The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.
On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.
To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.
“We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”
Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.
First-Time Homebuyer Credit
The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. The home purchase must close before Dec. 1, 2009, to qualify, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.
Different rules apply for homes bought in 2008.
Full details and instructions are available on the official IRS Web site: http://www.irs.gov
Showing posts with label fraud. Show all posts
Showing posts with label fraud. Show all posts
Wednesday, July 29, 2009
Saturday, September 27, 2008
Avoiding IRS Penalties
The Internal Revenue Code imposes many different kinds of penalties, ranging from civil fines to imprisonment for criminal tax evasion.
If you do not file your return and pay your tax by the due date, you may have to pay a penalty. You may also have to pay a penalty if you substantially understate your tax, understate a reportable transaction, file an erroneous claim for refund or credit, or file a frivolous tax submission. If you provide fraudulent information on your return, you may have to pay a civil fraud penalty.
Penalties are generally payable upon notice and demand. Penalties are generally assessed, collected and paid in the same manner as taxes. The notice will contain the name of the penalty, the applicable code section, and how the penalty was computed (or information on how to obtain the computation if not included).
Estimated Tax-Related Penalties
Employees have taxes withheld from their paychecks by their employer. When you have income that is not subject to withholding you may have to make estimated tax payments during the year.
This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount being withheld from your salary, pension, or other income is not enough to pay your tax liability.
Estimated tax payments are used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may have to pay a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.
Penalties for filing or paying taxes late
The most common penalties are for filing late or paying taxes late.
Filing late: If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).
If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your return.
Paying tax late: You will have to pay a failure-to-pay penalty of ½ of 1 percent (0.5 percent) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic six-month extension of time to file period if you paid at least 90 percent of your actual tax liability on or before the original due date of your return and pay the balance when you file the return.
The failure-to-pay penalty rate increases to a full 1 percent per month for any tax that remains unpaid the day after a demand for immediate payment is issued, or 10 days after notice of intent to levy certain assets is issued.
For taxpayers who filed on time, the failure-to-pay penalty rate is reduced to ¼ of 1 percent (0.25 percent) per month during any month in which the taxpayer has a valid installment agreement in force.
Combined penalties: For any month both the penalty for filing late and the penalty for paying late apply, the penalty for filing late is reduced by the penalty for paying late for that month, unless the minimum penalty for filing late is charged.
Accuracy Related Penalties
The two most common accuracy related penalties are the "substantial understatement" penalty and the "negligence or disregard of the rules or regulations" penalty. These penalties are calculated as a flat 20 percent of the net understatement of tax.
Penalty for substantial understatement
You understate your tax if the tax shown on your return is less than the correct tax. The understatement is substantial if it is more than the larger of 10 percent of the correct tax or $5,000for individuals. For corporations, the understatement is considered substantial if the tax shown on your return exceeds the lesser of 10 percent (or if greater, $10,000) or $10,000,000.
You may avoid the substantial understatement penalty if you have substantial authority for your tax treatment of the item or through adequate disclosure. To avoid the substantial understatement penalty by adequate disclosure, you must properly disclose the position on the tax return and there must at least be a reasonable basis for the position.
To properly disclose the position, complete and attach IRS Form 8275 to your tax return and disclose all relevant facts. A reasonable basis is one that has approximately 10 percent or greater chance of success if challenged. This means that the position must be more than just arguable. There must be some authority supporting the position.
Penalty for negligence and disregard of the rules and regulations
"Negligence" includes (but is not limited to) any failure to: make a reasonable attempt to comply with the internal revenue laws exercise ordinary and reasonable care in preparation of a tax return or keep adequate books and records or to substantiate items properly
This penalty may be asserted if you carelessly, recklessly or intentionally disregard IRS rules and regulations - by taking a position on your return with little or no effort to determine whether the position is correct or knowingly taking a position that is incorrect. You will not have to pay a negligence penalty if there was a reasonable cause for a position you took and you acted in good faith.
