Archive for Tax Fraud
In Loving v. IRS the IRS’ authority to regulate commercial tax return preparers has been successfully challenged. United States District Court for the District of Columbia Judge James E. Boasberg granted Loving’s motion for summary judgment describing the IRS Rules as “Ultra Vires.”
“Ultra Vires” as I understand is a legal term meaning “beyond the powers” referring to an activity that exceeds the powers granted to the person (or entity) engaging in that activity creating what the opinion calls “an invalid regulatory regime.”
As I further understand this means that tax return preparers who have not yet taken the competency test do NOT have to take it. It also means that there will be no Registered Tax Return Preparers (RTRPs) with the IRS and that the industry goes back to the way things were in 2009, before the Tax Return Preparer Initiative was launched. The wild, wild west where incompetency and fraud ran rampant. The only exception noted is that all tax return preparers still must register for and receive an annually renewable practitioner tax identification number or PTIN.
How will the IRS respond? This will be interesting to watch develop. Check out The Original Complaint.
I’ve been engaged in a running dialog with extraordinary nuances as to whether a loosely organized group of people are or are not fully recognizing taxable revenue from engagement in barter transactions with each other. The nuances inside this topic ranged from record keeping (as in if neither party kept written record did a taxable transaction occur) to gift giving (as in is a fully depreciated tractor given to a relative for example a taxable event) to conspiracy to defraud (as in if we all agree that we are giving each other gifts inside the annual gift tax exclusion are there really any tax laws being violated).
In response I’ve drafted this post which is essentially a brief overview of IRS Publication 525, Taxable and Nontaxable Income.
The follow revenue sources are not considered taxable income:
Adoption expense reimbursements for qualifying expenses
Child support payments
Gifts, bequests and inheritances
Some, but not all, workers’ compensation benefits
Reimbursement for meals and lodging for the convenience of your employer
Compensatory damages awarded for physical injury or physical sickness
Cash rebates from a dealer or manufacturer
Examples of items that may or may not be included in your taxable income are:
Life insurance If you surrender a life insurance policy for cash, include in income all proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price.
Scholarship or fellowship grant If you are a candidate for a degree, you can exclude from income amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify for the exclusion.
Non-cash income Taxable income may be in a form other than cash referred to as bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
All other items—including income such as wages, salaries, tips and unemployment compensation AS WELL AS REVENUE FROM BARTERING — are fully taxable and must be included in your income unless it is specifically excluded by law.
The following are the notes from the most recent IRS Stakeholder Liaison Meeting held in Denver Colorado as prepared by IRS Senior Stakeholder Liaison Deborah Rodgers
Michael Shuler, Local Taxpayer Advocate
Nina Olson, the National Taxpayer Advocate’s (NTA) objectives report was released in June, revealed some issues that will be coming out in the annual report in January. Some of Nina’s concerns were around the difficult filing season. The expiring tax provisions cause chaos for the tax professionals and taxpayers, when Congress waits until the end of the year to address these provisions. The AMT tax, sales tax deduction, mortgage insurance premium deduction, and age 70 1/2 IRA charitable contributions are included in this list and are usually retroactive when reinstated.
In 2013 , the Bush tax cuts sunset. These include the long-term capital gains rate cuts, child tax credit and the adoption credit.
Tax fraud and identity theft are growing. Innocent people are caught in the system to prevent fraud ID theft. The ID theft line is understaffed. One in nine calls were getting through during the filing season.
The Advocate’s office is also concerned about IRS disregarding the Taxpayer Assistance Orders (TAOs). The TAO process is provided by statute. A TAO is effective because it can raise issues to higher levels of management. Taxpayer Advocate Service is successful with TAOsevery day, but there are issues with the program raised in the NTA’s Objectives Report, including there not being any consequences if the TAO is disregarded. The Systemic Advocacy Management System also known as SAMS is another very effective way to raise issues. Every one of these will get a high level contact and some result in systemic advocacy projects. Sam’s link is: http://apps.irs.gov/app/samsnet/IssueQualification.jsp
Question: Are you aware of any steps to fix the OVDP program?
