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IRS - Tax Frauds - The Dirty Dozen

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Thursday, February 18, 2016

This is a reprint from the Feb. 17, 2016, issue of 'The Journal of Accountancy' published by the American Institute of Certified Public Accountants.

Every year, the IRS releases a list of what it calls the worst tax scams of the year. Beginning Feb. 1 and ending on Feb. 17, the IRS issued a news release each day highlighting a scam. These “dirty dozen” scams can be encountered at any time of year, but the IRS reports that they peak during tax season.

 

1. Identity theft

According to the IRS, the No. 1 scam this year is tax-related identity theft, which the IRS defines as when someone uses a taxpayer’s stolen Social Security number to file a tax return claiming a fraudulent refund (IR-2016-12). Although the IRS has introduced more effective screening and detection systems that are designed to detect identity theft before it issues a refund, the Service admitted that it is still a major problem. To fight the problem more effectively, over the past year, the IRS has participated in a Security Summit initiative in partnership with states and the tax-preparation industry to try to improve security for taxpayers. The participants share information of fraudulent schemes that have been detected this filing season to provide increased protection. More than 20 data elements are used, unknown to taxpayers, to verify tax return information.

 

In addition, the IRS urged taxpayers to protect their own information so it is harder for thieves to breach the IRS’s security systems. These efforts at taxpayer education include theTaxes. Security. Together. campaign to help taxpayers avoid the data breaches that make it easier for them to become victims.

 

2. Phone scams

The second scam this year is phone scams, in which criminals call, impersonating the IRS (IR-2016-14). Many times, they disguise the number they are calling from so it appears to be the IRS or another agency calling, and they may threaten arrest, deportation, or license revocation. The scammers sometimes use IRS titles and fake badge numbers to appear legitimate and use the victim’s name, address, and other personal information, which makes the call sound official.

To protect themselves, the IRS says, taxpayers should be aware the IRS will never call to demand immediate payment, call about taxes owed without first having mailed a bill, call to demand payment without the opportunity to question or appeal, require use of a specific payment method, such as a prepaid debit card or wire transfer, ask for credit or debit card numbers over the phone, or threaten to bring in local police or other law enforcement to arrest a taxpayer for not paying.

3. Phishing

Another scam that continues to appear high on the list is “phishing,” in which taxpayers get unsolicited emails seeking financial or personal information. A taxpayer who receives a suspicious email should send it tophishing@irs.gov. “The IRS won’t send you an email about a bill or refund out of the blue,” said IRS Commissioner John Koskinen (IR-2016-15). Scam emails can also infect a computer with malware without the taxpayer’s knowing it, often enabling the criminals to access sensitive files or track keyboard strokes, exposing login information.

4. Return preparer fraud

Return preparer fraud involves “dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers” (IR-2016-16). The IRS warned taxpayers to be wary of “unscrupulous preparers who prey on unsuspecting taxpayers with outlandish promises of overly large refunds,” which is why the IRS says this scam makes it onto the list every year.

“Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected,” Koskinen said. The IRS provides a number of tips for taxpayers to choose competent preparers, including checking what the preparer’s credentials are, making sure the preparer will be available after filing season, and ensuring that the taxpayer’s refund is deposited into the taxpayer’s account, not the preparer’s. The IRS recommends avoiding preparers who base their fees on a percentage of the refund or promise larger refunds than other preparers.

 

5. Hiding money or income offshore

Hiding money or income offshore, which is a major focus of IRS enforcement efforts, is the next tax scam the IRS addressed (IR-2016-17). “Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore,” Koskinen said. As the IRS explained, there are legitimate reasons that taxpayers have foreign accounts, but these accounts trigger reporting requirements. The IRS offers a number of programs, including the Offshore Voluntary Disclosure Program, for taxpayers to come into compliance with these requirements. The IRS noted that the heightened reporting required under the Foreign Account Tax Compliance Act, which went into effect in 2015, makes it even harder for taxpayers to conceal assets overseas.

6. Inflated refund claims

Another scam that is closely related to return preparer fraud is inflated refund claims, in which unscrupulous preparers set up shop to lure unsuspecting taxpayers (IR-2016-18). “Be wary of tax preparers that tout outlandish refunds based on federal benefits or tax credits you’ve never heard of or weren’t eligible to claim in the past,” Koskinen said.

