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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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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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Yes The IRS Can Give You Advice

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Thursday, November 12, 2015
IRS ADVISES TAXPAYERS TO CHOOSE A TAX RETURN PREPARER WISELY IR 2015-124
Noting that there is still some time before the next tax filing season, IRS has advised taxpayers to make use of that time to consider the appropriate options in choosing a tax return preparers. Basic advice. IRS provides some basic tips that taxpayers can keep in mind when selecting a tax professional and filing their returns:
• Select an ethical preparer; taxpayers entrust some of their most vital personal data with the person preparing their tax return.
• Check on the service fees up front; avoid preparers who base their fee on a percentage of the refund or those who say they can get larger refunds than others.
• Ask the preparer whether he has a current Preparer Tax Identification Number (PTIN); paid tax return preparers must have a current PTIN to prepare a tax return.
• Research the preparer's history; check with the Better Business Bureau, or, for the status of an enrolled agent's license, check with the IRS Office of Enrollment. For certified public accountants, verify with the state board of accountancy, and, for attorneys, check with the state bar association.
• Ask for IRS e-file; any paid preparer who prepares and files more than 10 returns for clients generally must file the returns electronically.
• Provide records and receipts; do not use a preparer who, against IRS e-file rules, is willing to e-file a return using the latest pay stub instead of Form W-2.
• Review your tax return and ask questions before signing; taxpayers are legally responsible for what's on their return, regardless of whether someone else prepared it.
• Never sign a blank tax return; the preparer could put anything they want on the return, even their own bank account number for the tax refund.
• Ensure the preparer signs and includes their PTIN; the preparer must also give the taxpayer a copy of the return. To help taxpayers determine return preparer credentials and qualifications, IRS offered the following information:
• Any tax professional with an IRS PTIN is authorized to prepare federal tax returns. • Enrolled Agents—licensed by IRS—are subject to a suitability check and must pass a three-part Special Enrollment Examination, which is a comprehensive exam that requires them to demonstrate proficiency in federal tax planning, individual and business tax return preparation and representation. They must complete 72 hours of continuing education every three years.
• Certified Public Accountants—licensed by state boards of accountancy, the District of Columbia and U.S. territories—have passed the Uniform CPA Examination and completed a study in accounting at a college or university and also met experience and good character requirements established by their respective boards of accountancy. In addition, CPAs must comply with ethical requirements and complete specified levels of continuing education in order to maintain an active CPA license. CPAs may offer a range of services; some CPAs specialize in tax preparation and planning.
• Attorneys—licensed by state courts, the District of Columbia or their designees, such as a state bar—generally have earned a degree in law and passed a bar exam and have on-going continuing education and professional character standards. They may also offer a range of services; some attorneys specialize in tax preparation and planning.
Representation rights. Taxpayers can designate their paid tax return preparer or another third party to speak to IRS concerning the preparation of their return, payment/refund issues and mathematical errors. The third party authorization checkbox on Form 1040, Form 1040A and Form 1040EZ gives the designated party the authority to receive and inspect returns and return information for one year from the original due date of the return (without regard to extensions). Enrolled agents, certified public accountants and attorneys have unlimited representation rights before IRS. Tax professionals with these credentials may represent their clients on any matters including audits, payment/collection issues, and appeals. Preparers without one of these credentials (also known as unenrolled preparers) have limited practice rights. They may only represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service. They cannot represent clients whose returns they did not prepare and they cannot represent clients regarding appeals or collection issues even if they did prepare and sign the return in question. For tax return preparers that have an active PTIN (PTIN holders) but no professional credentials and do not participate in IRS's Annual Filing Season Program (AFSP, a voluntary program requiring a certain number of continuing education hours), this is the final year that they will have those limited representation rights for returns they prepare and sign.
For returns prepared beginning Jan. 1, 2016, only AFSP participants will have those limited representation rights.
References: For who is a tax return preparer, see FTC 2d/FIN ¶ S-1117; United States Tax Reporter ¶ 77,014.24; TaxDesk ¶ 867,002; TG ¶ 71753. For standards of practice, see FTC 2d/FIN ¶ T-10900; TaxDesk ¶ 867,008; TG ¶ 71758. [ top ] ecently posted the following:
Posted Yesterday

Tags:  finance  fraud  tax 

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Miscellaneous Deductions Can Cut Taxes

Posted By Rhette Baughman, Arizona Small Business Association, Thursday, August 14, 2014



You may be able to deduct certain miscellaneous costs you pay during the year. Examples include employee expenses and fees you pay for tax advice. If you itemize, these deductions could lower your tax bill.