Response: No. The OVDP program is closed. The OVDI is the current program. TAS has raised the issue through TAOs and a TAD about IRS not following their own FAQ #35 which appeared to state that reasonable cause and mitigating factors could be considered in the calculation of the closing agreements.
Comment: In cases of inadvertent or inherited funds one size does not fit all.
Response: The IRS says that the participants can always withdraw from the voluntary program. Most people don’t look at withdrawal as a viable option. It should be considered in those types of cases.
Comment: A lot of practitioners are concerned about their advice. Although we cannot offer comment on what advice to provide to your clients, the National Taxpayer Advocate is continuing to advocate for changes to the program that will address the “one size does not fit all” criticism and provide for a more fair process for those who did not shift assets overseas to avoid tax reporting but inadvertently got caught in a non-disclosure.
Bessie Castro-Zepeda, Colorado Department of Revenue
Q: Why does the CDOR send out tax notices disallowing credits and deductions on e-filed returns PRIOR to reviewing the supporting documentation that is mailed in with form DR 1778 “E-filer Attachment Form”?
A: It is the policy of the Taxpayer Service Division, in the event of a review of a credit or deduction claimed on an e-filed return, to wait 30 days for supporting documentation to be received. If the documentation is not received after the 30 day window, the credits/deductions are denied and a letter is sent requesting the backup documentation.
Q: Why is the CDOR disallowing the Colorado Minimum Tax Credit on line 31 of Form 104CR when the credit is simply a calculation based from information reported on the Federal return?
A: The Colorado Minimum tax credit is being disallowed in cases where Form 104AMT is missing or incomplete. There may have initially been a training issue where the credit was being disallowed incorrectly by an examiner but for the most part, the credit is denied due to missing or incomplete information.
In general, CDOR and, specifically the Income Tax Accounting Section, only denies credits/deductions when there is missing or incomplete documentation. The tax booklet makes it clear what documentation is needed when a credit is claimed. Most of the issues we (Income Tax Accounting Section) run into are missing documentation on amended returns. The taxpayer may have claimed a credit on the original filing and supplied the appropriate documentation, but if the credit is unchanged (or even reduced) on the amended form and there is no supporting documentation we will deny it.
A few tips for filing this year: It is highly encouraged that e-file is used to file returns. Also, we encourage the use of our website, Revenue Online (www.colorado.gov/revenueonline) to file protests and for taxpayers to review their accounts. This is the preferred method to correspond with DOR as the phone system is very difficult to get through on.
The inclusion of forms (104cr, 104pn) and all backup documentation on original AND amended returns needs to be stressed. Even if a credit remains unchanged on an amended filing, it will be denied if the corresponding form is not attached.
To ensure payments are correctly posted to the proper account, ACH debits are recommended – as well as payment through our online portal (this is done through Revenue Online website).
Question: What if it is a carryover from prior year do we still have to resubmit?
Response: We will follow up on this question.
Goretti Lysek and Douglas Wildfong, Automated Collection Site (ACS)
Goretti spoke to the Colorado Society of Enrolled Agents in May about the new provisions of the Fresh Start program. She responded to some questions that came out of that presentation.
Question: When calling into ACS representative asked for Form 2848, then transferred the call and the next assistor asked for the 2848 again, what is happening?
Response: If the taxpayer identification number is input correctly the call will go directly to ACS, otherwise it will be directed to Accounts Management first.
Question: Practitioners were set up on an installment agreement and the installment agreement defaulted, no fault of the taxpayer.
Response: The installment agreement needed substantiation. This installment agreement should have been set up as an IA pending, but some assistors did not set IA pending so levies ensued. We reminded assistors about this problem.
Question: Why do federal tax lien withdrawals for direct debit installment agreements take so long?
Response: We need to get the first three months before withdrawal can take place, but it is taking six months and we will look into that.
If an installment agreement request is beyond ACS authority the case will be taken out of queue and sent to the field.
Question: Is the office that processes 433D’s separate from ACS?
Response: Yes, after it leaves ACS and gets manager approval, Compliance Services Collection Operation (CSCO) takes over. We are analyzing where the delays are and hope to improve the timing.