Inflated refund claims often involve claims for tax credits that taxpayers are not entitled to, such as education credits, the earned income tax credit (EITC), or the American opportunity tax credit. The IRS reminds taxpayers that they are responsible for what is on their return, even if someone else prepares it, and they can be assessed penalties and interest as well as additional tax.

7. Fake charities

Next on the list is fake charities. Taxpayers are cautioned to check the Exempt Organizations Select Check on the IRS’s website to determine whether a charity is bona fide and qualifies for deductible contributions (IR-2016-20). Legitimate charities should be willing to give donors their employer identification numbers, which can then be used to check whether the charities are qualified on the IRS website. Fake charities often use names similar to well-known organizations and may set up fake websites. They also can be used for identity theft purposes. When large-scale natural disasters occur, these fraudulent organizations tend to increase, the IRS reports, and it warns that taxpayers should not make any contributions without checking first.

8. Falsely padding deductions

No. 8 on the list is falsely padding deductions (IR-2016-21), which consists of deceitfully inflating deductions or expenses on the return to pay less tax or receive a bigger refund. This item is new to the dirty dozen list this year. The IRS warns taxpayers that they should “think twice” before overstating their charitable contribution expenses or padding their business expenses, as well as avoid claiming credits they are not entitled to, such as the EITC and the child tax credit. Taxpayers who do this may be subject to substantial penalties and may, in some cases, face criminal prosecution.

9. Excessive claims for business credits

The next item on the list, excessive claims for business credits, expands on last year’s “excessive claims for fuel credits” (IR-2016-22). This scam involves two specific false claims for credits: fraudulent claims for refunds of fuel excise tax and bogus claims for the research tax credit. The IRS says that its refund fraud filters are stopping a number of fraudulent fuel excise tax refunds this year.

10. Falsifying income to claim tax credits

Tenth on the list is falsifying income to claim tax credits (IR-2016-23). This usually involves falsely claiming higher earned income to qualify for the EITC, which is a refundable credit. Unscrupulous preparers often do this to get taxpayers larger refunds than they are entitled to. Even when taxpayers are unaware of these false claims, they are, as the IRS reminds again, responsible for what is on their tax return. They can be subject to significant penalties, interest, and possibly prosecution.

11. Abusive tax shelters

No. 11 is participating in abusive tax shelters (IR-2016-25). Abusive tax shelters are defined as schemes using multiple flowthrough entities to evade taxes. They often use limited liability companies, limited liability partnerships, international business companies, foreign financial accounts, offshore credit or debit cards, and multilayer transactions to conceal who owns the income or assets.

The IRS also mentions the misuse of trusts and captive insurance companies among the types of transactions taxpayers should avoid. As in some of the other scams, the IRS warns that participating in these transactions can result in significant penalties and interest and “possible criminal prosecution.” According to Koskinen, “These schemes can end up costing taxpayers more in back taxes, penalties, and interest than they saved in the first place.”

12. Frivolous tax arguments

The final “scam” is frivolous tax arguments, which the IRS warns taxpayers not to be talked into (IR-2016-27). Announcing the release today of the 2016 version of its webpage, “The Truth About Frivolous Tax Arguments,” the IRS explained how the courts and the IRS have treated these arguments, which involve claims such as that the only employees subject to income tax are employees of the federal government or that only foreign income is taxable. “Taxpayers should avoid unscrupulous promoters of false tax-avoidance arguments because taxpayers end up paying what they owe plus potential penalties and interest mandated by law,” Koskinen said. The IRS reminded taxpayers that they would automatically be subject to the $5,000 penalty for frivolous tax positions.

 

Tags:  FRAUD  TAX 

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Do Your Taxes for Free

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Tuesday, February 9, 2016

 

This was posted this morning by the Internal Revenue Service - This is tax tip #16 as posted by the IRS.