Here are some things the IRS wants you to know about miscellaneous deductions:

Deductions Subject to the Two Percent Limit.  You can deduct most miscellaneous costs only if their total is more than two percent of your adjusted gross income. These include expenses such as:

+ Unreimbursed employee expenses.
+ Expenses related to searching for a new job in the same line of work.
+ Certain work clothes and uniforms.
+ Tools needed for your job.
+ Union dues.
+ Work-related travel and transportation.

Deductions Not Subject to the Two Percent Limit.  Some deductions are not subject to the two percent limit. They include:

+ Certain casualty and theft losses. Generally, this applies to damaged or stolen property that you held for investment. This includes items such as stocks, bonds and works of art.
+ Gambling losses up to the amount of your gambling winnings.
+ Losses from Ponzi-type investment schemes.

There are many expenses that you can’t deduct. For example, you can’t deduct personal living or family expenses. You claim allowable miscellaneous deductions on Schedule A, Itemized Deductions.

For more about this topic see Publication 529, Miscellaneous Deductions. You can get it on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

 

This series is brought to you by the Southwest Area Stakeholder Liaison Team covering Arizona, New Mexico & Texas. It is designed for you to share with anyone who will find the information useful. We are interested to hear if you think this information is helpful. Please provide your feedback or topic request to us at sl.southwest@irs.gov and include “Workshop Wednesday” in the subject line.

To access previous editions, click here: Workshop Wednesday Archive links 

 Small business owners, especially new sole proprietors, can find a wealth of information covering their federal tax responsibilities on www.IRS.govThe SB/SE Tax Center is the “Go To” IRS.gov page for everything small business.

 

Tags:  IRS  savings  small biz  small business  tax  taxes  tips 

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Six Tips for People Who Owe Taxes

Posted By Rhette Baughman, Arizona Small Business Association, Wednesday, August 13, 2014



While most people get a refund from the IRS when they file their taxes, some do not. If you owe federal taxes, the IRS has several ways for you to pay. Here are six tips for people who owe taxes:

1. Pay your tax bill.  If you get a bill from the IRS, you’ll save money by paying it as soon as you can. If you can’t pay it in full, you should pay as much as you can. That will reduce the interest and penalties charged for late payment. You should think about using a credit card or getting a loan to pay the amount you owe. 

2. Use IRS Direct Pay.  The best way to pay your taxes is with the IRS Direct Pay tool. It’s the safe, easy and free way to pay from your checking or savings account. The tool walks you through five simple steps to pay your tax in one online session. Just click on the ‘Pay Your Tax Bill’ icon on the IRS home page.

3. Get a short-term extension to pay.  You may qualify for extra time to pay your taxes if you can pay in full in 120 days or less. You can apply online at IRS.gov. If you received a bill from the IRS you can also call the phone number listed on it. If you don’t have a bill, call 800-829-1040 for help. There is usually no set-up fee for a short-term extension.

4. Apply for a monthly payment plan.  If you owe $50,000 or less and need more time to pay, you can apply for an Online Payment Agreementon IRS.gov. A direct debit payment plan is your best option. This plan is the lower-cost, hassle-free way to pay. The set-up fee is less than other plans. There are no reminders, no missed payments and no checks to write and mail. You can also use Form 9465, Installment Agreement Request, to apply. For more about payment plan options visit IRS.gov.

5. Consider an Offer in Compromise.  An Offer in Compromise lets you settle your tax debt for less than the full amount that you owe. An OIC may be an option if you can’t pay your tax in full. It may also apply if full payment will cause a financial hardship. You can use the OIC Pre-Qualifier tool to see if you qualify. It will also tell you what a reasonable offer might be.

6. Change your withholding or estimated tax.  You may be able to avoid owing the IRS in the future by having more taxes withheld from your pay. Do this by filing a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator on IRS.gov can help you fill out a new W-4. If you have income that’s not subject to withholding you may need to make estimated tax payments. See Form 1040-ES, Estimated Tax for Individuals for more on this topic.

To find out more see Publication 594, The IRS Collection Process. You can get this booklet on IRS.gov. You may also call 800-TAX-FORM to get it by mail.

This series is brought to you by the Southwest Area Stakeholder Liaison Team covering Arizona, New Mexico & Texas. It is designed for you to share with anyone who will find the information useful. We are interested to hear if you think this information is helpful. Please provide your feedback or topic request to us at sl.southwest@irs.gov and include “Workshop Wednesday” in the subject line.

To access previous editions, click here: Workshop Wednesday Archive links 

 Small business owners, especially new sole proprietors, can find a wealth of information covering their federal tax responsibilities on www.IRS.govThe SB/SE Tax Center is the “Go To” IRS.gov page for everything small business.

Tags:  IRS  small biz  small business  tax  taxes  tips 

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