Warner, Judge Kocoras fined Warner an additional $100,000.

I was actually looking forward to the tax evasion Beanie Baby. However, now we’ll probably have a reincarnation of the fad, and all its versions, so Warner can pay his fines.

Bold New Tax Scams

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Some IRS scam artists are using bolder techniques to get their hands on taxpayers’ personal and financial information.  Emails are very common; we have seen many phony IRS email campaigns over the years.  Deceptive mailers are also prevalent, many of them rising to the level of what I would call a scam.  Far less common is a direct phone call from someone claiming to be an IRS employee, but there has been somewhat of an outbreak of these recently.

Blogger and tax attorney, Kelly Phillips Erb, reported that one of her clients recently got a call from somebody claiming to be from the IRS.  It is Erb’s opinion that IRS scammers are taking advantage of the government shutdown; they feel emboldened by the fact that victims can’t very well call the IRS right now to report them.  A local news source in Minnesota has also recognized an uptick in IRS phone scams, although I don’t agree with them that the test for identifying a phony IRS call is a thick accent.  I have also been informed of a couple IRS phone scams close to home (or perhaps the same one?), one from a client and one from a concerned taxpayer.  The latter was told that the IRS was going to come to his place of employment to arrest him.

Not to get too psychoanalytic or anything, but phony IRS phone calls takes the deception to a whole new level.  Granted, if somebody is tricked into giving up their social security number or credit card number, to them it doesn’t matter if it occurred in an email or over the phone.  The result is the same either way.   However, I do feel like it takes a different type of criminal to be bold enough to swindle somebody in a one-on-one situation.  An email campaign is so impersonal; a criminal can reach thousands of people with a couple clicks of a mouse.  But in a successful phone scam, the criminal needs to utter multiple lies to multiple victims.  It just seems like a much bolder form of tax scam and hopefully it is not a sign of things to come.

Introducing the tax evasion beanie baby

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This week, the creator of the Beanie Baby toy phenomenon, Ty Warner, was charged with tax evasion. The charges allege that Warner committed tax crimes on his 2002 tax return by failing to report $3.2 million in income on a secret Swiss bank account that held as much as $93.6 million in assets. The federal government alleges that Warner falsely reported his 2002 income as $49.1 million, omitting money he made on his UBS account. He amended his 2002 return in 2007, yet it is alleged that he again understated his tax by $885,300.  In 2009, Warner tried to avoid prosecution by taking advantage of the Internal Revenue Service (IRS) amnesty program known as the Offshore Voluntary Disclosure Program. According to Warner’s tax attorney, the IRS denied amnesty to Warner.

Warner is expected to plead guilty as part of a plea agreement and will pay a civil penalty of $53.6 million for failing to file a required Report of Foreign Bank and Financial Accounts (FBAR). Warner is not the first UBS client to be prosecuted for tax crimes. Since 2009, the United States has prosecuted approximately 70 taxpayers, 30 bankers, lawyers and advisers in a crackdown on offshore tax evasion. I wonder if this is the time to sell those Beanie Babies I have in the attic.

IRS Scams: Inside & Out

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The IRS makes a lot of money off the American people and certain American people make a lot of money off the IRS.  Some people cheat the system as ordinary citizens from outside the agency.  And some cheat the system by virtue of their insider/employee status.  Tax scams have evolved over time and have adapted to changes in technology.  But what has not changed are the most basic elements of almost all tax scams.  They rely on the fact that nearly everybody in the country has (or potentially could have) some kind of contact or interaction with the IRS.  And they rely on the fact that the IRS is so huge that they can’t always keep very close tabs on their own personnel.

Two recent headlines illustrate my point.

1. Santa Cruz, CA Phone Scam: Scammer targets South Asians and Indians, claims to be an IRS representative, tells victims that there is an open criminal tax investigation against them, and convinces them to wire money.  The strategy is simple: if you contact enough people, somebody is bound to take the bait.

2. Baton Rouge, LA IRS Manager Sentenced for Illegal Tax Business: She operated a tax & accounting business while serving as a supervisory revenue agent and group manager.  She used IRS databases for the benefit of her own business.

The IRS manager has been caught, the phone scammer has not.

Blocking IRS Collections

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If you do not develop a plan for dealing with your tax debt, the IRS will find a way to collect what you owe one way or another.  One way the IRS does it is through enforced collection actions such as wage garnishment, interception of federal and state refunds, levy on federal benefits like Social Security, bank levy, and seizure of property.  The IRS also encourages and persuades folks to voluntarily comply with tax laws through public outreach campaigns, phone calls, and letters.  Of course, those “nice guy” techniques only get them so far.  There are several different ways to block IRS collection efforts, but some I cannot recommend because they are illegal.

Recommended

  • pay what you owe
  • set up an installment agreement
  • prove hardship
  • file an Offer in Compromise

Not Recommended

  • hide assets
  • bribe an IRS revenue officer
  • give false information
  • dump a pile of dirt in front of an IRS revenue officer to prevent them from getting near your assets

Let me be perfectly clear.  I include the “not recommended” list only to give you a keen understanding of what you should not do.  And the dirt dumping sounds like a ridiculous example, but it really happened.  The guy that did it was sentenced to three years of probation just last week.  In an attempt to collect unpaid taxes from 45-year-old Walter M. Trizila, IRS revenue officers visited his property to see if there were any assets worth seizing.  The IRS set its sights on a certain dump truck, but Trizila didn’t want to part with it.  He entered a front-end loader, charged at the revenue officers, and then dumped a mound of dirt between them and his truck.