Note:  The site will direct you to a list of software providers (As highlighted below) where vendors have software that is free to use. After entering the site there is a help link, "help me find free file software". There are 13 vendors listed. I used the help link using two examples; one with income assumed of  $48,000, and another with assumed income of $10,000.  The first assumption recommended me to OLN software, and the second  to "Turbo Tax".  After entering the recommended sites the software will take you also to their commercial site with the option to purchase additional services.  Unless you have a need for the additional services they in all probability are not necessary.

 

Do Your Federal Taxes for Free

You can prepare and electronically file your federal taxes for free using IRS Free File. It is fast, safe and easy to use. IRS Free File does the hard work for you with either brand-name tax software or online fillable forms.

Here are six facts that you should know about Free File.

1. Free Options for All. If you make $62,000 or less – as do 70 percent of Americans – you can choose easy-to-use software to do your taxes and e-file for free. If you make more than $62,000 can use Free File Fillable Forms, the electronic version of IRS paper forms. Either way, it’s free.

2. Free File Does the Hard Work. IRS Free File is a partnership between the IRS and tax software manufacturers that make their products available for free. You don’t need to be a tax expert. The software will help find tax breaks you may be able to claim but might overlook, such as the Earned Income Tax Credit. The software asks the questions; you provide the answers. It will choose the right tax forms and do the math for you. Free File can also help with the health care law tax provisions.

3. Free File on IRS.gov. Access IRS Free File on IRS.gov/freefile to avoid any charges for preparing or e-filing your federal tax return. Once you choose a Free File company, you’ll go to their website to prepare, print and e-file your federal tax return.

4. All Forms and Schedules are Free. Whether you file Form 1040 EZ, Form 1040A or Form 1040, all are free. If you have a mortgage interest deduction, children in college or made money in the stock market, the Free File software will complete the forms and schedules you need.

5. Free Extensions. If you can’t make the April 18 deadline (April 19 if you live in Maine or Massachusetts), you can use Free File to request an automatic six-month extension. Making the request is easy and free through IRS Free File. Just look for “free extensions for anyone” in the company offers. Remember, this is a six-month extension of time to file your tax return, not to pay your tax. If you think you owe, make an estimated payment with your extension request. Tax software will help you make this payment, or you can view other payment options at IRS.gov.

6. Use IRS E-file. Remember, the fastest way to get your refund is to combine e-file with direct deposit. If you owe taxes, you can e-file now and set up an automatic payment on any day until the due date. To view your payment options visit IRS.gov/payments.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Download File (DOCX)

Tags:  accounting  IRS  Taxes  tips 

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Another Fraud Using the IRS

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Friday, January 22, 2016

 This is another spoof attempting to gain information about you or to instill malware on your computer to obtain your passwords and credit card information. Everyone that works is receiving W2's and 1099's this time of year as required by the IRS to report your income.  Don't fall for the message that may read as follows: 

 

"I have enclose the W2's return's document for your review as instructed by my client. Click here (  VIRUS in Form of a PDF Document )      to view all document in one folder.

I'll await your response if you need more details.

Thanks"

This is fraud!

Tags:  fraud  IRS  scam  Taxes 

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AARP BULLETIN NEW SCAMS TO AVOID

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Sunday, January 10, 2016

 

Fraud is rampant in our society today.  Con artist are lurking to grab your cash through deceptive means.  The January – February 201 issue of the AARP Bulletin titled their article NEW Scams to avoid, however these swindles have been around for quite a while.  In fact, I have personally experienced but luckily did not fall victim to the frauds described.

TECH SUPPORT
according to Microsoft one of the biggest frauds, involving some 3.3 million people and $1.5 billion in revenue to the scammers.  You receive a call from someone purporting to be a technician from Microsoft or Windows.  They tell to go to a particular website and follow the instructions.  A screen appears telling you your computer has problems but in reality downloads malware the steals your information.  A variation of the swindle is an offer to fix your computer for a fee, when in reality you do not have problems. 

  • SOLUTION – upgrade to Microsoft 10 or the latest version of your operating system with the updates.  Another method is to purchase a long-term maintenance contract from the computer manufacturer and obtain tech support directly from them. 


SILENT CALLS

are generated by a computer. The computer records numbers when someone answers.  Fraudsters use the numbers as potential targets for theft. 

  • SOLUTION – Install caller ID and do not answer unless you recognize the caller.


