Archive for the ‘Tax Crimes’ Category

Tax Cheating Reaches New Heights – New IRS Report

Monday, June 20th, 2011

broke taxpayer

Fraudulent tax returns surge 181% – Ellijay, GA (Jeff Fouts, Tax Help Attorney.com)

Here’s a simple truth about personal tax returns in a bad economy. When money is tight, tax fraud goes up.

But how much?
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Tax Ripoff Report & Scams – Jeff Fouts

Thursday, May 19th, 2011

Ripoffreport Tax Scam Jeff Fouts Are you concerned with someone trying to scam you while pretending to lower your taxes? There’s good reason to be worried. This is a report on five common kinds of tax ripoff I’ve seen while defending my clients against the IRS.

No one likes to pay taxes and that’s why there are so many tax ripoffs. The crooks know that you ‘want to believe.’ But this isn’t Disneyland, a tax scam you unknowingly participate in can turn in to IRS fines or even land you in jail.

Because of this, it’s important to know about these scams so you can avoid them. There’s a second reason you need to defend yourself against these people which I’ll get to in a minute.

First let’s look at the kinds of ripoffs and scams my clients experience most often:

Top 5 Tax Ripoff or Scam Reports

  1. Improper Home-Based Business Expense
  2. Identity Theft
  3. Off Shore Tax Haven Ripoff
  4. Tax Avoidance Ripoffs such as ‘Frivolous Arguments’
  5. Tax Savings Scheme like the ‘Share/Borrow Dependents’

You can read more about these tax ripoffs and scams (plus some others) here on my article called The IRS Dirty Dozen.

Let’s look at one popular tax ripoff from the list above that’s been driving a lot of complaints with the IRS lately.

Improper Home-Based Business Expenses
This scheme purports to offer tax ‘relief’ but in reality is illegal tax avoidance. The promoters of this scheme claim that individual taxpayers can deduct most, or all, of their personal expenses as business expenses by setting up a bogus home-based business. But the tax code firmly establishes that a clear business purpose and profit motive must exist in order to generate and claim allowable business expenses. Even when you have a legitimate home-based business high deductions in this area are a known audit trigger.

Spotting a Ripoff
Are there common denominators for a tax ripoff?

Thief’s like to use legitimate tax and financial advice that’s in the news. Like the small business tax breaks you might have heard about for a home-based business. Home-based businesses are a great legitimate tax break so naturally the media highlight it.  Ripoff artists play on this media coverage to give their tax scam an air of legitimacy.

Which leads me to the second point about why it’s important to know about these ripoffs.  The thief’s know you are much less likely to report them out of fear you’ll get in trouble with the IRS yourself. Fear is a strong lever that they’re only too happy to exploit.

Many advice columns point out that if something sounds too good to be true, it probably is. Then again, if people could follow this advice reliably then people would never fall victim to scams…

My advice is easier to get right. I recommend you visit the IRS web site to search their latest Tax Fraud Alerts. If you’re still not sure, consult an experienced tax preparer or tax lawyer like yours truly. If you prefer the phone, give me a call at 1-800-509-2770.

Until next time,

Jeffrey I. Fouts, Tax Attorney

Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer (Ellijay, pop. 1,584) not some fictional marketing character. I represent tax payers before the IRS in all 50 states. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating. I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C. My competitors may covet my Google ranking but my clients covet my sound counsel. I deal directly with my clients and have a small, tireless staff. You can put off your tax problem, or put us to work.

Tax Responsibility, Morality, and Economic Stability

Sunday, October 10th, 2010

greek flag over sea It is common to pay lip service to one’s responsibility and duty as a citizen to pay taxes while also acknowledging the right to minimize that tax burden. Of course, there are very legal ways to minimize our tax burdens, as well as very illegal methods.

Take the example of Greece. This is a very glaring example of a people and their lack of responsibility to pay a fair share of taxes.

Greece has experienced a colossal melt down of its financial system, almost to the point of total default on its debt and the collapse of its banks. This can’t be blamed so much on any one institution, government agency or company, but rather on pervasive tax evasion, bribery, and creative accounting of all its citizens.

“The Greek people never learned to pay their taxes …. because no one is ever punished. It’s like a gentleman not opening a door for a lady.”

The institutionalized amoral disrespect for (tax) law permeated the country from the highest government officials to the common working folk. “…the only Greeks who paid their taxes were the ones who could not avoid doing so—the salaried employees of corporations, who had their taxes withheld from their paychecks. The vast economy of self-employed workers—everyone from doctors to the guys who ran the kiosks—cheated (one big reason why Greece has the highest percentage of self-employed workers of any European country).”