Michael: If there is a hardship bring it to the Taxpayer Advocate’s attention. The Taxpayer Advocate’s Office can withdraw a lien within 4 to 5 days. Taxpayer Advocate can address the issue separately from the direct debit installment agreement if they can’t wait for six months due to the hardship.
Diane Sandoval, Collection
Question: Are there any appeal rights available to third-party if a revenue officer asserts nominee/alter ego liability against him/her/it? Are there any appeal rights for collection action taken against property held by a purported nominee/alter ego third-party? In this context, if the Service files a tax lien and/or issues a Final Notice of Intent to Levy to a third-party nominee/alter ego, does that party have standing to request a hearing with Appeals? What about the taxpayer? Neither?
Response: The nominee only has CAP appeal rights (using Form 9423); the nominee would not be granted CDP rights. The taxpayer does not have an appeal right in regard to the nominee’s lien. As far as post-appeal rights, they can petition based on the lien to the Federal District Court.
Question: Historically, a revenue officer would grant an in-business taxpayer owing trust-fund tax an installment agreement, if, among other conditions, the individuals who would potentially be liable for the trust-fund recovery penalties would grant an extension to assess these penalties. These assessment extensions are no longer requested and/or accepted, and the revenue officer now insists on making the assessments of the trust-fund recovery penalties before granting the in-business installment agreement. Why did this change and is there any negotiation on this? In some instances, a business might qualify for an installment agreement, but potentially responsible individuals will not consent to the assessment of the trust-fund recovery penalties, thus creating conflict which would not have previously presented itself.
Response: There is not a one-size-fits-all answer for this question; the answer will depend on the type of installment agreement and the individual taxpayer.
If a Partial Payment Installment Agreement is being considered, the Trust Fund Recovery Penalty (TFRP) will usually be assessed because the underlying liability will not be fully paid. The only exception to this requirement is in circumstances in which there is no collection potential from the responsible officers.
Before granting In-Business Installment Agreements the TFRP must be considered, the Assessment Statute Expiration Date (ASED) protected, and an assessment determination made on all in-business trust fund cases. Area management must ensure consideration is given to securing waivers to extend the statutory period for assessment from each responsible individual when the delinquent taxes will not be fully paid prior to the original ASED. In general, the Revenue Officer will not request the assessment of the TFRP if business taxpayers meet the terms of the installment agreements. However, TFRPs must be considered on the potentially responsible persons of the business entity based on the following procedures. If the agreement will not full pay all balances due at least one year prior to the earliest ASED, then the RO will assemble all documentation for completion of the penalty to the point of proposing the assessment, complete interviews of all potentially responsible parties, secure F433-A (Collection Information Statement) from all potentially responsible parties and request signature of F2750 (Waiver Extending Statutory Period for Assessment of the Trust Fund Recovery Penalty). If a potentially responsible officer refuses to extend the ASED, and the TFRP is determined collectible, the RO is to complete and recommend assessment of the TFRP for that responsible person. If potentially responsible persons have the ability to pay from current assets or income, the Revenue Officer should request payments be made to reduce the trust fund portion of the liability. If they have the ability to make a significant payment or payments on the trust fund portion of liabilities, but do not make such payments (or do not make plans for payment from personal assets), the Revenue Officer should consider recommending assessment of the TFRP.
If taxpayers are currently ”Repeaters,” the TFRP will normally be assessed.
If accounts qualify for In-Business Trust Fund Express agreements, the Revenue Officer must ensure that the ASED is protected.
Question: Closely related to #5, it seems that many (but not all) revenue officers will resolve a business account with trust-fund tax issues and assess the trust-fund recovery penalties where appropriate, but then close out the file without resolving the individual collection cases. This creates the needless hassle of having to resolve the individual trust-fund recovery penalty cases with the Automated Collection System, even though the revenue officer is generally in the best position to resolve the individual cases. Is this new policy, or does this approach differ depending upon the area or manager? In one circumstance, a revenue officer properly assessed the trust-fund recovery penalty, but refused to work the individual collection case and closed it. When this individual case was eventually assigned to the Automated Collection System, they indicated that it was at too high of a dollar threshold to resolve and sent it back to the field……to the same revenue officer. Is this an isolated incident?