IRS IMPOSTER

is still going strong.  I reported on the fraud before when they called me.  After I published my article, it happened to me again.  According to Amy Nofziger with the AARP Foundation, the fraud is getting more and more sophisticated.  The IRS imposter will tell you to call another number immediately, or you will be sued, your bank account garnished, or other threats. 

  • SOLUTION – Hang up! The IRS will not call you; they will use the postal service to contact you.  Do not return the call.  If in doubt, call the IRS at 800 829 1040.


CANCER CHARITIES

S
the Federal Trade Commission stated four national cancer charities were responsible for defrauding consumers of $187 million. These charities are Cancer Fund of America, Cancer Support Services, the Children’s Cancer Fund of America, and the Breast Cancer Society.  Miss Pennsylvania claimed she had cancer, shaved her head and staged Bingo for Brandi raising tens of thousands in sympathetic support. She was arrested last August.

  • SOLUTION – before contributing to any charity check out its rating on charitynavigator.org. I checked this out.  It lists the charity, lists a ‘donor advisory’ then tells about the complaints.   Be wary of giving cash or giving out your credit card to solicitations and be wary of on-line sites like gofundme.com.



CHIP CARD

Banks and credit card companies are in the process of replacing credit cards with a new chip that is more secure.  Some con artists are impersonating the banks and credit card companies by sending emails requesting financial information, or requesting that you go to a specific link where that installs malware on your computer.  The emails look official and are hard to distinguish from the real company.

  • SOLUTION – call the number on the back of your credit card.  No credit card company will call you to verify personal information.   

Always be skeptical.  Ask questions, and trust your intuition.                    

Tags:  fraud  IRS  phishing  scam  tax 

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IRS Criminal Investigation Report 2015 - My Summary

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Tuesday, December 8, 2015

 

The Internal Revenue Service (IRS) released its 2015 annual report on criminal investigations (Report) conducted in its last fiscal year on December 3, 2015. Richard Weber, Chief of the Criminal Division, states the majority of Americans follow the law and tell you they want consequences for those that do not.  The report contains case summaries concerning identity theft, money laundering, public corruption, cybercrime and terrorist financing.  The FIFA (Federation International de Football Association) started as a tax evasion case and snowballed into an international investigation involving coordination with police agencies and governments in 33 countries and was a complex international white-collar case involving corruption and money laundering. Another agent uncovered the “Silk Road” website, a vehicle for money laundering, computer hacking, and to traffic narcotics. Ulbricht is now serving life in prison and ordered to forfeit over $183 million.

Identity theft complexity is increasing and presenting additional challenges. A new generation of organized criminals are able to steal personal information from millions of victims from a computer halfway around the world.  Virtual currency, i.e. bitcoins as an example, further disguises the flow of illegal funds. 

The 3,250 Criminal Investigation (CI) team investigated 3,853 cases.  The agency states they received a 93% conviction rate for 2015.  The CI team recommended prosecuting 85% of the investigations. Some of the investigations involve other federal, state and local law enforcement partners, as well as foreign tax and law enforcement agencies.

The Report highlights several cases in different areas of investigation.  These cases are too numerous to detail, however I have listed what I consider some of the most interesting in different areas.

General Tax Fraud is the backbone of the CI’s enforcement program.  It influences taxpayers’ voluntary compliance with the tax law from legal sources.  Typically, these cases are understatement of income or the converse an overstatement of expense.  One such case:

  • ·         William J. Frio, an accountant for Nifty Fifty restaurant chain in Philadelphia, is now serving 60 months in prison, 4 years of supervised release, and ordered to pay $1.7 million restitution.   He pleaded guilty, to conspiracy to commit tax evasion, filing false tax returns, loan fraud and aggravated structuring of financial transactions. He skimmed more than $15 million from receipts and suppliers and discovered when he submitted a loan application to the bank for a $417,000 mortgage.