“It’s simply assumed, for instance, that anyone who is working for the government is meant to be bribed. People who go to public health clinics assume they will need to bribe doctors to actually take care of them. Government ministers who have spent their lives in public service emerge from office able to afford multi-million-dollar mansions and two or three country homes.”

The current debt of the country now is equal to roughly a quarter-million dollars for each working adult. The government officials that consistently lied about and obfuscated the county’s actual financial instability, to the government employees’ over inflated wages, along with the omniscient bribery and corruption has put the country in such dire circumstances that the austerity measures being put in place have government workers rioting in the streets. The very people that ultimately are partially responsible for the collapse. What are they rioting in the streets for? What is it they find unfair? Is it against the corruption of their political system? Is it about everyone cheating on their taxes? About the small bribes they were taking in their service to the state? Not likely.

“Thousands upon thousands of government employees take to the streets to protest … Here is Greece’s version of the Tea Party: tax collectors on the take, public-school teachers who don’t really teach, well-paid employees of bankrupt state railroads whose trains never run on time, state hospital workers bribed to buy overpriced supplies.”

This is an extreme example, though real, of what individuals and their actions can do to a system. Taxes are our responsibility, and everyone should shoulder their just responsibility for the better good of the whole. Let me be clear – I hate paying taxes, and I yearn for the day when our own bloated government actually begins cutting its programs.

But tax evasion is selfish and ultimately will bring down the system. It destroys the faith in the system, and it destroys the faith in one another. In the Greece example, if “everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his real estate… this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing … only encourages more lying, cheating, and stealing.”

And in the old saying, the lie becomes bigger and bigger until it is as plain as the nose on your face.

The Greeks have no one to blame for their tragedy than themselves.

Read original article in Vanity Fair. Photo by dominiqs via Flickr

IRS Agent Accepts Bribes for Favorable Audits

Tuesday, July 20th, 2010

100 dollar bills Hearing you have been selected for audit will concern anyone. When two Minnesota businesspeople received their audit letter, they were likely dismayed. However, like good law-abiding citizens, they met with their accountant and the IRS auditor, Roger Anthony Coombs, at their attorney’s office. You can imagine their surprise when the auditor offered to minimize their taxes owing with a $9,000 payment to himself!

That’s right! He requested a bribe in exchange for a favorable audit result. Fortunately, the quick-thinking businesspeople met again, recorded the conversation, and brought it to the attention of the authorities.

Coombs was arrested early in June and, if found guilty, could serve up to 15 years in prison. (Read the full story about the us IRS officer being bribed here).

This is a shocking news story but it prompts me to think further. Coombs only started working for the IRS in June 2009. If this was his very first foray into bribery, it took him a total of 11 months. Eleven months! Was this guy not vetted before his job? Did he have a squeaky-clean record and only turned bad in less than a year? Is this, in fact, his first attempt at stealing from taxpayers?

Another thing I’m prompted to think about is this: There are about 120,000 people working for the IRS. This is one story of one tax agent who was caught. How many more are there are operating a successful bribery scam? I’m sure it is incredibly tempting for anyone facing an income tax audit and a lot of money owing to the IRS to instead give a small amount to an agent to make the situation go away.

The last thing I’m prompted to think about: If the businesspeople in the story really do owe $60,000 in back taxes, is the IRS still going to send in an auditor to finish the job? These people did the right thing in the face of a very tempting crime. Their possible reward might be an actual audit!

[Image source: AMagill]

Zombie Tax Returns From Accountants Convicted Of Tax Rebate Fraud

Monday, July 19th, 2010

 caution zombies ahead

In zombie movies, the dead rise from the graves and shuffle around the neighborhood looking to feast on human flesh. This past year, life imitated art (and I use the term “art” loosely), and the dead rose to file tax forms.

Yes, you read that correctly. This past year, 16 accountants in the Bronx and Manhattan were charged with filing numerous income tax returns of a dubious nature. These tax returns included making claims on dependents that were not actually dependent (or even related), and filing the tax forms of deceased people to get tax credits.

You can read the article here.

Fortunately, they were caught by undercover IRS agents who recorded these accountants offering a variety of illegal services.

This is truly a frustrating news story for me because it makes it harder for regular, honest, tax-paying citizens like you and I to get the tax solutions we deserve to our tax problems. For the 16 who were caught, I imagine far more have gone unnoticed and our current “redistribution of wealth” system is taking money from hard workers and funneling to people who would rather file tax returns for dead people than do real work.

Canadian IRS Is no Better Then United States Version

Sunday, July 11th, 2010

canadian flag Our neighbors to the north have their own version of the IRS, called the “Canada Revenue Agency” (CRA). Recently, a news item came to my attention that may not have an immediate impact on US taxpayers but should be a warning sign that immoral behavior by revenue agency officials can happen anywhere!

