IRS Makes Plans with Private Sector to Curb Future Cyber Attacks

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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.

IRS Tougher on Tax Crimes

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Today the Criminal Investigation (CI) division of the IRS announced the release of its annual report which covers fiscal year 2013.  Everything in this report suggests that the IRS is more aggressively pursuing tax criminals.  Here are just a few highlights:

  • Criminal investigations: 12.5% increase
  • Criminal prosecution recommendations: 18% increase
  • Criminal convictions: 25% increase

But the most shocking statistic is not even reflected in this short list.  Get this: the conviction rate for fiscal year 2013 was 93 percent!  In other words, I don’t think the IRS is going to recommend prosecution of a case that it isn’t almost certain to win.  Of course, the IRS’ interpretation of this statistic is that they just have top notch attorneys:

The conviction rate is especially important because it reflects the quality of our case work, our teamwork with law enforcement partners and the U.S. Attorneys’ Offices

~ Richard Weber, Chief of Criminal Investigation

The IRS is especially intolerant of identity theft (it boasts membership in over 35 identity theft task forces) and I am sure that this accounts for many of the recent convictions.  Some of the other tax crimes mentioned in this report include public corruption, money laundering, terrorist financing, and narcotics trafficking.

If you are wondering / stressing about whether or not you will go to jail for failure to file a tax return or failure to pay your taxes, I still think the answer still has to be “you could be.”  However, this phrase picked from the IRS’ official Newswire statement is very revealing:

CI investigates potential criminal violations of the Internal Revenue Code and related financial crimes in a manner to foster confidence in the tax system and compliance with the law.

I don’t think its a coincidence that the first concern of CI is to “foster confidence in the tax system” — secondary to fostering voluntary compliance.  How does the IRS foster confidence in the tax system?  It is not done by nailing “small fish,” which would probably have the opposite effect.  It is done by high profile convictions.  The IRS is more aggressive with high-dollar cases and cases involving public figures; the kinds of stories that make the evening news.

2014 Dirty Dozen Revealed

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Every year around the beginning of tax season, the IRS comes up with its “Dirty Dozen” tax scams list.  In recent years the top three have been (1) Identity Theft; (2) Phishing; and (3) Return Preparer Fraud.  The 2014 list includes Identity Theft and Phishing in the top three again, this time along with “Pervasive Telephone Scams.”  Phone scams often take advantage of recent immigrants, the elderly, or uneducated.  It is easy to avoid a phone scam if you know what to look for and if you maintain a certain degree of skepticism when receiving an unsolicited phone call.  However, as easy as it is in theory, these phone scams must be at least somewhat successful or they wouldn’t be described as “pervasive,” and they wouldn’t have made it to the top of the Dirty Dozen this year.

Here is the Commissioner’s official generic statement:

Taxpayers should be on the lookout for tax scams using the IRS name. These schemes jump every year at tax time. Scams can be sophisticated and take many different forms. We urge people to protect themselves and use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues.

The reason that the IRS releases the Dirty Dozen list in February is that they have noticed a spike in tax scams around this time of year.  However, just as the IRS can (and will) collect on delinquent tax accounts by issuing a wage garnishment or bank levy throughout the year, tax thieves and scam artists pretty much work around the clock.

Indian Tax System Broken

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Americans are pretty conscientious about paying their taxes compared to some other countries.  How about the extreme tax-dodging that goes on in India?!  Many farmers and impoverished Indians are exempt from paying taxes.  But on the other end of the spectrum are the very wealthy (and there are many of them in India) who openly refuse to pay taxes.  The millionairs don’t feel they should have to pay because they cannot trust their corrupt government officials to spend the money appropriately.  They don’t want to bank roll their politicians and make them any richer.  Basically, few people have bought into the idea of paying taxes in India, and there is no shame in the dramatic underreporting of income.  Very interesting article here.