What Is Tax Evasion?/in Tax Fraud /by mcduff_admin
If a taxpayer uses an unlawful strategy to avoid paying taxes legally owed, this is referred to as tax evasion. Tax evasion can come with serious consequences such as a large fine and jail time.
The Difference Between Tax Avoidance and Tax Evasion
Often times, the line between tax avoidance and tax evasion is a fine line. For instance, a taxpayer who has a child under 16 qualifies for a reduction in his or her taxes. Asking for this deduction is legal tax avoidance. However, if a taxpayer claimed that he or she had a dependent under 16 but had no dependent, that would be fraud and an example of tax evasion.
The History of Tax Evasion
Tax evasion has been occurring as long as there were taxes to be paid. Typically, citizens of a country that had an income or value added tax avoided payment by paying off tax officials who would fail to report the evasion. Today, tax evasion is considered to be a major problem in less developed countries where sophisticated collection and reporting systems may be lacking.
In 1972, a research paper was written that examined why individuals would try to evade paying their fair share of taxes. The findings revealed that evasion was higher during times of unemployment and during times of dissatisfaction with government. Evasion rates were also linked to the tax rate itself. Not surprisingly, the rate of tax evasion was also associated with the likelihood of getting caught and the penalties associated.
Notable Examples of Tax Evasion
The most notable example of tax fraud occurred in 1929 and involved Chicago gangster Al Capone. He had been wanted for years on charges of murder and other crimes, but none of the charges resulted in a guilty verdict. However, he was eventually found guilty of tax evasion and spent time in prison.
Wesley Snipes was convicted of failing to file a tax return and had to spend three years in jail in addition to paying millions of dollars in back taxes to the IRS. He reportedly failed to file or pay tax because of his political views.
Many people know Abbott and Costello for their skit Who’s On First. However, most don’t know that the comedy duo was convicted for tax evasion in 1956, which forced them to sell the rights to many of their creative works. They would also be forced to sell much of their personal property as well.
The next time you want to avoid paying your taxes, you may want to think about the consequences of doing so first. You may have to pay back taxes, endure IRS levies of your property and spend time in jail. While you generally have an opportunity to make up for an honest mistake, it is almost always better to file an accurate return the first time.
Taxes: Fraud or Negligence?/in Tax Fraud, Tax Law, Tax Litigation /by mcduff_admin
Maneuvering the world of taxes can be difficult. The IRS is in the back of everyone’s mind, and can often make you wonder if you’re doing everything right.
What is Tax Fraud?
Tax fraud is the more serious of the two offenses. This is done willfully. There are common tip offs to fraud that all auditors look for. They can include:
- two sets of ledgers for fiances
- underreporting income willfully
- using a false number for social security
- false documents are used
- a nonexistent dependent is claimed for an exemption
There are other signs that are looked for, but these are the top five tip offs. All of these are done willfully. However, finding only one of these on only one of the reports is not enough to have it considered fraud.
Other signs of fraud could include a failure to even supply records of income to the FBI, deals with cash that are uncommon to that business (such as a deposit of $4,000,000,000 for a minimum wage worker who does not have wealthy family), and any large number of errors that are all in the favor of the payer.
What is Tax Negligence?
Tax negligence, on the other hand, is the equivalent of making a careless mistake. Tax auditors expect to see a few errors on every report due to how complex taxes can be.
In fact, auditors will not suspect fraud in the majority of cases. Unless they can see the badges of fraud – which include the five tip offs mentioned above and others, such as freshly printed receipts that are fake and checks that increase payments – they will only charge you with negligence.
The fine for a careless mistake on tax reports is usually 20% of your taxes. This means that you will pay an extra 20% – which is better than an extra 75% for tax fraud if you aren’t referred to the IRS. You can incur higher fines by having other failures, such as a failure to give full answers to questions asked by the IRS and a failure to have a good reason for the mistake.
Tax Scams to Watch for in 2015/in Tax Fraud /by mcduff_admin
Tax season is one of scammers’ favorites to gain and abuse the confidence of unwary individuals. Every year sees the emergence of new and creative ways to steal personal information from taxpayers, but knowing a few simple facts goes a long way for identifying what is real and what isn’t.
The IRS explicitly does not issue phone calls or emails asking for personal information or demanding payments. All communication between the IRS and taxpayers starts with mailed notices, and any communication afterwards will only be to inform individuals of any actions they need to take, not to collect. Scammers will do everything they can to appear legitimate, including fake caller IDs, fraudulent use of the IRS logo, and impersonating agents. Before taking any actions or revealing personal information, taxpayers are advised to verify whom they are speaking to on their own. The more aggressively a phone call or email attempts to gain sensitive information, the more likely it is to be a scam.