The CRA, which is staffed by 40,000 people and serves a similar function to the IRS, recently uncovered a shocking number of cases in which CRA employees used government information inappropriately: It seems that sometimes they snooped on spouses or friends and other times they accessed income tax data to give their family and friends preferable tax treatment. In fact, the article reported that in one office alone 13 employees accessed tax records and confidential information inappropriately, with 10 of them providing preferential treatment to people.

(Read the article here)

What does that mean for Americans?

There are about 120,000 IRS employees. If it can happen in Canada’s CRA with only one-third of staff that the IRS has, it can certainly happen in the IRS. In fact, I’d suggest that the size of our highly bureaucratic system could make it even more susceptible to such nefarious usage simply because the bigger things are, the more complex they tend to be.

So, while you might be suffering with a tax problem and hopeful of a resolution, you need to wonder if those exact same people that are knocking on your door demanding money are not also extending preferential treatment to their friends and family!

Even the current Treasury Secretary Timothy Geithner admitted to tax problems due to “irregularities” in past 1040 tax returns.

We can only hope that periodic tax audits and careful watchdogging will keep this from happening… but we can never be completely sure. The IRS is the largest collection agency in the world, and they have nearly unlimited power to enforce tax collection.

[image credit: scazon]

Tax Fraudster Rips off the IRS From Inside Prison

Thursday, June 24th, 2010

tax prison One of the complaints you’ll hear me voice frequently is that the IRS has an overly complicated system of taxation. The result, as I hope I’ve made plain in past blogs (and will continue to shout from the rooftops in future blogs) is this: A complicated system makes is difficult for honest taxpayers to be accurate while at the same time it creates numerous ways through which tax cheaters can defraud the government.

One such fraudster came to light recently: Shawn Clarke stole about $115,000 from the IRS by conspiring with friends and family to fraudulently fill out tax forms. (You can read more about the fraud in detail here but I’ll quickly summarize it below).

Basically, Clarke and his friends and family claimed he was working while he was, in fact, incarcerated. They were able to do this because of the system’s complexity. Just look at how they try to describe what he did: “The inmates and family members filed 1040 EZ forms (the short form) along with the one-page 4852 form, which is a substitute for the W-2 when an employer doesn’t provide one.”

Clarke’s actions are reprehensible and I’m glad he was caught. But this shouldn’t happen at all. While there will always be opportunists who try to work the system, the IRS’ 70,000 pages of tax code makes it easy for people to commit tax fraud. And, the complexity of the system makes it difficult for IRS officers to catch criminals in the act. In fact, you’ll note by reading the article that the only way Clarke was caught was because someone found a note in his prison cell. It wasn’t an eagle-eyed tax auditor.

While tax frauds should be brought to justice for stealing from Americans, it’s ultimately the IRS, and Congress, who are to blame for bringing this on themselves. So what’s the solution? A simpler system! Create a flat tax or a national sales tax and you will eliminate many of these situations. Simplify the tax code, reduce the number of forms to fill out, make it so that we have an easy-to-calculate system and people won’t hate filing taxes nearly as much. And you’ll eliminate the loopholes for opportunists.

(Photo credit:amanderson2)

Being a whistleblower for the IRS – Protect your country and receive a reward

Sunday, June 20th, 2010

In a recent blog post I talked about the IRS Whistleblower office and the mysteries surrounding the program.

But today I wanted to provide a counterpoint perspective. I don’t want you to think that I’m against whistleblowing in a case where there is a tax cheat, and I do like that this system provides an incentive for taxpayers to help bring to justice those who would cheat on their taxes. I support it for the same reason I support Crimestoppers and other crime-reporting measures: While approved officials should ultimately be the ones to investigate and protect us from lawbreakers, sometimes the “person on the street” can see laws being broken that others cannot.

I also like that the IRS is theoretically incentivizing whistleblowers. (I say “theoretically” because it doesn’t sound like anyone has been paid yet).

Here’s why I really like this program more than many others: While it is not a perfect system, it is a system designed to help stop tax cheats. Frequently, we see many IRS programs initiated that seem to focus on squeezing more tax dollars out of hard-working, honest taxpayers while completely ignoring those who are working the system and getting a loophole. This program focuses on those who truly should be paying more taxes: the tax cheats!

If you are aware of a situation where someone is cheating on their taxes, you could earn a reward while doing your part for the country. You can earn between 15% and 30% of the proceeds collected by the IRS (as long as the amount owed is above $2 million). There are smaller rewards if the amount is less.

You can read more about the IRS’ Whistleblower’s Office and find forms and documentation for reporting.

This has the potential to be a good program as long as the IRS doesn’t get bogged down in bureaucracy. And if they really want it to be successful, they should keep a running total of the amount of payouts they’ve made thanks to whisteblowers.