Civil Fraud penalty
If there is any underpayment of tax on your return due to fraud, a penalty of 75 percent of the underpayment due to fraud will be added to your tax. The fraud penalty on a joint return does not apply to a spouse unless some part of the underpayment is due to the fraud of that spouse.
Negligence or ignorance of the law does not constitute fraud.
Typically, IRS examiners who find strong evidence of fraud will refer the case to the Internal Revenue Service Criminal Investigation Division for possible criminal prosecution. Keep in mind that both civil sanctions and criminal prosecution may be imposed.
Frivolous Tax Return penalty
You may have to pay a penalty of $5,000 if you file a frivolous tax return or other frivolous submissions. If you jointly file a frivolous tax return with your spouse, both you and your spouse each may have to pay a penalty of $5,000. A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect.
You will have to pay the penalty if you filed this kind of return or submission based on a frivolous position or a desire to delay or interfere with the administration of federal tax laws. This includes altering or striking out the preprinted language above the space provided for your signature.
This penalty is added to any other penalty provided by law.
Penalty for bounced checks
If you write a check to pay your taxes and the check bounces, the IRS may impose a penalty. The penalty is either 2 percent of the amount of the check - unless the check is under $1,250, in which case the penalty is the amount of the check or $25, whichever is less.
The bottom line is that you must report all your income, file your return and pay your tax by the due date to avoid interest and penalty charges.
For more information about IRS notices and bills, refer to Publication 594 (PDF), Understanding the Collection Process. More information about penalty and interest charges is contained in Chapter 1, Filing Information, of Publication 17, Your Federal Income Tax.
Additional Resources:
Tax Topic 653 - IRS Notices and Bills, Penalties and Interest Charges
Filing Late and/or Paying Late: Information You Should Know
Haven't Filed a Tax Return? Here's What to do
Receiving a Bill From the IRS
Electronic Federal Tax Payment System (EFTPS)
Installment Agreements
What is an Offer in Compromise?
Temporary Delay
The Electronic IRS: File, Pay....and More
If you do not file your return and pay your tax by the due date, you may have to pay a penalty. You may also have to pay a penalty if you substantially understate your tax, understate a reportable transaction, file an erroneous claim for refund or credit, or file a frivolous tax submission. If you provide fraudulent information on your return, you may have to pay a civil fraud penalty.
Penalties are generally payable upon notice and demand. Penalties are generally assessed, collected and paid in the same manner as taxes. The notice will contain the name of the penalty, the applicable code section, and how the penalty was computed (or information on how to obtain the computation if not included).
Estimated Tax-Related Penalties
Employees have taxes withheld from their paychecks by their employer. When you have income that is not subject to withholding you may have to make estimated tax payments during the year.
This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount being withheld from your salary, pension, or other income is not enough to pay your tax liability.
Estimated tax payments are used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may have to pay a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.
Penalties for filing or paying taxes late
The most common penalties are for filing late or paying taxes late.
Filing late: If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).
If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your return.
Paying tax late: You will have to pay a failure-to-pay penalty of ½ of 1 percent (0.5 percent) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic six-month extension of time to file period if you paid at least 90 percent of your actual tax liability on or before the original due date of your return and pay the balance when you file the return.
The failure-to-pay penalty rate increases to a full 1 percent per month for any tax that remains unpaid the day after a demand for immediate payment is issued, or 10 days after notice of intent to levy certain assets is issued.
For taxpayers who filed on time, the failure-to-pay penalty rate is reduced to ¼ of 1 percent (0.25 percent) per month during any month in which the taxpayer has a valid installment agreement in force.
Combined penalties: For any month both the penalty for filing late and the penalty for paying late apply, the penalty for filing late is reduced by the penalty for paying late for that month, unless the minimum penalty for filing late is charged.
Accuracy Related Penalties
The two most common accuracy related penalties are the "substantial understatement" penalty and the "negligence or disregard of the rules or regulations" penalty. These penalties are calculated as a flat 20 percent of the net understatement of tax.
