Another Round of Fake IRS Emails

Don’t be fooled by scam emails purporting to be from the IRS. The IRS does not communicate with taxpayers by email, so you can be sure that anything appearing to be from the IRS is a scam. IRS scam emails often contain links which, if opened, can damage your computer or compromise your private information.

The latest scam email originated in Saudi Arabia, contains the subject line “Tax refund important information,” and the following content:

After the last annual calculations of your financial activity we have concluded that you are eligible to get a tax refund of $464.
You may submit the tax refund application and give us 3-9 days in order to process it.

A refund can be hindered for many different reasons.
E.g., submitting invalid records or not meeting a deadline.

To get information about your tax refund please open this link.

Tax Refund Department
Internal Revenue Service

 Thanks to the Taxgirl, Kelly Philips Erb, for spreading the word about these nefarious emails.

IRS Claims Erroneous Refund Issued to Hal Steinbrenner

No doubt the Steinbrenners can still stir up controversy. This time it’s tax problems.

The Justice Department has sued Harold “Hal” Steinbrenner, co-owner of the New York Yankees and son of the late George Steinbrenner, over a $670,000 refund that they say was issued to him in error two years ago.  In 2009 Hal filed an amended 2001 return, seeking a refund because of a $6.8 million net operating loss carried back from 2002. The IRS paid out the refund but then determined that the amendment was filed 5 months too late. Full story here.

Hal Steinbrenner’s representatives had no knowledge of the lawsuit and had received no prior notices regarding this matter from the IRS or any other governmental agency.

~ Alice McGillion, a family spokeswoman

The IRS is notorious for dropping bombs on people without prior notice, but even I am a little surprised by this one. It seems like the IRS would have initially sent letters to the taxpayer informing him of the erroneous refund and requesting he pay it back. I can’t imagine they would have referred the case out to legal and then to the Justice Department unless they were up against some filing deadline and they needed to preserve their rights by filing suit.

Forget Packers Stock, Get US Savings Bonds

I know some people are already looking forward to next year’s tax refund check. If it’s not going to be spent paying off Christmas credit card debt then you may want to consider purchasing some US Savings Bonds.

All you need to do is fill out a simple form — Form 8888 — and attach it to your tax return when you file. On Form 8888 you simply indicate who the bonds should be issued to and the amount you want to purchase (in increments of $50.00 and up to a maximum of $5,ooo.00). If you do not want your entire refund going to the purchase of savings bonds, simply indicate what you want to do with the balance: paper refund check, one or more bank accounts, my bank account perhaps.

Savings bonds may seem like an old-fashioned investment, but it’s a smart investment these days. The Treasury Department describes them as a “low-risk, liquid savings product” that earns interest and protects you from inflation. You must pay federal taxes on the interest earned from savings bonds. But no worries about volatility, and they’re worth considerably more than Green Bay Packers stock.

If you like the feel of actually holding a paper savings bond in your hand, then purchasing them with part of your tax refund may be your last shot at doing so. Beginning January 1, 2012 paper savings bonds will no longer be available for purchase at financial institutions. Electronic savings bonds are available for purchase at any time through

Madoff’s Unnecessary Tax Payments

We often hear about people trying to get out of paying taxes that they are legally obligated to pay. I blog about tax crimes all the time. But seldom do we hear about somebody paying taxes that are not owed as part of their fraudulent scheme.

Bernie Madoff went to great lengths to ensure that his fraud would not be exposed. He and his firm paid some $326 million in taxes on behalf of foreign investors in connection with the sale of securities. The only problem is Madoff’s firm never purchased or sold any securities on behalf of foreign investors.

Legitimate firms pay taxes. This much Madoff understood. Perhaps Madoff was thinking that by paying as much as he did, it would eliminate any doubt about the legitimacy of his operations.

I believe that the payments made to the IRS falsely identified the funds as income tax withholding in order to give the investment advisory arm of Bernard L. Madoff Investment Securities LLC (BLMIS) an air of legitimacy and to avoid inquiries . . .

~ Irving Picard, trustee acting on behalf of Madoff’s victims

Picard struck a deal with the IRS today whereby the IRS would refund the $326 million. This will help offset some small fraction of the losses suffered by Madoff’s victims.

IRS Accelerates Detection of Fraudulent Refund Returns

Pursuant to its 2011 audit plan, TIGTA conducted its annual audit of IRS activities during the 2011 filing season. The purpose of the audit was to evaluate whether the IRS timely and accurately processed individual paper and electronically filed tax returns. The final report is dated September 28th, but was just released to the public on November 1st.

One of the highlights of this report was the dramatic increase in fraudulent refund returns. As of April 30, 2011 the IRS had identified 775,723 fraudulent refund returns — $4.6 billion worth — compared to 286,670 identified by the same time last year (a 171% increase). Perhaps even more amazing is the fact that the IRS, through its screening efforts, detected 96% of them, therefore, no refund was issued.

The IRS is clearly increasing its efforts in this area. It is even beefing up its screening of prisoner tax returns, which are often fraudulent. As of April 30, 2011, the IRS reported that it had selected 199,854 tax returns filed by prisoners for screening (a 256% increased compared with the 2010 filing season).

Read full report here.

IRS Will be Watching EITC Claims More Closely in 2012

The Earned Income Tax Credit (EITC) is a refundable credit for low to moderate income households. It is a very desirable form of tax relief because it actually puts money back in their pockets . . . if they qualify.  The problem is that over the years the IRS has also paid out in circumstances where the taxpayer doesn’t really qualify. In fact, in 2009 over 26 million people received nearly $59 billion through the EITC.

In an effort to promote more accuracy (and less fraud) in connection with EITC, the IRS is likely going to make it a requirement that all paid tax preparers include Form 8867 with all returns that include the credit. Right now it is a proposed regulation still awaiting public comment and final approval. In years past, tax preparers were required to complete this form (to prove their due diligence) and retain it in case of audit. But under the proposed regulation, paid tax preparers would be required — beginning January 1, 2012 — to actually file the form along with the return.

Multiple-filers and the Martinsburg Monster

Before the IRS went into full automation mode and before the IRS used computers in any meaningful way, there were the “multiple-filers.” This was the illegal practice of filing false returns (with phony names, wages, and social security numbers) claiming refunds — usually several returns claiming modest refunds so as to not draw too much attention. And it worked. Many refunds were paid out in error this way. But the multiple-filers would get caught sometimes too (the IRS would probably say “most of the time”).

The term “multiple-filing” doesn’t appear anywhere on the IRS website. Today it is more commonly referred to as “refund fraud.”

In the early 1960′s the IRS housed its computers in a single location in Martinsburg, West Virginia. That first IRS computer center began busting multiple-filers and other tax cheats with a computer system known as the “Martinsburg Monster.”

Check out the April 12, 1963 Life magazine story discussing several successful multiple-filer busts by IRS Intelligence Division head, H. Alan Long and his agents.

Do You Need to Adjust Your Withholding?

It’s nice getting a couple thousand bucks back from the IRS each April, right?  Of course it is, but its nicer to not hand it over to them in the first place if its just going to be coming back to you in a refund.  When you allow your employer to withhold too much, you are essentially loaning your money to the government all year.  Your goal should be to have your employer withhold only enough to cover the taxes you actually owe.  The IRS Withholding Calculator can help you determine how many exemptions you should claim on your W-4.  You may need to go back to the IRS Withholding Calculator when you experience major changes in your life, such as marriage, divorce, death of a dependent, birth of a child, other personal financial changes, or changes in the law.

However, take care that you don’t underwithhold either because if your employer does not withhold enough, then you will find yourself owing the IRS.