Response: It is my expectation in the Denver Territory that related IMF and BMF cases should be worked simultaneously by the same Revenue Officer, as appropriate. However, if there are no additional assessments on the IMF case and the RO has to wait on the TFRP to be assessed, there would be no case for the RO to hold open or to work until the TFRP assessment has been completed and posts to the account.
Lois Deitrich, Examination
Identity theft is a very hot topic being seen daily in exam, as well as our walk-ins across the country. SB/SE Exam proactively required every employee to take a briefing on identity theft by 12-31-2011. Unraveling returns erroneously filed is difficult; the first return received by the Service posts (since the Service doesn’t know it is not the “real” return) and when the legitimate taxpayer files their return; that is often the first indication the Service (and the taxpayer) has that their identity has been stolen.
Following link is to identity theft information. http://www.irs.gov/privacy/article/0,,id=186436,00.html
Phishing schemes are still alive and well- email@example.com is the link to send your suspicious e-mails to. We close them down as quickly as possible. IRS cannot e-mail you back but we are working on it a way to get a secure “portal” to legitimately answer POAs and taxpayers who email the Service.
We have frequently asked questions for the Offshore Voluntary Disclosure Program (OVDP) program on www.irs.gov . This program is heavily governed by technical experts. Examiners will discuss the options for taxpayers to ”opt-out” or remove themselves from the program when their participation in the program is not feasible. In some instances, the penalty on the account exceeds 300% of the account. Examiners look at what is most sensible and work very hard to work with POAs and taxpayers to achieve a good result for both the taxpayer and the Government.
Examination is not sure how we are going to respond to health care. There are a lot of high level people working on it.
Taxpayers who denounce citizenship because of taxes are usually approached as offering a frivolous argument. For more information on frivolous arguments, http://www.irs.gov/taxpros/article/0,,id=159853,00.html
Gary Easley and Linda Alden, Appeals
Gary Easley replaced Jack Estoll as the Appeals Lead Team Manager. Appeals hired Appeals Officer Melodie Farris who is an attorney.
Appeals focus at the Nationwide Tax Forums is the topic of fast-track mediation.
Question: How long is it taking to complete a non-docketed case in Appeals?
Response: Inventory has dropped somewhat, hopefully will be less than a year to work out an agreement.
A fast-track appeal is a way to get resolution to a case more quickly. If it doesn’t work the taxpayer still has appeal rights hearing within 120 days. This process can help move the parties from their hard and fast positions.
Question: Are only certain people allowed to work such cases?
Response: Yes mediation training is required.
Question: Can small (non-Large Business and International) tax cases be heard?
Response: Yes, we have five trained mediators in Denver. And if necessary, we can bring in other trained mediators if we need to.
Question: What type of cases can go through this program?
Response: See Publication 4167 and associated Revenue Procedures for details.
Lilia Ruiz, Criminal Investigation
Criminal Investigation investigates ID theft issues. We have one employee assigned to ID theft issues, his name is George Warnock at 303-603-4931. Criminal Investigation looks to see if these ID theft issues are tied to other schemes. We continue to investigate unscrupulous tax preparers.
Question: Non foreign voluntary disclosures where do these go?
Response: The Domestic Voluntary Disclosure (DVD) will need to be made to the Philadelphia Lead Development Center. Attached is a template that POAs and taxpayers can use to disclose information relative to their domestic disclosure.
It was decided that centralization of this process is essential to processing these types of disclosures. Once the Criminal Investigation Philadelphia Lead Development Center reviews the information they will direct the POA or taxpayer on where to send all other applicable documents.
The website addressing voluntary disclosures has not been updated to reflect this process and it still lists our local agent as a contact. However, the attached procedures should be followed.
Question: Is there a resurgence of frivolous positions?
Response: No more than normal– just one of the things we investigate.
Question: Will you pursue criminally?
Response: Not necessarily depends on the facts and circumstances. We prefer to go after the promoter.
Question: Any other hot topics?
Response: False 1099s, tax evasion schemes.