Penalty for substantial understatement
You understate your tax if the tax shown on your return is less than the correct tax. The understatement is substantial if it is more than the larger of 10 percent of the correct tax or $5,000for individuals. For corporations, the understatement is considered substantial if the tax shown on your return exceeds the lesser of 10 percent (or if greater, $10,000) or $10,000,000.
You may avoid the substantial understatement penalty if you have substantial authority for your tax treatment of the item or through adequate disclosure. To avoid the substantial understatement penalty by adequate disclosure, you must properly disclose the position on the tax return and there must at least be a reasonable basis for the position.
To properly disclose the position, complete and attach IRS Form 8275 to your tax return and disclose all relevant facts. A reasonable basis is one that has approximately 10 percent or greater chance of success if challenged. This means that the position must be more than just arguable. There must be some authority supporting the position.
Penalty for negligence and disregard of the rules and regulations
"Negligence" includes (but is not limited to) any failure to: make a reasonable attempt to comply with the internal revenue laws exercise ordinary and reasonable care in preparation of a tax return or keep adequate books and records or to substantiate items properly
This penalty may be asserted if you carelessly, recklessly or intentionally disregard IRS rules and regulations - by taking a position on your return with little or no effort to determine whether the position is correct or knowingly taking a position that is incorrect. You will not have to pay a negligence penalty if there was a reasonable cause for a position you took and you acted in good faith.
Civil Fraud penalty
If there is any underpayment of tax on your return due to fraud, a penalty of 75 percent of the underpayment due to fraud will be added to your tax. The fraud penalty on a joint return does not apply to a spouse unless some part of the underpayment is due to the fraud of that spouse.
Negligence or ignorance of the law does not constitute fraud.
Typically, IRS examiners who find strong evidence of fraud will refer the case to the Internal Revenue Service Criminal Investigation Division for possible criminal prosecution. Keep in mind that both civil sanctions and criminal prosecution may be imposed.
Frivolous Tax Return penalty
You may have to pay a penalty of $5,000 if you file a frivolous tax return or other frivolous submissions. If you jointly file a frivolous tax return with your spouse, both you and your spouse each may have to pay a penalty of $5,000. A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect.
You will have to pay the penalty if you filed this kind of return or submission based on a frivolous position or a desire to delay or interfere with the administration of federal tax laws. This includes altering or striking out the preprinted language above the space provided for your signature.
This penalty is added to any other penalty provided by law.
Penalty for bounced checks
If you write a check to pay your taxes and the check bounces, the IRS may impose a penalty. The penalty is either 2 percent of the amount of the check - unless the check is under $1,250, in which case the penalty is the amount of the check or $25, whichever is less.
The bottom line is that you must report all your income, file your return and pay your tax by the due date to avoid interest and penalty charges.
For more information about IRS notices and bills, refer to Publication 594 (PDF), Understanding the Collection Process. More information about penalty and interest charges is contained in Chapter 1, Filing Information, of Publication 17, Your Federal Income Tax.
Additional Resources:
Tax Topic 653 - IRS Notices and Bills, Penalties and Interest Charges
Filing Late and/or Paying Late: Information You Should Know
Haven't Filed a Tax Return? Here's What to do
Receiving a Bill From the IRS
Electronic Federal Tax Payment System (EFTPS)
Installment Agreements
What is an Offer in Compromise?
Temporary Delay
The Electronic IRS: File, Pay....and More
Wednesday, January 30, 2008
Timing of Snipes Trial Couldn't Be Better for IRS
http://www.cnn.com/2008/CRIME/01/29/snipes.trial.ap/index.html
OCALA, Florida (AP) -- Even Hollywood couldn't have written a more ideal script for the Internal Revenue Service than actor Wesley Snipes' tax-fraud trial.At a time when millions of Americans are buckling down to prepare their taxes, Snipes is being cast as a villainous example of the dangers of joining with Internet-fueled activists who claim the IRS has no authority to collect taxes.Snipes, the star of the "Blade" films and "White Men Can't Jump," is on trial with two tax protesters in one of the biggest criminal cases in IRS history, and the agency hopes the media attention on the matter will dissuade others in the "tax avoidance" movement from trying to outwit the government."