Refund Fraud Program is divided into two distinct programs.  Identity theft and Abusive Return Preparer Program.  Identity theft complexity is increasing and a worldwide problem. At Miami Dade College in Florida 14 college students were arrested for identity theft that affected 644 victims.  From a Frank Abaganle seminar I attended it is estimated that over 80% of the population has had their identity compromised.  Data breaches have affected all sectors of our society. Twenty-two of the IRS field offices initiated investigations into identity theft ranging from computer intrusions, account takeovers, and data compromises (i.e. Target, Bank of America, Chase etc.) affecting tax administration. CI initiated 776 cases and prosecuted 774.  Following is one identity theft example:

  • ·         On Sept. 25, 2015, nine defendants from Montgomery, Alabama, were sentenced to various prison terms ranging from 12 to 180 months for filing $24 million for stolen identity tax refunds. Over $10 million, refund checks were cashed at local businesses in Alabama and Georgia.

Abusive Return Preparer Program is the orchestrated preparation of false income tax returns by dishonest tax preparers.  The business expenses are inflated, excessive exemptions, false tax credit claims or understatement of sales or revenue.  The preparer’s client may or may not have knowledge of the false returns.  Two cases are of interest since they involve tax preparers.

  • ·         Principals of JMA Associates of Fort Worth, Texas, are now serving 187 months I prison and ordered to pay $18 million in restitution.  Conviction of the husband wife team centered on assisting in the preparation of false and fraudulent tax returns and wire fraud.  The husband wife team required clients to sign forms designed to place all responsibility for false information on the client.  They were then able to develop a sizable client base and attempted to sell JMA Associates to Express Tax Services that included a $750,000 wire transfer of funds.  Meanwhile, the IRS terminated JMA’s Electronic Filing Identification Numbers (EFINs) because of fraudulent activities.  JMA then tried to sell the same client base to an individual buyer, representing the deal with Express Tax as being just a co-branding arrangement since they supplied the individual buyer with Express Tax EFIN. When the deal with Express Tax fell apart, JMA attempted to sell the client base to a third buyer, RealTex Ventures for $425,000, while still receiving payments from the first two buyers.
  • ·         In May 2015, again in Ft. Worth, Texas, CI convicted Romana Johnson and her daughter-in-law Nekia Everson for conspiracy to aid and assist in preparation of false tax returns.  The team operated as Tax Office One and were able to charge higher fees by filing false returns thereby receiving larger refunds for their clients.  Ironically, when they filed their own tax returns reporting less than $20,000 of income over a two-year period whereas their business had generated $1.9 million in revenue.

Questionable Refund Program involve schemes to file multiple false tax returns or using the identifiers of other individuals.    The following is a bizarre case involving Monique Zavalla-Charres of Winslow, Arizona.

  • ·         The Winslow woman, (Charres) received a sentence of 72 months in prison and ordered to pay over $400,000 in restitution.  The conviction of her co-defendant, Lacey Hollinger of Massena, New York received a 36 months prison term.  Hollinger contacted several New York residents through Facebook and other electronic media and told them they were eligible for a tax refund even though they were unemployed and had no income since the U.S. Government had a ‘stimulus program’, although no stimulus program exists.  Charres and Hollinger used information received from both the New York and Arizona residents to file fraudulent tax returns. Charres and Hollinger controlled the bank accounts where the IRS sent the Cash refunds from the returns they filed. 

Abusive Tax Schemes focus on promoters of domestic and/or offshore tax schemes for purpose of violating tax laws. Abusive schemes usually create structures such as trusts, foreign corporations or partnerships to make it appear the trustee or foreign entity is the owner of the assets and income when in actuality the control remains with the taxpayer. Suffice to say, be wary of companies selling trust products to avoid tax payments.

Non-filer Investigations involve taxpayers who fail to file income tax returns or stop paying income tax.  The following example pertains to Randolph Scott, an attorney in Philadelphia. His practice included estate and probate matters. 

  • ·         On Sept. 21, 2015, a North Carolina businessman was sentenced to 32 months in prison and ordered to pay over $7.5 million in restitution.  Thomas Tilley pleaded guilty to corruptly endeavoring to impede and obstruct the administration of the IRS. Tilley sent to the IRS fraudulent financial statements in an attempt to discharge tax debt, used sham trusts to purchase and sell real estate and conceal assets, and failing to file federal and state tax returns for 1994 through 2013. In 2009, Tilley claimed a net worth as high as $30 million and an annual income of over $800k.