One of the most prevalent scamming methods involves criminals attempting to deceive people over the phone. They will do this by impersonating IRS agents, representatives of charities, or anything else they can use as a pretext to get valuable information from their targets. Pretending to be representatives of an organization people trust, they will use any angle, from using threats of penalties to offering special rewards and opportunities, provided the victim give over their credit card or Social Security numbers. Anyone who presses people for this kind of information is most likely a scammer.
Fraudulent Tax Preparation Services
The information included in every tax return is the responsibility of the taxpayer. However, many individuals use tax preparers to handle the details of their return. Most of these agencies provide excellent services to their clients, but it is important to verify their credentials, policies, and examine their work when it’s done. Tax preparers that make outstanding claims compared to their competitors may try to submit falsified information on the behalf of unknowing taxpayers to make money for themselves. These agents will often base their fee on how big the return is, and inflate a return illegally to increase their pay. Reputable agencies will be happy to display their dedication to educational and ethical standards that guarantee taxpayers the best return they can legally get.
IRS “Dirty Dozen” Tax Scams
Every year, the IRS compiles a list of the most prevalent schemes targetting taxpayers. People who are aware of these scams are more capable of filtering out any attempts by criminals to steal their money and identities, and are also warned to pay attention to the details of their return forms. In addition to phone scams, return preparer fraud, and fake charities, taxpayers should be on the lookout for:
- Phishing: Describes attempts to gain personal information through fake websites and email.
- Identity Theft: Especially common during tax season.
- Offshore Tax Avoidance and Hiding/Falsifying Income with Fake Documents: The IRS is getting better at finding hidden incomes and will act on any discoveries it makes both overseas and domestically.
- Excessive Claims for Fuel Tax Credits: Fuel tax credits are primarily used by farmers and associated businesses and should not be abused.
- Frivolous Tax Arguments: Individuals should not attempt to avoid paying their taxes without very good reasons.
The Double Irish Tax Dodge/in Tax Fraud, Taxation /by mcduff_admin
In recent years, some of the biggest corporations around the world have been utilizing tax strategies that help to minimize the amounts that have to be paid each year in corporate tax. With tax rates around the world getting higher every year, corporations have a higher incentive than ever to find ways to avoid certain tax liabilities. In the United States, corporations like Google and Apple have been successfully using a tax strategy that legally avoids a second layer of corporate tax. This article will explain how the double Irish tax arrangement works.
What Businesses Gain
Under normal circumstances, shareholders are subjected to at least three layers of income taxation when doing business in the European Union. First, the entity doing business in the European Union would pay the domestic corporate income tax rate. In France, this is 33.33 percent. Next, the parent company in the United States would pay a 35 percent tax on repatriated profits. Finally, shareholders would pay at least 43.4 percent in United States federal income tax and net investment income tax. This means that profits derived from the sale of a widget at a $100 profit would net less than $24.52 after taxes. However, the double Irish enables shareholders to net $32.19 or more. Therefore, this can potentially be a very lucrative tax arrangement.
Before the double Irish tax strategy can be implemented, it first requires that corporations have a network of subsidiary entities. Before starting the tax strategy, most businesses will already have their base operations in the United States and in the European Union country that they are doing business in. The double Irish requires that businesses legally incorporate in Ireland. However, these businesses then maintain their headquarters in the United States to prevent being considered an Irish tax resident. Businesses will also need to open new subsidiary operations in Bermuda and the Netherlands. Finally, businesses will need to form a second entity in Ireland. All of this can be done for a few thousand dollars.
How It Works
Now that the business has all of its subsidiaries set up, it can now begin using the tax strategy. For example, assume that a company made a $100 profit in France. Normally, the business would be subject to French corporate tax. However, laws in the European Union only apply corporate tax in the jurisdiction where the company is headquartered and where the intellectual property is owned. In Ireland, corporate taxes are 12.5 percent. However, the tax strategy mandates that the intellectual property owned in Ireland is only held under a lease contract. This means that a tax-deductible royalty payment must be paid to the subsidiary in the Netherlands. As soon as the funds arrive in the Netherlands, they are immediately sent to the second entity in Ireland. To avoid transfer pricing laws, the funds are then stored in Bermuda. These funds can then be reinvested into any European Union business operation without any additional taxation.
After the Process
The double Irish enables businesses to reinvest European Union profits without having their growth rates hindered by corporate taxation. However, receiving any personal benefits from these profits still requires that taxation be paid. Once shareholders decide to issue a dividend to themselves, the funds are transferred to the United States, where ordinary corporate and personal income taxes apply.