Nancy Carver, Counsel
Nancy Carver is the new Area Counsel Associate for the district. She left private practice in New York and has been with the Internal Revenue Service for 12 years, spending most of her time in Washington DC.
Area Counsel does advisory work for other functions. We preview statutory notices, and indirect methods of proof. Tax Court cases include international issues, conservation easement cases, abusive Roth IRAs, identity theft, hobby losses, first-time home buyers, unreported income, cancellation of debt, innocent spouse, and collection due process.
Question: Is there anyone working medical marijuana issues?
Response: One person in the group is working those types of cases.
Tax Court attorneys don’t have settlement authority. They must go through Nancy Carver or Bob Varra. If more than $1 million it is elevated.
If an attorney gives advice on an Exam case, the same attorney cannot handle the case in Appeals.
Michael Rogers, Governmental Liaison
Governmental Liaison (GL) has scaled down to two areas East and West.
GL is engaged in several data exchange programs with State of Colorado. The state income tax levy program netted IRS 18 million in its first year of state refunds.
Our partnership with the Department of Motor Vehicles includes background checks for car dealers. IRS will perform compliance checks for Department of Motor Vehicles.
Colorado Department of Labor will be participating in the Treasury Offset Program (TOPs). This will allow them to intercept federal income tax refunds to offset any debt a person may have with the Dept. of Labor.
We are currently in dialogue with the city of Denver to institute licensing compliance checks annually.
Our congressional office visits are centered on the issue of identity theft.
Charles Musso, Supervisory Taxpayer Advocate
Chuck accepted a job with the Safeguards division. Chuck also mentioned that he interviewed for the Local Taxpayer Advocate position.
Chuck mentioned that the State issued a public announcement declaring the Colorado Wildfire areas disasters.
Kristen Hoiby, Stakeholder Liaison Field
Stakeholder Liaison is still in the business of responding to education requests from practitioner organizations. We are exploring new and innovative ways to educate the practitioner community. We are in the process of obtaining our own webinar system and we also partner with other agencies in using their webinar systems.
One of our major focus areas is the registered tax return preparer’s and enrolled agent CE program.
There are several webcasts that are available to view on IRS.gov. They include ethics and authorizations and can be found at http://www.irsvideos.gov/Professional/UpcomingWebinars
With all the discussion today, Kristen mentioned a useful chart on IRS.gov which is a comparison of FATCA vs FBAR requirements.
She also encouraged practitioners to sign up for the electronic FATCA information list.
There are many questions surrounding the RTRP test and why so many individuals have not yet taken the test. We encourage practitioners to take the test as soon as possible.
Quite often people approach me with their tax problems talking in terms of “coming clean” telling dramatic and deeply personal stories, many of which have little or nothing to do with the tax matter at hand. People seem to want to essentially ‘get issues off their chest’ or ‘confess their sins’ as it were which presupposes that I also serve as a pastor, priest, minister, rabbi etc. This has always proven troubling in that I am not formally trained to help people seek relief in these regards.
Having spent years talking to many good friends and fellow tax experts about directing taxpayers when their conversation drifts away from taxes the general conclusion is to redirect and stay focused on the area of expertise, tax. Often taxpayer conversation distills down to the immediate costs associated with correcting mistakes of the past and many people wrestle with whether there is more benefit in ‘doing nothing’ thinking that if they are ‘lucky’ they may ‘get away with it like (friend) or (relative).’ This certainly is one alternative.
My license however requires me to inform taxpayers of their delinquencies as they are reported so ignoring a mistake or problem is not a permanent solution in my reality. That aside there are more important reasons to ‘come clean’ as reflected in these two very true stories that when read together bring an understanding that action (and even inaction) have corresponding consequences reaching far beyond the mechanics of defending or correcting a tax return. I don’t know who authored the following text to give credit but it is worth reading. Let me know what you think…
STORY NUMBER “ONE”
Many years ago, Al Capone virtually owned Chicago . Capone wasn’t famous for anything heroic. He was notorious for enmeshing the windy city in everything from bootlegged booze and prostitution to murder.