(Photo credit: katerha)

Government Whistleblowers Can Retire Early Exposing Tax Cheats! (Or Can They?)

Thursday, June 17th, 2010

Years ago, it used to be very difficult for people to come forward to report illegal activities if they knew that their jobs (or even their lives) were in danger. Slowly, over the years, the government has put various programs in place to help people feel safer about reporting problems, including the Whistleblower Protection Act of 2007.

While whistleblowing is often thought to protect an employee from retaliation by an employer for whistleblowing, there is also provision for taxpayers to blow the whistle on individual or corporate tax cheats.

Before I talk about it further, let me give a balanced viewpoint: On the positive side of the argument, this is a way to bring to justice people who cheat on their taxes. I’m happy about that because, although I believe we should pay less tax, I believe we should do so fairly and ethically. On the negative side of the argument, though, this can be a retaliatory strike by disgruntled people to try and trigger an audit on those with whom they hold a grudge and I can only hope that those who act on whistleblower’s tips do so with caution and respect.

What initially prompted me to blog about this in the first place was an article I read in South Coast Today in which the reporter interviewed IRS official Stephen Whitlock who is in charge of the IRS’ whistleblower’s office. You can read the full interview here but I will summarize and make some additional comments.

What you’ll find when you read this article is that Whitlock says very little. By law, he’s not allowed to give a lot of detail, which is fine, but what he can say comes across a little offensive. When asked about the motivation that people have to blow the whistle, he attributes it to a desire among people to make sure that everyone pays their fair share of taxes. After that, he admits that there is a retaliatory motivation and a financial motivation.

What I found most interesting about the interview was this: There is supposedly hundreds of millions of dollars that the whistle is being blown on. More than one thousand whistleblowers reported people owning more than $2 million each (some more than $100 million each). And the IRS seems to be very generous with the reward money they pay out, claiming that they will pay between 15% and 30% of the collected money.

But don’t miss this: The IRS hasn’t paid out any money yet (really? In spite of having that many whistleblowers?). Their reasoning is: It takes a long time and they can’t tell anybody about it.

So, that leads me to wonder: Will they pay anything out at all? And how would we know anyway? How could anyone know if they were owed money by the IRS for this? (After all, they can’t even tell whistleblowers what the status of the investigation is). You can only get the 15% to 30% reward if the amount collected is over $2 million. If it’s under, you get a much smaller (unstated) amount and, according to the IRS, you cannot dispute the amount.

It sounds exciting to earn money for being honest… but I wonder if you’ll have a better chance of making money in the lottery.

(Photo credit: stevendepolo)

Income tax cheating: Real numbers and an IRS tax solution

Sunday, April 25th, 2010

I came across this interesting study done on the behalf of the IRS Oversight Board. The study asked participants if they felt it was okay to cheat on their taxes. The study itself has been done since 2002 and over the years, the range of people who feel that it is completely unacceptable to cheat on their taxes usually fluctuates between 84% and 86%. In 2009, 84% of respondents said it was unacceptable to cheat on their taxes.

What I find interesting is that in 2003, only 81% said it was unacceptable to cheat on taxes and in 2008, 89% said it was unacceptable to cheat on taxes.

Along with the answer of “completely unacceptable” (the orange bars in the graphic below), somewhere between 6% and 12% believe that it is okay to cheat a little here or there (the light blue bars, below). And 3% to 5% of respondents believe that you should cheat as much as possible.

You can read the rest of the article at the New York Times.

So I went and dug up the number of tax returns filed to see what this meant in real numbers. Let’s use 2008, because we have all the data we need from that year:

In 2008, according to a report by the IRS, 155 million tax returns were filed. So here’s what it meant for 2008 tax returns:

  • 89% of respondents, or 137,950,000 tax returns were completely honest.
  • 6% of respondents, or 9,300,000 tax returns had a few cheats here or there in the return.
  • 3% of respondents, or 4,650,000 tax returns were as dishonest as possible.

Those are interesting numbers. Here’s my take on them: I believe in paying less tax, but I believe in doing so legally. The IRS needs to be more understanding with people who are having difficulty paying their taxes, and they need to offer them real options to help them with their tax debt.

Most people with IRS problems want to want to pay their tax debt, but if money is tight, they need the IRS to be more willing to work out an arrangement. Whether that’s a payment plan or an Offer in Compromise settlement offer.

And just as importantly, the IRS needs to create ways to reduce the number of income tax cheaters (13,950,000 tax returns have some form of dishonest response).

By being so tough on honest people who are having trouble paying their tax debt, instead of going after the cheaters, the IRS is not doing its job as well as it sould.

Fouts Law Office · 772 Maddox Drive, Suite 114 · East Ellijay, GA 30540 · Tel: (800) 509-2770 · Fax: (706) 636-5293
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