False Return Preparers/in Tax Fraud /by John McDuff
False Return Cases
Tax Return Preparers Intentionally Committing Tax Fraud
I recently noticed a couple of false return cases. The indictments and guilty pleas were a result of tax return preparers intentionally preparing and filing false income tax returns, a form of tax fraud. Internal Revenue Service-Criminal Investigation found the evidence and put it together for the prosecutors. In each of these cases, the preparer faces a maximum of three years in jail.
The key here is to avoid being indicted as an aider and abettor to preparing and filing false returns. The best way to avoid this is to pick your tax return preparer carefully. Be sure that you have someone who is reputable. CPA’s generally have high ethical standards. One is less likely to run into a false preparer in the CPA practice, than one will with tax return services.
Beware the preparer who promises you a refund. If the preparer is good, they will find and maximize a refund. But if a refund is not there, it’s not there and the preparer will not manufacture one.
Typically the false return preparer will insert into the return false deductions. Regardless whether you have a reputable preparer, give yourself some insurance. Take the time to review all of the deductions taken, to see if there is a deduction that is for an unreasonable amount. Also look for a category of expense where an amount has been taken, but you know that you have never spent money under that classification of expense.
False return preparers have on occasion understated income. This is unlikely when your income is declared on a W-2. But if you have a business, false preparers will fiddle with the amount of income reported for the business. They may report income to the extent that you have received Forms 1099, and nothing else. Once again, get yourself some insurance. Examine the amount of income on the return and compare it to your knowledge of your business. Is the number on the return about what you make a month?
All in all, do not become associated with a false return!
Austin Accountant Indicted in Tax Fraud/in Tax Fraud /by John McDuff
Many small businesses outsource their payroll duties to an accountant or company that specializes in payroll processing in order to ensure that taxes get paid properly. But what happens when the accountant you hired to keep you in the clear with the IRS ends up not submitting businesses’ taxes as required? The accountant gets charged with tax fraud.
John E. Bean owned a professional employer organization (PEO) called Synergy Personnel. PEOs typically provide services for small businesses such as payroll processing, including making IRS tax payments and workers’ comp insurance payments but Bean instead allegedly used his PEO in an elaborate scheme to pocket the cash.
Bean’s co-conspirators, John D. Walker and Patrick G. Mire, have both pleaded guilty: conspiracy and false statements for the former and mail-fraud conspiracy and conspiracy to launder money for the latter. Both are also cooperating with the ongoing investigation. Bean has been charged with fraud conspiracy, mail fraud and money laundering to the tune of $110 million dollars over a five-year period.
Although $110 million dollars seems like a sum that would last for quite some time, Bean told U.S. Magistrate Judge John Primomo that he would not be able to come up with 10 percent cash of a $100,000 bail. Judge Primomo denied Bean’s request for a signature bond, as well.
At least 15 different companies, including Synergy Personnel and Bean’s accounting business, have been implicated in this investigation.
Woman Arrested on Multiple Tax Fraud Charges/in Tax Fraud /by John McDuff
The government of our nation provides many services for its citizens, and these services, of course, are not free, and must be funded by an income. That’s where our tax dollars come into play. The federal government uses our tax dollars to pay for such goods and services as public schooling, job training, defense funding, Medicare and Medicaid, roads, police and fire protection, etc. It is the duty of every American to pay their taxes to make it possible for the federal government to keep providing these services and goods that we as citizens rely upon daily.
The majority of citizens do honestly pay taxes on the income they earn. However, there are those who attempt to cheat the government by tax evasion and tax fraud. One alleged cheater is a Texas woman, who was arrested for allegedly filing multiple fraudulent tax returns for herself and others and for evading taxes, as well.
United States Attorney Kenneth Magidson announced that Miranda Gore of Houston, Texas, was taken into custody by IRS agents on August 16, and charged with nine counts of willfully aiding and assisting in preparing and presenting false tax returns and two counts of willfully attempting to evade or to defeat her own income tax returns for two years. In the returns Gore prepared and presented to the IRS, according to the indictment, false business losses and false first time home buyer’s credits were claimed for tax year 2008. The IRS is also accusing Gore of tax evasion on both her 2008 and 2009 personal income tax returns by claiming first time home buyer credit and underreporting her income.
Should Gore be found guilty of these charges, she could face up to three years in federal prison for each count of preparing a false income tax return for others, as well as a maximum fine of $250,000. For the two charges of tax evasion, an additional five-year term of imprisonment and another $250,000 fine could be charged.
Tax Evasion Treachery/in Tax Fraud /by John McDuff
“But in the world nothing can be said to be certain except death and taxes” Benjamin Franklin, once quoted. As tax time rolls around many people cringe at the thought of getting their taxes done, in fear that they may owe or be audited. Others anticipate the opportunity to receive a nice chunk of change for their family vacation or a new car. Either way, tax time comes but once a year some may dread it, some may look forward to it and others will try and avoid it.