Capone had a lawyer nicknamed “Easy Eddie.” He was Capone’s lawyer for a good r eason. Eddie was very good! In fact, Eddie’s skill at legal maneuvering kept Big Al out of jail for a long time.
To show his appreciation, Capone paid him very well. Not only was the money big, but Eddie got special dividends, as well. For instance, he and his family occupied a fenced-in mansion with live-in help and all of the conveniences of the day. The estate was so large that it filled an entire Chicago City block.
Eddie lived the high life of the Chicago mob and gave little consideration to the atrocity that went on around him.
Eddie did have one soft spot, however. He had a son that he loved dearly. Eddie saw to it that his young son had clothes, cars, and a good education. Nothing was withheld. Price was no object.
And, despite his involvement with organized crime, Eddie even tried to teach him right from wrong. Eddie wanted his son to be a better man than he was.
Yet, with all his wealth and influence, there were two things he couldn’t give his son; he couldn’t pass on a good name or a good example.
One day, Easy Eddie reached a difficult decision. Easy Eddie wanted to rectify wrongs he had done.
He decided he would go to the authorities and tell the truth about Al “Scarface” Capone, clean up his tarnished name, and offer his son some semblance of integrity. To do this, he would have to testify against The Mob, and he knew that the cost would be great. So, he testified.
Within the year, Easy Eddie’s life ended in a blaze of gunfire on a lonely Chicago Street .. But in his eyes, he had given his son the greatest gift he had to offer, at the greatest price he could ever pay. Police removed from his pockets a rosary, a crucifix, a religious medallion, and a poem clipped from a magazine.
The poem read:
“The clock of life is wound but once, and no man has the power to tell just when the hands will stop, at late or early hour. Now is the only time you own. Live, love, toil with a will. Place no faith in time. For the clock may soon be still.”
STORY NUMBER “TWO”
World War II produced many heroes. One such man was Lieutenant Commander Butch O’Hare.
He was a fighter pilot assigned to the aircraft carrier Lexington in the South Pacific.
One day his entire squadron was sent on a mission. After he was airborne, he looked at his fuel gauge and realized that someone had forgotten to top off his fuel tank.
He would not have enough fuel to complete his mission and get back to his ship.
His flight leader told him to return to the carrier. Reluctantly, he dropped out of formation and headed back to the fleet.
As he was returning to the mother ship, he saw something that turned his blood cold; a squadron of Japanese aircraft was speeding its way toward the American fleet.
The American fighters were gone on a sortie, and the fleet was all but defenseless. He couldn’t reach his squadron and bring them back in time to save the fleet. Nor could he warn the fleet of the approaching danger. There was only one thing to do. He must somehow divert them from the fleet.
Laying aside all thoughts of personal safety, he dove into the formation of Japanese planes. Wing-mounted 50 caliber’s blazed as he charged in, attacking one surprised enemy plane and then another. Butch wove in and out of the now broken formation and fired at as many planes as possible until all his ammunition was finally spent.
Undaunted, he continued the assault. He dove at the planes, trying to clip a wing or tail in hopes of damaging as many enemy planes as possible, rendering them unfit to fly.
Finally, the exasperated Japanese squadron took off in another direction
Deeply relieved, Butch O’Hare and his tattered fighter limped back to the carrier.
Upon arrival, he reported in and related the event surrounding his return. The film from the gun-camera mounted on his plane told the tale. It showed the extent of Butch’s daring attempt to protect his fleet. He had, in fact, destroyed five enemy aircraft
This took place on February 20, 1942 , and for that action Butch became the Navy’s first Ace of W.W.II, and the first Naval Aviator to win the Medal of Honor.
A year later Butch was killed in aerial combat at the age of 29. His home town would not allow the memory of this WW II hero to fade, and today, O’Hare Airport in Chicago is named in tribute to the courage of this great man.
So, the next time you find yourself at O’Hare International, give some thought to visiting Butch’s memorial displaying his statue and his Medal of Honor. It’s located between Terminals 1 and 2.
SO WHAT DO THESE TWO STORIES HAVE TO DO WITH EACH OTHER? Butch O’Hare was “Easy Eddie’s” son!!!!!