Trizila is apparently a very literal kind of guy.  He knew he had to “block” IRS collections and he did it the only way he knew how.  Unfortunately for him, it resulted in a misdemeanor conviction for assault, resisting or impeding a federal officer.

Would you rob the IRS to fund your “before I die” fund?

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Reading between the lines, it appears that Frank F. Frink of Washington lost his gamble that the government wouldn’t catch up with his tax crimes until after he left this world on a high note and a pocket full of cash.

Although the IRS is usually slow to pick up on tax evasion and other tax crimes, they do eventually usually catch up to criminal and civil tax shenanigans … it’s just a matter of time. Mr. Frink doesn’t have to report to prison until September for his tax crimes, allowing him time to seek treatment for undisclosed medical issues. If he’s still around in September, he will have to serve a one year prison term for his tax crimes.

My assumption that he wanted to leave this world with a pocket full of cash is based on the referenced medical problems and absurdly bold manner in which he robbed the IRS. Frink plead guilty to filing a false, fictitious and fraudulent tax claim on his 2008 tax return and was sentenced earlier this week. According to the U.S. Attorney’s Office, Frink hired a tax preparer to prepare his 2008 return and calculated he was owed a refund of $7,413. This is a pretty substantial refund for most households these days. However, for Frink, it was not enough. So he sought the help of a witless tax preparer to fund his final days; he went to H&R Block.

After his first tax preparer determine that he was owed a federal tax refund of $7,413, Frink went to an H & R Block branch with bogus tax forms showing that more than $1 million had been withheld in taxes. H & R Block then calculated he was therefore owed a tax refund of $827,117. The IRS issued Frink this windfall and didn’t catch the fraud for some time as he wasn’t criminally charged until September 2012, approximately three years later. Even when the IRS began to investigate Frink’s tax crimes, he continued to spend his generous tax refund.

While Frink may be living on borrowed time and took advantage of the IRS, most taxpayers want to resolve their tax headache without the specter of prison time. If you’re fighting the IRS, and don’t have Frink’s exit strategy, our tax law firm offers a free consultation so you may determine if we’re the right tax attorneys to fight the IRS for you.

Pimping Isn’t Easy When the IRS is Watching You

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You usually hear about the IRS wielding its power to criminally prosecute tax offenders in those cases where the dollar amount involved is great or the notoriety from the case will make lawful taxpayers think twice before fudging the numbers on their tax returns. I was a little surprised when I read about Johnny Ray Taylor, who recently pled guilty to tax evasion in U.S. District Court in Las Vegas earlier this week, until I read-on.

At first glance, the headlines capture you about a panderer and pimp, needing to cut a deal with the IRS. How much could such a “profession” really bring in? Surely not enough to catch the attention of the IRS; wrong! According to Taylor’s plea agreement, he copped receiving gross income in excess of $230,000 for tax year 2010. Although he didn’t file tax returns for tax years 2008, 2009, and 2010, he agreed to pay restitution in the amount of $117,559.82 to the IRS for those tax years. He’s presently awaiting sentencing. I’m still curious as to how much money he really “earned” since he cut a deal admitting that he earned in excess of $230,000 for just one tax year alone.

Fighting the IRS Alone? You May Have a Fool For a Client

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Nancy Cicero had a fool for a client in her fight with the Internal Revenue Service (IRS); she represented herself. Rather than seeking the advice of a tax attorney with the tools and experience needed to successfully fight the IRS; she went it alone, saved a few bucks, and is now a felon awaiting sentencing.

Cicero was found guilty on four counts for illegally claiming more than $3 million in tax refunds on her tax returns for tax years 2005 – 2008. Each count of filing false claims with the IRS carries a maximum penalty of five years in prison and/or fines up to $250,000.

According to the St. Louis Post-Dispatch, while self-represented, Cicero made no real opening statement or closing argument, and asked no questions of witnesses. When the judge would ask her if she wanted to object to the admission of evidence against her, she provided indecisive answers, such as, “I object. It is not my wish. Let the record show it is my wish.”

She should have wished for sound legal advice from her tax attorney. While saving a buck by representing yourself in a fight with the government is a legal right, common sense and Cicero’s predicament is proof positive that not all rights should be exercised. If you find yourself having to fight the IRS, don’t fight them alone, the tax attorneys at Montgomery & Wetenkamp are available to take your call and offer a free consultation.

You’re not paranoid if you think you’re being targeted by the IRS for tax purposes.

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According to CBS and Reuters, the Treasury Inspector General for Tax Administration (TIGTA) is expected to publish an investigative report this week detailing that Internal Revenue Service (IRS) agents specifically targeted conservative groups for review and consideration of their tax exempt status.

According to Reuters, director of exempt organizations for the IRS, Lois Lerner apologized Friday for what she called the “inappropriate” targeting of conservative groups for closer scrutiny, something the agency had long denied. She said the screening practice was confined to an IRS office in Cincinnati; that it was “absolutely not” influenced by the Obama administration; and that none of the targeted groups were denied tax-free status.

The TIGTA findings detail that the names and purposes of groups were used to scrutinize applications. Name scrutiny included organizations such as Tea Party, Patriot, and 9/12. Scrutiny was also being improperly given to references to government spending, government debt, taxes, education of the public via advocacy/lobbying to make America a better place to live; and statements that criticize how the country is being run.

IRS employees are presently prohibited from targeting anyone for their political or religious beliefs. However, under current law such conduct would only be grounds for termination. Wasting no time to ride the coattails of a juicy scandal, Congressman Mike Turner of Ohio already unveiled a bill to make such actions a felony. Considering that nobody seems to know anything in these types of cases, and that the portions of the report available so far appears to be no different, it will be interesting if anyone is ever prosecuted criminally if the bill were to pass.