Employment Tax Fraud schemes can take a variety of forms.  One of the most prevalent is termed ‘pyramiding’.  It involves leasing employees, paying employees in cash, filing false payroll tax returns or failing the return.  Some employers withhold taxes from the employee paycheck but intentionally fail to remit the taxes to the IRS.

  • ·         On June 8, 2015, in Nashville, Tennessee, Brian Whitfield, CEO of Sommet Group LLC, received a sentence of 20 years in prison and required to pay nearly $28 million in restitution.  Sommet Group LLC operated a payroll processing company. Whitfield diverted millions of dollars earmarked to fund employee retirement accounts, pay health claims, and for taxes.  He used the diverted funds to prop up affiliated companies he controlled and for the naming rights of Nashville’s professional hockey arena.

Financial Institution Fraud is an illegal and criminal violation involving financial institutions, I.e. credit unions, stockbrokers, check cashers, and banks. It could also include Insurance and healthcare fraud, but that is reported separately.  The violators could work inside or outside of the financial institution.  Financial institution fraud is complex, and the CI works closely with the U.S. Attorneys to combat the fraud.

  • ·         On April 13, 2015, in Orlando, Florida, Pedro Benevides was sentenced to 108 months in prison and to forfeit a $40 million bank account and two sports cars.  In addition he was ordered to pay full restitution to the financial institutions that were victims of this fraud. Benevides was able to obtain 20 commercial and residential loans and several lines of credit from several federally insured financial institutions.  He obtained the loans by supplying false financial documents and financial statements. (Banks should verify the documents and obtain audited financial statements.) After he received the funds, he paid interest on other loans and funneled funds for personal use.

Public Corruption investigates elected and appointed officials at all levels of government.  The investigations center on a variety of criminal offenses including bribery, extortion, embezzlement, illegal kickbacks, tax fraud and money laundering.

  • ·         On Jan. 6, 2015, former Virginia governor, Robert F. McDonnell, received a two-year prison sentence and two years of supervised release for using his office to commit honest-services wire fraud and conspiracy to obtain property under color of official right.  The McDonnell’s’ used their position to enrich themselves and family members by soliciting and obtaining payments , loans, gifts, and other items of value from Star Scientific and its’ CEO, John Williams Sr..  In exchange, the governor performed actions to legitimize and promote Star products by arranging meetings for Williams with other government officials, and hosting events in the Governor’s Mansion designed to encourage obtaining research grants through Virginia research universities, and to promote Star products to doctors. The McDonnell’s attempt to conceal the gifts and loans through other family members and corporations controlled by the governor were not successful. 

Corporate Fraud includes violations of the Internal Revenue Code committed by both public and private corporations and/or their senior executives. Some specific criminal acts include destroying or providing false records or financial statements to regulatory agencies or investors.  It includes conduct by executives to enrich themselves by attempting to derive unauthorized compensation through unapproved bonuses, payment of personal expense with corporate funds or bogus loans. Many corporate fraud investigations are joint efforts with other government agencies.

  • ·         On June 10, 2015, Michael Peter Spitzauer, was sentenced to 48 months in prison and ordered to pay over $10 million in restitution to his victims and over $2.5 million in restitution to the IRS. He was President of Green Power, Inc., a biodiesel fuel business asserting to possess the technology to turn waste into biofuel.  Spitzauer defrauded investors from several countries, including China, Spain, Slovenia, Canada, and the United States.  He represented investor funds would be deposited into an account controlled by an attorney, and would not use the funds without the written consent of the investors.  He represented he used investor funds to pay insurance bonds and state agency fees, instead he obtained over $10 million for personal purposes and filed false tax returns showing no income. 

Gaming focuses on tax enforcement, money laundering and illegal activity within the gaming industry.  The internet has increased both domestic and international gaming. Illegal gambling takes different forms, including bookmaking, numbers, online gaming and some charitable gaming operations. 