People who do it openly and notoriously, you've got to go after them," said Sheldon Cohen, who was IRS commissioner and general counsel in the 1960s. "Not because he's that important or the amount of money is that important, but because there are others who may be foolish enough to follow."
Snipes, 45, could get up to 16 years in prison if convicted on all counts, although sentences that long are unusual.His two co-defendants are an anti-tax ideologue who refuses to defend himself in court and an accountant who lost his licenses. The trio rested their defense Monday without calling any witnesses, saying they didn't need to."Nobody likes paying taxes, but paying taxes is the price we pay to live in a civilized society,"
Assistant U.S. Attorney M. Scotland Morris said Tuesday in closing arguments. "And it's the law, and that's what this case is about. It's about three men who felt they were above the law."Defense attorney Robert Barnes conceded Snipes' arguments may have been crazy, but insisted that didn't make them criminal."Disagreement with the IRS is not fraud of the IRS, is not deception," Barnes said. "It was an attempt to engage the IRS, to go through the IRS procedures and processes and see who's right."In lengthy filings to the IRS, the three defendants claimed they did not legally have to pay taxes, citing an obscure section of the tax code that establishes that foreign sources of income for U.S. citizens are taxable.
Protesters take that to mean only foreign sources are taxable, and wages made in this country are not."They string unconnected things together in a way that they're just not intended to be strung together," said Chris Rizek, a former Treasury Department lawyer who specialized in tax policy. "And the courts have repeatedly said 'No, that's the wrong interpretation, listen to this.' And they just don't listen."Snipes, who is free on $1 million bond, was paying millions in federal income taxes until 2000 when, according to prosecutors, he accepted the arguments of his two co-defendants.
Snipes then began seeking nearly $12 million in illegal refunds for taxes he already paid.Snipes, alleged ringleader Eddie Ray Kahn and former CPA Douglas P. Rosile were indicted on eight counts alleging tax fraud, conspiracy and willful failure to file returns. Kahn now refuses to leave his jail cell because he believes the court has no jurisdiction to prosecute him.The government says Kahn founded a group in the 1990s, American Rights Litigators, and a successor group, Guiding Light of God Ministries, that purported to help members legally avoid paying taxes. Rosile, a former accountant who lost his licenses in Ohio and Florida, prepared the paperwork.
Snipes joined their group in 2000.Witnesses for the prosecution have said up to 4,000 people refused to pay taxes based on the group's arguments.
The three men claimed the IRS is not a legitimate government agency. Snipes also argued in long, bizarre letters that he was a nonresident alien; that the IRS terrorizes and deceives citizens; and that efforts to prosecute him would cause "increased collateral risk."Most tax cases are handled in civil court, because the IRS does not have enough agents or time to pursue criminal charges against ordinary taxpayers who fudge a deduction or a decimal place on their tax returns.But pursuing the matter in criminal court carries other risks -- the burden of proof is higher, and an acquittal would instantly galvanize the tax-avoidance movement, which already enjoys boundless exposure on the Internet.The IRS has been successful in pursuing criminal cases against the movement's followers.
Last year, for example, a New Hampshire tax protester vowed to die fighting rather than be apprehended following criminal conviction on several tax charges. Several people were arrested trying to help Ed Brown and his wife avoid capture, and almost all of them were from other states.Brown and his wife were taken peacefully, but only after agents tricked the couple into surrender.
But there are exceptions. In 2003, FedEx pilot and tax protester Vernice Kuglin was acquitted because the jury found she sincerely believed she didn't have to pay taxes.Kuglin's assets were seized, and the government got its tax money.
Despite that, her case is held by some protesters as proof that the IRS is a sham, and citizens really don't have to pay taxes.Cohen, the former IRS commissioner, said trials like Snipes' are important to discourage potential tax scofflaws from defying the government."Locks are important on windows to keep honest men from becoming thieves," Cohen said. "Because a thief can get into a window even if it's locked, right? But you do that as a deterrent."
