ID Theft and Tax Refund Fraud-A Growing IRS Problem

A recent government report shows just how big and nearly out of control ID theft and tax refund fraud issues are for the IRS. A recent Reuters article titled: “Tax Refund ID Theft is Growing ‘epidemic’: U.S. IRS watchdogcites a the Treasury Inspector General for Tax Administration (TIGTA) report illuminating the increase in stolen names and Social Security numbers that scammers use to file phony electronic tax forms for IRS refunds.

The Reuters article focuses on the following important information from the TIGTA reports:

  • More Americans’ identities were stolen in tax refund crimes in the first six months of 2013 than in all of 2012
  • About 1.6 million Americans were victims of ID theft/tax refund crimes in 2013 through June, up from 1.2 million taxpayers in all of 2012.
  • While the number of frauds has risen, the report shows the total federal revenue lost to these crimes has decreased. In 2011, the government lost $3.6 billion in potentially fraudulent tax refunds, down from $5.2 billion in 2010.
  • ID thieves are increasingly working from abroad. In 2011, someone using a single mailing address in Lithuania made more tax filings with fraudulent Social Security numbers than any single U.S. address. The report provides two examples: A Lithuanian address received $220,489 in fraudulent IRS refunds; an address in Shanghai received $156,533.

According to the Reuters article, the IRS acknowledges the tax refund fraud explosion in recent years. The agency has agreed with TIGTA’s recommendations and admits it needs to get better at the following:

  • Spotting red flags signaling potential fraud in tax filings, such as multiple filings from the same address.
  • Help victims more quickly.

However, the agency maintains that the constantly evolving tactics used by scammers to commit identity theft continues to be one of the biggest challenges they face.

If you owe more than $10,000 in back taxes, have received an audit letter or are under audit, you need to hire a certified tax resolution specialist who is accustomed to dealing with the IRS. This tax pro can properly organize your records and help negotiate an IRS payment plan so your IRS problems become a thing of the past.

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IRS Warns Taxpayers of Recent Phone Scam

The IRS is doing its level best to warn against tax scams and encouraging taxpayers to be vigilant against phone and email scams that use the IRS as a lure. A recent IRS press release announced a pervasive new phone scam that targets people across the country, including recent immigrants. We wrote a previous post about this scam on October 17th when it appeared these scammers were operating with impunity during the government shutdown.

The following are details of the phone scam taxpayers need to be aware of:

  • Callers claim they are from the IRS seeking to collect back taxes and insist taxpayers pay their tax debt using a pre-paid debit card or wire transfer.
  • They offer fake IRS badge numbers to sound credible.
  • The scammers often know the last four digits of the victim’s social security card.
  • Scammers generally threaten those who refuse to pay with arrest, deportation or loss of a business or driver’s license, liens, bank levies and wage garnishment, anything they can to intimidate victims into giving out personal and financial information.
  • They also send bogus IRS emails to support their false claim.
  • Most of the calls are from a 530 area code, possibly from a call center.
  • Most of the callers have heavy accents and use common names like “Kevin Peterson”, “John Miller” or “Chris Brown.”
  • If hung up on, the scammers will call a second time claiming to be the police or DMV. They manipulate the caller ID to support their claim.

Here are three important points to remember about the IRS:

  • The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
  • The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts.
  • Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.

If you get a call from someone claiming to be with the IRS asking for a payment, here’s what the IRS wants you to do:

  • If you owe IRS taxes, or think you might owe taxes, hang up and call the IRS at 800-829-1040. IRS workers can help you with your payment questions.
  • If you don’t owe taxes, call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484.
  • You can also file a complaint with the Federal Trade Commission at FTC.gov. Make sure to add “IRS Telephone Scam” to the comments in your complaint.

There is more information about tax scams, schemes and ID Theft on the real IRS website: IRS.gov.

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Tax Collections after Shutdown-a Major Priority

For the 16 day government shut down, tax enforcement and collections came to a halt. With the IRS now operating at full steam, should you be concerned?

The government shutdown from October 1 to October 16 closed critical U.S. government offices and furloughed the most essential federal employees. For those 16 days, the business of tax collections: analyzing returns, auditing taxpayers, and filing tax liens, stopped. Those targeted by the Internal Revenue Service, may have breathed a sigh of relief.

However, now that the government shutdown is over, the IRS is fully back up and running as normal with investigations, tax audits and collections resumed. So have federal prosecutions of cheating taxpayers.

The U.S. Department of Justice also experienced temporary furloughs during the shutdown that delayed prosecutions. Now that tax collectors and prosecutors are back to work, however, we’re beginning to see tax investigations and prosecutions return to the robust levels that existed before the shutdown.