  • ·         Jan. 15, 2015, in Denver, Colorado, Kevin Dale Sande received a sentence 15 months in prison and agreed to forfeit $2 million in cash and assets for his illegal gambling and money laundering business.  Sande operated a gambling business out of his home focused on sports betting in a variety of sports.  Sande recruited and entertained bettors at exclusive golf and country clubs.  Sande provided bettors with a number and a credit limit.  The bets funneled through an offshore website that Sande controlled.  He made payments to bettors in cash concealed in magazines using Federal Express. He transported large sums of bulk cash in hidden lockboxes in several high end sports and luxury cars

Insurance and Healthcare Fraud is of particular interest to me since I had a heart-transplant in 2010.  Insurance fraud covers a variety of violations in addition to tax and money laundering.  Schemes include phony insurance companies, offshore/unlicensed internet companies, and false auto accidents. Healthcare fraud includes billing insurance companies for medical and equipment procedures not performed or not needed.

  • ·         On July 10, 2015, in Detroit, MI., Dr. Farid Fata, owner of Michigan Hematology Oncology P.C. (MHO) and United Diagnostics PLLC, was sentenced to 540 months in prison and ordered to forfeit $17.6 million.  Dt. Fata prescribed and administered unnecessary aggressive chemotherapy, cancer treatments intravenous iron and other infusion therapies to patients in order to increase his billings to Medicare and other insurance companies of approximately $34 million.

 Bankruptcy Fraud undermines public confidence in the financial system and taints the reputation of honest citizens seeing protection under the bankruptcy statutes.  The IRS is often a creditor in the bankruptcy proceeding.

  • ·         On August 3, 2015, in Hartford, Connecticut, Jason Sheehan was sentenced to 37 months in prison and his wife placed on one-year probation, for mortgage fraud, bank fraud, failure to collect and account for payroll tax, embezzlement from a bankruptcy estate, and making false statements under penalty of perjury in a bankruptcy case.  Sheehan was the sole owner of Infinistaff, LLC, a temporary workers company, and filed for voluntary chapter 11 bankruptcy in 2010.  His wife was on the payroll for $354,000 although she performed no work.  In 2013, she purchased a home using proceeds from a mortgage loan and $260,000 from embezzled amounts from the bankruptcy estate of Infinistaff, LLC.  Sheehan represented he paid a payroll company to process payroll checks and file payroll tax returns and tax payments even though the arrangement had been terminated in order to conceal embezzlement north of $1 million.  In addition nearly $4 million in payroll withholding and employer payroll taxes were not paid. 

 

International Operations promotes a comprehensive international strategy I responding to global financial crimes and offshore tax evasion. Special agents in 10 foreign countries build alliances with foreign government and law enforcement partners.  The International department re-organized in 2015 by placing the International Lead Development Center, Offshore Voluntary Compliance group, and Counterterrorism Center under the Investigation Development and Support Unit (IDS).

  • ·         On March 12, 2015, Commerzbank AG, headquartered in Frankfurt, with its branch in New York, pleaded guilty to violations of the International Emergency Economic Powers Act (IEEPA), and the Bank Secrecy Act (BSA), and agreed to pay $1.45 billion.  Commerzbank processed billions of transactions on behalf of Sudanese and Iranian entities subject to US economic sanctions. Specifically the bank failed to report suspicious activity resulting in a Japanese-based manufacturer being able to perpetuate a massive accounting fraud through another Commerzbank branch in Singapore that loaned money to off balance-sheet entities (I.e. similar to  the Enron bankruptcy).   Commerzbank New York processed $1.6 billion through the fraud.

Narcotics and Counterterrorism centers on illegal narcotics and investigations of individuals and organizations believed to be participating in terrorist activities.  I have not listed a specific narcotics case.  Briefly, one case involved a Tennessee woman called “Aunt Bea” who was sentenced to 280 years (?) – might be an IRS typographical error by the IRS.  Aunt Bea operated pain clinics along with associated Medical Doctors and nurses; all received fines and prison terms.  Another case involved importing illegal drugs and money laundering from Mexico where the perpetrator resulting in a $100 million fine.  A case of counterterrorism involved a person Austin, Texas.

  • ·         On June 5, 2015, Michael Wolfe (aka Faruq) received an 82 months plus five years of supervised release sentence.  Wolfe planned to travel to the Middle East to provide material support to the Islamic State of Iraq and Levant (ISIL) and the Islamic State of Iraq and al-Sham/Syria (ISIS). CI   arrested Wolfe on the jet-way of the Houston airport attempting to board a plane that would eventually take him to Syria. 

