Is Your Online Imprint Going to Trigger an IRS Audit?

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In mid-April I noticed a rather innocuous news release on the IRS website in regards to some type of email policy. If it wasn’t so cryptic and fraught with legal positioning, I would probably have considered it with the same drab spun by the IRS press cycle on a daily basis. However, the statement was so obtuse, it required at least a Google search or two to decipher the precipitous for the need to publically proclaim their position on email surveillance.

Here’s the IRS statement from April 18, 2013:

“Where the IRS already has an active criminal investigation and seeks to obtain the content of emails from an Internet Service Provider, we obtain a court ordered search warrant. It is not the IRS policy to seek the content of emails from ISPs in civil cases. Respecting taxpayer rights and taxpayer privacy are cornerstone principles for the IRS. Our job is to administer the nation’s tax laws, and we do so in a way that follows the law and treats taxpayers with respect. However, to resolve any remaining confusion surrounding this issue, the IRS is reviewing its policy and guidance and will make appropriate updates.”

I don’t have a crystal ball or a microphone in the IRS headquarters, but I believe the precipitous for the statement was damage control based on numerous news stories circulating recently that the IRS was beginning to use more than the standard tax disclosures to catch you in a tax lie. It was reported that the IRS was acquiring personal information on taxpayers’ online activities, from eBay auctions, Facebook posts, credit card transaction records, and e-payment transaction records, to verify the information reported (or not reported) on your tax return.

It was reported that the new online surveillance policy was precipitated because the IRS is under heavy pressure to help the federal government out of its budget crisis by chasing down revenue lost to evasions and errors each year. According to Edward Zelinsky, a professor at Benjamin N. Cardozo School of Law and Yale Law School. “I am sure people will be concerned about the use of personal information on databases in government, and those concerns are well-taken. It’s appropriate to watch it carefully. There should be safeguards.” He adds that taxpayers should know that whatever people do and say electronically can and will be used against them in IRS enforcement. Be warned.

It is alleged that the IRS is going a step beyond law enforcement agencies that use openly displayed social media information such as twitter, facebook, and instagram to prove illegal activity by asserting there is no right to privacy in personal correspondence via email, facebook chats, twitters direct messages, and similar non-public online communications.

According to a blog post by Nathan Wessler on the ACLU’s blog, even though judges are holding that people’s emails are private communications (most notably in United States v. Warshak, a 2010 decision from the Sixth Circuit Court of Appeals), the IRS is going its own way on the matter, claiming that Americans have no privacy rights in any correspondence sent via the internet, so that the IRS has no obligation to get search warrants. It was the policy of the IRS to read people’s email without getting a warrant. Not only that, but the IRS believed that the Fourth Amendment did not apply to email at all. A 2009 “Search Warrant Handbook” from the IRS Criminal Tax Division’s Office of Chief Counsel baldly asserts that “the Fourth Amendment does not protect communications held in electronic storage, such as email messages stored on a server, because internet users do not have a reasonable expectation of privacy in such communications.” Again in 2010, a presentation by the IRS Office of Chief Counsel asserts that the “4th Amendment Does Not Protect Emails Stored on Server” and there is “No Privacy Expectation” in those emails.

I suppose the end result for me on this issue is the portion of the statement that reads: “It is not the IRS policy to seek the content of emails from ISPs in civil cases.” In my dealings with the IRS in non-criminal cases, policy has no president or consideration in a collection case. Therefore, you should consider your online footprint a fishbowl for IRS audit fodder.

Singer Lauryn Hill is Going to Prison for Tax Crimes

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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

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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.

Wesley Snipes Released from Prison

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Perhaps one of the most high-profile celebrity tax crime stories of our time is coming to a conclusion.  Wesley Snipes was released from prison last week after serving about 28 months behid bars in Pennsylvania.  He will now be on house arrest until July 19th under the careful watch of the New York Community Corrections Office.

It is no surprise that TMZ was the first to report the conclusion of Snipes’ prison term.  TMZ follows celebrity tax problems like nobody’s business.  Even the LA Times cited TMZ as its source for this bit of news.