In late October, for example, just a week after the government shutdown ended, federal prosecutors in Florida announced the closure of one of the most significant tax evasion cases in recent months. Here are some of the details of the case:

Dr. Patricia Lynn Hough, of Englewood, Florida, was convicted at trial of conspiring to defraud the IRS by concealing millions of dollars in assets and income in offshore bank accounts at UBS and other foreign banks. They also filed false individual income tax returns that did not report the existence of those foreign accounts or the income earned in those accounts.

Hough and her husband, who is awaiting trial, used nominee entities, including a foundation, and undeclared accounts at UBS and other foreign banks to conceal assets and income from the IRS. The couple also owned two medical schools in the Caribbean, and in 2007, sold the schools and the associated real estate for more than $35 million. Most of that money was not reported to the IRS, and the couple used the proceeds to purchase an airplane, two homes in North Carolina and a condominium in Sarasota, Florida.

Most tax evasion cases involve smaller five and six figure amounts not the enormous $35 million amount reported here. Many of the cases being prosecuted have the same theme:

  • Tax scammers trying to claim refunds to which they aren’t entitled.
  • Businessman skimming unreported proceeds or claiming expenses that aren’t valid.
  • Ordinary folks claiming that they earned much less than they really did just to pay a less in taxes.

The IRS is after all of them, and the government shutdown did little to stop the IRS’s pursuit of tax cheats.

Michael Rozbruch is a Certified Tax Resolution Specialist, a member of the American Society of IRS Problem Solvers and a Maryland CPA.  You can contact him at 866-829-3333 to obtain a free subscription of his newsletter titled The IRS Times & Inquirer.

Posted in IRS Audit Strategy, IRS Back Taxes, IRS Enforcement, Tax Audit Defense, Tax Defense Partners, Tax Help, Tax News | Tagged , , , , , , , , , | Leave a comment

Business Audits Can Increase Due to Multi-State Workers

Most business owners do everything they can to prevent tax issues but it’s only possible to prevent what you know about. For example, some businesses may not be aware they are non-payroll tax compliant for workers who cross into other states to perform their duties. This unintentional error could trigger an employer audit.

A BusinessWeek article titled: “Workers Crossing State Lines Mean More Employer Audits: Taxes” reports that workers who perform their tasks in different states may expose their employers to additional tax liabilities as states seek to collect levies from nonresidents by increasing enforcement actions.

Payroll Systems Not Configured for Multi-Location Employees

According to the article, the tax problem most likely starts when payroll systems aren’t configured to track employee earnings for multiple work locations. This oversight can expose employers to tax audits from numerous states. Subsequently, employers who then fail to collect and pay taxes to appropriate jurisdictions for traveling workers generally get stuck with the tax bill.

Still, BusinessWeek reports that even with multistate tracking in place some employers receive complaints from traveling employees when they see wages and taxes for more than one state reported on their W-2 forms. Also, once an employer reports wages and taxes to more than one state, it essentially obligates the employee to file individual returns in those states. Note: BusinessWeek article contributor, Mary Hevener, a partner at Morgan, Lewis & Bockius LLP in Washington said she files tax returns in nine states.

The Long Road Ahead for Standardizing Multi-State Workers Rules

Nineteen states with income taxes have certain thresholds of time spent and money earned while working in their state. Twenty-two states technically subject workers to tax on the first day of travel in the state. Here are some examples of:

  • New York generally doesn’t apply state tax for certain work activities performed inside its borders for 14 days or fewer in a year. The article points out that
  • Georgia allows out-of-state workers to work in the state up to 23 days in a quarter without applying state taxes, or up to 5 percent of total compensation derived from in-state work.

However, it’s reported that other states have poorly explained rules on income allocations.

The article quoted Patrick Rehfield, a lawyer at Morgan Lewis who claims that several attempts have been made to standardize how multi-state workers are treated for state tax purposes.  Lewis states that “under the Mobile Workforce State Income Tax Simplification Act, proposed in the past several congressional sessions, nonresidents would have to work at least 30 days in a state before becoming subject to out-of-state taxes.” Lewis continues, “The legislation, which would exclude professional athletes, professional entertainers and some public figures from the time frame, has encountered strong state opposition.”

Small Businesses Can Avoid Tax Audits by Hiring a Tax Professional

With the IRS laser-focused on small business tax compliance, and states looking to fill their coffers, the last thing a business owner wants to do is get audited and pay more taxes! A qualified tax professional can evaluate your business and make sure you stay on the right side of the taxing authorities because payroll tax issues are some of the most difficult and expensive to deal with.