Money Laundering and Bank Secrecy Act (BSA) involves attempts to turn illegally obtained cash, sometimes termed ‘dirty money’, into ‘clean money’ or legal money.  Its purpose is to conceal the source of the illegal activity. CI works with the Department of Justice and the Depart of the Treasury.  Major case funding continues to be available to combat the high costs associated with the complex financial investigations that result in asset forfeiture. In the “Silk Road” case mentioned previously, a corrupt DEA agent, Carl Mark Force, transferred bitcoins (Virtual Currency) into his personal wallet while investigating the case.  CI was able to follow the bitcoin transfers. The Bank Secrecy Act mandates the reporting of certain currency transactions of $10,000 or more from financial institutions. Most banks track all transactions since it is easier to track all as opposed to just items over $10,000.  CI is the largest consumer of the BSA reports.

  • ·         On August 11, 2015, in Ashville, North Carolina, Patricia Diane Clark of Sacramento, CA. received a 130-month sentence in prison and ordered to pay over $600,000 in restitution.  Clark plead guilty to wire fraud and conspiracy to commit money laundering.  Clark and her co-conspirators called US Residents from Costa Rica informing them they had won a sweepstakes, and to receive the price they should send a ‘refundable insurance fee’.  After sending the money, the victim received another call indicating the price amount had increased and they should send another fee for the increased price money.  The excuses continued until the victims either ran out of money or realized the fraud. 

Frivolous Arguments is a group created in 2013 by CI to ‘develop recommendations on tracing investigations and sharing of information about potential safety concerns against the law enforcement community’.  Essentially frivolous arguments group investigates ridiculous excuses to escape tax payment.  Two examples are worth mentioning:

  • ·         On Aug. 4, 2015, Tami May of Minneapolis received a 24-month in prison term for failing to file or pay federal income tax over an 8-year period.  Along with her husband, they ran an excavating business and stated they had not income although the business in fact earned substantial income. In the attempt to avoid payment, Tami May;

o   filed zero income tax returns,

o   claimed her husband had paid tax to various Revenue Officers by filing fake 1099-OID (Original Issue Discount),

o   had income tax withheld by various banks and credit card companies,

o    claimed they were not US Citizens but members of the ‘Kingdom of Heaven’,

o   that their social security numbers were a corporate fiction,

o   that the family business was actually a foreign corporation,

o   In addition, that there was no such thing as money. 

·          On June 18, 2015, in Phoenix, AZ., Gordon Hall of Mesa received a 96-month prison sentence.  His partner Brandon Adams of Albuquerque, NM, received a 40-month prison sentence, and Hall’s son Benton sentenced to 27 months.  Gordon Hall and Adams met a seminar associated with the sovereign citizen movement. They devised a plan to submit 149 fictitious money orders totaling $93 million, in an attempt to eliminate their client’s tax debts. 

Warrants and Forfeiture CI group dismantles criminal activities by seizing and forfeiting the property used or acquired through illegal activities. In total CI has seized and had forfeitures of over $5 billion. Two examples follow:

  • ·         On Nov. 25, 2014, Edgar Paltzer, an attorney in Switzerland, pleaded guilty to conspiring with US taxpayers to defraud the IRS of taxes due, owing, and filing false tax returns.  He forfeited $12 million.
  • ·         On Jan. 13, 2015 in Denver, CO., DaVita Healthcare Partners, Inc., a leading provider of dialysis services agreed to pay nearly $400 million to resolve claims it violated the False Claims Act by paying kickbacks to induce the referral of patients to its dialysis clinics. DaVita had clinics in 46 states and the District of Columbia.

Technology Operations and Investigative Services division plays an important role in investigating the sophisticated nature of financial crimes.  The division has seized over 1,400 terabytes of electronically stored information. Forensic training for mobile devices continues to be a pressing emphasis for the Electronic Crimes Office.  In 2015 CI saw a 30% increase in the number of mobile devices that require to forensically imaged and analyzed. 

 

Tags:  Fraud  IRS  Taxes 

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