Celebrity tax problems are common, but most of them surface once the IRS files a Notice of Federal Tax Lien (FTL).  A tax lien is a public record that puts creditors on notice that the IRS has an interest in a taxpayer’s property as security against the past due tax debt.  A FTL is considered a “passive collection tool,” and in no way does it implicate the taxpayer criminally.  What made the Snipes case somewhat unique is that he was prosecuted criminally and he actually served time in prison.

Cook County Politician on Trial for Tax Evasion

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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.

IRS Nails "Non-filers" Too

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Some of our tax relief clients are concerned about the criminal implications of their case.  They want to know how we plan on helping them dig their way out of their tax debt, but they also want to know if they are going to be able to avoid a criminal investigation or conviction.  Some people (for various reasons) have multiple years of unfiled tax returns, and these are the clients who typically worry the most.  The IRS calls these people “non-filers.”

Do non-filers have to be concerned about being prosecuted for tax crimes?  Yes, they do.

Most people think of tax crimes as falling into one of the following categories:

  • abusive tax schemes
  • identity theft
  • money laundering
  • tax refund fraud

These are the types of tax crimes that get the most publicity.  However, it is important to know that non-filers can go to prison too.  The threshhold for “tax evasion” is lower than you might think.  Of course the IRS does not have the resources nor the desire to prosecute every taxpayer who fails to file.  In fact, most of the time, the IRS simply resorts to the Substitute for Return program rather than involving Criminal Investigation.  But you can’t rule it out!  The rule of thumb is to file your return every year, even if you know you aren’t going to be able to pay.

It’s Who You Know

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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…

Only Tax Debt Blues For Utah Jazz Assistant Coach

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Probably not a front page nab, but the North Carolina Department of Revenue recently set their crosshairs on Utah Jazz Assistant Coach and Former North Carolina State basketball head coach Sidney Lowe. The North Carolina Department of Revenue probably has more publicity to gain by seeking criminal charges against Lowe than the Internal Revenue Services does against Bubba (click here to read about the tax charges against Bubba Paris).

Lowe has been criminally charged with failing to file his North Carolina state income taxes for three years; 2009, 2010, and 2011. Lowe was booked at the Wake County jail Monday and released on a $10,000 unsecured bond. Lowe was a player for North Carolina State in the early 1980s and coached the Wolfpack for five seasons before resigning in 2011.

Currently an assistant coach for the Utah Jazz, this is a case where the tax local tax authorities may garner that infamous publicity tax authorities are notorious for. However, outside the devoted basketball fan or North Carolina booster fan, Lowe is likely an unknown. Reports on the alleged income earned bu Lowe for the years in question vary. If the case goes to trial we will likely learn if the government’s prosecution will cost more than the delinquent taxes to be gained, as is likely the case in the IRS’s criminal prosecution against Bubba Paris; or whether the criminal prosecution was worth the expense and deters the public from committing tax crimes. Again, this story proves that seeking the early help of a tax relief attorney may save you from doing hard time down the line.

United States Files Criminal Tax Charges Against Bubba

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According to the associated press, three time Super Bowl champion and former San Francisco 49er Bubba Paris has been charged with failing to file his federal income tax returns over a three year period.

The U.S. Department of Justice announced that Paris has been charged with three misdemeanor charges of failing to file tax returns in 2006, 2007 and 2008. Prosecutors allege that Paris received gross income of more than $57,000, nearly $84,000 and almost $42,000, respectively, in each of those years.

What interests me about this case, besides the 49er who was one of my favorites in the 1980’s, is the amount of money involved and Paris’ lack of true notoriety. While there are exceptions, the government generally prosecutes criminally for non-filing or non-payment of taxes only in cases of extreme income or evasion, or major notoriety i.e. the press garnered from the prosecution will warn the general public to timely file and pay their taxes. Here, the income levels alleged, if correct, are hardly kingpin status. In regards to Paris’ notoriety, the government missed their mark by about 25 years. Even in the Bay Area, most 49er fans may not know the difference between Bubba Paris and Bubba Gump.

Nonetheless, Paris now needs a tax attorney to get him tax relief. I suppose the government’s purpose would be to warn those with smaller incomes, that they too may be the subject of criminal prosecution for otherwise minor tax crimes. Be warned … if you earn approximately $45,000 a year and you miss a tax deadline … you may be doing hard time.

 

Tax Protestors: Keep your Distance

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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.