The good news is that if you are a small business owner who currently has payroll tax problems or is facing a business audit, there is a solution to your problem. However, it’s important you contact a Certified Tax Resolution Specialist quickly to help protect you, your company and employees.

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How Changing the IRS Notice Color Could Allay Fears

Anyone who has received an IRS notice knows all too well the feeling of fear and dread, even though they may have done nothing wrong! A recent article by Don’t Mess with Taxes author Kay Bell titled: “A Colorful Way to Ease IRS Notice Fearsshines a bright spotlight on how an unopened IRS notice can evoke panic and how some people think that should change.

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IRS Logo

Bell begins her post by relating her experience where she received two separate IRS notices; a correspondence audit and a tax refund. The explanatory letter that arrived a few days after her refund check indicated that she had used the wrong tax table figure and was therefore entitled to the hundreds of dollars the IRS refunded.

As for the correspondence audit, some investment income had been overlooked on a previous return. Therefore, Bell did indeed owe Uncle Sam a bit more tax, plus an IRS penalty and interest.

What’s most interesting was Bell’s visceral reaction to both notices or as she describes it “[her] heart rate immediately jumped to Olympic sprinter pace.” By no means is Bell alone in her experience. She cites a letter by Adam Chodorow, a professor at Arizona State’s Sandra Day O’Connor College of Law and tax panicker, to Tax Analysts explaining his idea of how to ease such tax correspondence induced panic attacks.

Chodorow suggests color-coding the IRS envelopes so that taxpayers will immediately know the amount of tax trouble they are in. The following is the color code for IRS correspondence that Chodorow came up with that could conceivably abate taxpayer stress.

  • Green envelope, according to Chodorow would signify low risk correspondence such as an inquiry about another taxpayer or perhaps a refund.
  • Blue could indicate a simple query, perhaps about an inadvertent failure to report some minimal income amount.
  • Yellow might indicate a more significant audit letter.
  • Orange might signify an office audit that might equal $10,000.
  • A Red notice means big problems or as Chodorow puts it “you’re screwed.”

This is an interesting topic to ponder because it could have the potential to help people be less afraid to open their mail, read the letter and take the proper action. Nevertheless, given the deep seated fear of the IRS notice, it seems that no matter what color the envelope, taxpayers will still be afraid of the tax man – no matter what.

If you are avoiding the IRS because you have tax issues that you are afraid of, don’t wait for a colored envelope to arrive before you take action.

If you owe more than $10,000 in back taxes, have received an audit letter or are under audit, you need to hire a certified tax resolution specialist who is accustomed to dealing with the IRS. This tax pro can properly organize your records and help negotiate an IRS payment plan so your IRS problems become a thing of the past.

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Dennis Miller Talks Tax Resolution with Tax Defense Partners

It’s understandable why people fear the IRS; their reputation as the world’s most aggressive collection agency becomes crystal clear when you owe back taxes. The IRS wants your money and will intimidate and overwhelm you until they collect what’s due. A new podcast by radio and TV personality and Tax Defense Partners spokesperson, Dennis Miller explains why if you have tax debt, you don’t want to face the wrath on your own. View the recent episode of The Dennis Miller Show radio program below. (Below the video are reasons why certified tax resolution pros are better at resolving IRS issues than you are):

The IRS knows that most taxpayers don’t know their rights and they’re quite happy to keep it that way. However, taxpayers do in fact have rights to representation through the Taxpayer Bill of Rights that was signed into law in 1998. Under this law, taxpayers have the legal right to be represented by an attorney, a CPA and cease speaking to the IRS directly.

Taxing authorities including the IRS recognize the benefit from tax resolution and negotiation because these services help get non-compliant taxpayers back into the tax system and on the “tax rolls” again. The thought is that it’s better to get something than nothing.

If you owe $10,000 or more in back taxes, have unfiled tax returns, are facing or are currently under an audit – you need tax relief right away. The good news is that there is a solution to your IRS issue and it starts by contacting a certified tax resolution specialist. Just make sure the firm or professional you hire has the following qualifications:

  • They have successfully resolved tax resolution cases especially ones similar to yours
  • They have a long track record. Note: Tax Defense Partners has successfully resolved thousands of cases since 1998.
  • They know your rights and options that work with your financial situation – not the IRS’.
  • They become your IRS advocate and deal with the IRS on your behalf if you qualify.
  • They know how to negotiate an IRS settlement that can be up to 85% of the amount owed including IRS penalties and interest.

Posted in IRS Audit Strategy, IRS Tax Cases, Settle Back Tax Debt, Tax Defense Partners, Tax Help, Tax News, Tax Resolution Services, Under IRS Audit | Tagged , , , , , , , , , , , , , | Leave a comment