Theodora Ross, 52, a resident of Rowlett, TX, found herself in some serious trouble after pleading guilty to one count of wire fraud and one count of willfully attempting to avoid assessment of income taxes. The former senior corporal of the Dallas Police Department and head of the Dallas Crimestoppers teamed up with Malva Delley, 38, providing her with code words and tips, which allowed her to get cash rewards from JP Morgan Chase Bank. Using her position to her benefit, Ross would submit a list to the bank, containing both legitimate code words and cash rewards along with fake tip information.
Once receiving the cash payouts, Delley, would split the cash up and deposit Ross’ share into her bank account. Ross is said to have worked in the Dallas Crimestoppers Office from 2003 and headed the office from March 2006 until May 2010.
Ross admitted that she had not been forthright in her tax documents for the years 2006-2009, substantially minimizing the amount of money that she had earned as well as not taking into account the money that she had been fraudulently scheming. In those four years Ross had failed to report earnings of close to $175,000 and did not pay $38,000 in taxes that were due.
Ross, who is currently on bond, must pay fines of up to $250,000 for her wire fraud conspiracy and up to 20 years in prison and $100,000 on the count of income tax evasion and five years of prison. Her counterpart was also fined $250,000 and up to five years in prison and will be awaiting her scheduled sentence date in September.
Tax time can be unnerving and frightening, if you fear you may be audited or would like to volunteer something to the IRS, don’t hesitate to contact an experienced lawyer who may be able to diffuse a potential tax fraud case.
What’s Under the Innocent Spouse Umbrella?/in Innocent Spouse Doctrine /by John McDuff
The Innocent Spouse Rule (form 8857) is meant to be relief from any tax liability that you become aware of for which you believe only your spouse or former spouse should be held.
Previously, one had to act quickly about such concerns because there was a two year statute of limitations on such filings. But oftentimes the only way you may become aware of such a liability is by either the IRS examining your tax return and proposing to increase your tax liability, or the IRS sending you a notice.
The innocent spouse is a taxpayer who did not know or have reason to know that his or her spouse understated or underpaid the couple’s tax liability. Under the Innocent Spouse umbrella are three types of spousal relief – the innocent spouse provision, separations of liability, and the removal of the two-year limit (in some cases.)
In order to qualify, one must meet several qualifications, one of which being that you have to establish that at the time you signed a joint return, you had no reason to know that there was an understatement of tax.
Under the separation of liability, the IRS essentially allows the innocent spouse to pay the taxes he or she is responsible for and then pursue the other spouse (or former spouse) for their understatement of tax, including interest and penalties.
If one does not qualify under either of the first two provisions, you may try for equitable relief, which is kind of the safety net provision allowing the IRS to consider other factors.
The IRS receives about 50,000 innocent spouse requests annually. Approximately 2,000 of the requests filed under the equitable relief provision didn’t fall under the two-year period. The IRS did change that law though, so that equitable relief requests can no longer be denied based on the two-year limit.
The Facts on FATCA/in Tax Fraud /by John McDuff
FATCA, or the Foreign Account Tax Compliance Act, is a tool by which the government will keep tabs on those placing money in foreign banks to avoid paying taxes on the full amount of their wealth. While some see this as a necessity, feeling that putting money in accounts over seas is unacceptable, some will see it as an intrusive measure by the U.S. government in getting involved into the legal affairs of sovereign states and as an invasion of privacy. Either way you look at it, FATCA isn’t going away.
The average taxpayer in this country doesn’t spend much time thinking on these things because it’s only a very small percentage of the population who have this kind of cash to move around. But the implications are actually quite far reaching and could affect banks and other foreign financial institutions globally, if they have clients in the U.S.
FATCA came about as part of the Hiring Incentives to Restore Employment (HIRE) Act which came into being in March of 2010. Its intent was to ensure the U.S. tax authorities would obtain information on financial accounts held by taxpayers, as well as foreign companies in which taxpayers hold a substantial ownership interest, at foreign financial institutions (FFIs). Failure by FFIs to report information would result in a requirement to withhold 30% tax on US-source income.
According to Emily S. McMahon, Acting Assistant Secretary for Tax Policy, “When taxpayers overseas avoid paying what they owe, other Americans have to bear a disproportionate share of the tax burden.” Therefore, McMahon says, “FATCA is an important part of the U.S. government’s effort to address that issue, and these regulations implement FATCA in a way that is targeted and efficient. We believe these efforts will serve as a complement and catalyst to the ongoing global efforts to combat offshore tax evasion.”
See full article here.
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