Thursday, November 1, 2007
Does the "Tax Man" need a Resolution Service?
When I opened my email at work today, there was an article from one of our Ex-IRS agents regarding a scheme to defraud the Federal Government by a federal IRS employee. Wonder if the Tax Man will need the services of a tax resolution service such as Effectur, Inc?
THURSDAY, APRIL 26, 2007
FORMER IRS DISTRICT DIRECTOR PLEADS GUILTY TO $1.3 MILLION TAX FRAUD
WASHINGTON – A former Internal Revenue Service (IRS) district director, pleaded guilty today to conspiring to defraud the United States through his involvement in a tax fraud scheme promoted by the Topeka, Kansas-based “Renaissance, The Tax People, Inc.,” the Justice Department and the Internal Revenue Service announced. During a hearing before U.S. District Judge Carlos Murguia in Kansas City, Kan., Jesse Ayala Cota admitted defrauding the U.S. Treasury of more than $1.3 million and to earning more than $300,000 from his participation in the scheme.
Cota, 65, of Vista, Calif., admitted in his plea agreement that from 1997 though April 2002, the conspirators, through Renaissance, operated a scheme to defraud the government and individuals by marketing a program designed to sell illegal tax deductions through false and misleading representations. His co-conspirators, Todd Eugene Strand and Daniel Joel Gleason, previously pleaded guilty to the same fraudulent scheme. Additionally, Cota admitted that during his participation in the conspiracy, those involved prepared or had others prepare false federal income tax returns resulting in a tax loss of approximately $1.3 million.
“The Justice Department’s Tax Division has made it a priority to stop tax fraud schemes by identifying, investigating and prosecuting those who promote them and those who use them,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “These schemes are a fraud on the federal Treasury, and an insult to all who pay the taxes the law requires.”
Cota also admitted that he and his co-conspirators falsely assured their clients and others that Renaissance’s tax system was legal. Cota acknowledged that on Oct.16, 2000, a co-conspirator sent an e-mail message to customers falsely asserting that there existed written endorsements from “over 2,000 tax attorneys, enrolled agents and CPAs (certified public accountants) that every strategy contained in the Tax Relief System is absolutely sound, unassailable and proven over the past 40 years.” The e-mail also falsely claimed that “[t]he
training offered by Renaissance, the Tax People, through the Tax Relief System . . . was approved for continuing education credit for CPAs in all 50 states.”
“Mr. Cota was the director of Renaissance’s so-called ‘Tax Dream Team,’” said Eric Melgren, U.S. Attorney for the District of Kansas. “Renaissance used Cota’s credentials as a former district director for the Internal Revenue Service to lend the tax fraud scheme legitimacy and to induce people to join and to remain members.”
Renaissance used Cota’s IRS credentials, including his prior service as District Director, to induce people to join Renaissance, to assuage their concerns, and to keep them as members.
“This is an example of someone implying he has ‘insider information’ to help others enrich themselves by buying into his bogus tax avoidance system. However, what he sold was long-term legal and financial problems for those who bought his advice,” said IRS Criminal Investigation Chief Eileen C. Mayer. “Don’t be misled by promises of some secret path known only to insiders that is supposed to lead you to freedom from paying income taxes. There is no such path and there are no such secrets.”
Today’s plea brings the number of individuals who have pleaded guilty to felony charges in this and other Renaissance-related cases to seven, including Strand, Gleason, Thomas Steelman, Frankie Ruth, Elizabeth Crotts, and Alexander Federico.
Cota faces a potential maximum sentence of five years in prison followed by up to three years of supervised release, a $250,000 fine, and liability for the costs of prosecution. U.S. District Judge Carlos Murguia scheduled sentencing for January 2008. This case was investigated by the Internal Revenue Service, Criminal Investigation Division and the U.S. Postal Inspection Service.
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