IRS on the lookout for bogus returns

Former IRS Agents Tell All

The guy who prepared your tax return came through big time. Not only was he cheap, he got you ahuge refund, way more than you expected.

How did he do it? You"d know if you could take a look at your return, the one he had you sign inadvance. That"s odd, you don"t have any kids to deduct. And this company on your W-2 that took outtoo much tax? You never worked there.

The magic was fraud fictional dependents and employers, overstated credits and fake W-2s.

A favorite target of these unscrupulous tax preparers are low-to-moderate wage workers and theearned-income tax credit that benefits them, according to the Internal Revenue Service. By its ownestimate, the IRS said the error rate on earned-income tax credit returns can be as high as 27percent.

In 2014, about $18 billion in overpayments were sent out. Some were unintentional, some werecases of fraud.

For about seven weeks beginning in January 2011, Brandon Hamilton and Kenitha Ferguson operatedthe In and Out tax agency at 1687 Oak St. on the Near East Side. They processed more than 20fraudulent 2010 tax returns, according to a federal indictment. That was enough time to steal$132,000 in undeserved tax refunds, which they split between themselves and their clients,prosecutors said.

Hamilton pleaded guilty last week in U.S. District Court in Columbus to conspiring to defraudthe government. The maximum penalty is 10 years in prison and a $250,000 fine. Ferguson pleaded notguilty and was released on bond.

Prosecutors said In and Out advertised on Facebook, by word of mouth and through recruiters whowere paid to line up customers.

Hamilton might face prison. His clients might face a government lawsuit to recover theoverpayments.

"Each taxpayer is accountable for their own tax return," IRS Special Agent Craig Casserly said."As this case progresses, we would look at all the clients" tax returns."

Dan Brown, an assistant U.S. attorney who prosecutes IRS cases, said, "In the long run, theywill have damaged their clients, and the IRS will go after those clients for the money andpenalties."

The IRS operates "scheme development centers" across the country, where investigators look foranomalies such as an unusually large number of earned-income tax-credit filings in a certain ZIPcode, or from the same preparer, Casserly said.

The agency investigated 266 alleged cases of preparer fraud nationwide in fiscal year 2015. Ofthose, 204 defendants were convicted, and 80 percent of them went to prison. The average prisonterm was 27 months.

The arrest numbers could be higher if the agency had more agents, Casserly said. Congressionalbudget cuts have reduced the ranks almost 14 percent through attrition during the past five years.There are about 2,100 agents for the current fiscal year.

"Still, we are doing a good job of prosecuting these individuals," Casserly said, "and we thinkother people are seeing this and getting out of the (fraud) business."

There are several red flags that honest taxpayers should heed when seeking a preparer, Casserlysaid. Ask them for their required "preparer tax identification number," do not sign a blank returnand check the completed return for accuracy.

And make sure the government refund check is sent to you. If a preparer gets the check, he orshe could skim off some of the refund money for themselves.

"Look at the deductions. Do you actually have kids?" Casserly said. He said he knows of cases inwhich people who didn"t plan to file a return "loaned out" their children"s identities to taxpreparers.

erinehart@dispatch.com

@esrinehart

Source: http://www.dispatch.com/content/stories/local/2016/01/25/irs-on-the-lookout-for-bogus-returns.html

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Here We Go Again IRS Destroys Another Hard Drive

Former IRS Agents Tell All

The Internal Revenue Service appears to have violated a court order once again requiring the preservation of evidence needed by investigators looking into questionable practices at the agency. In a case sure to stir up memories of the Lois Lerner investigation, which saw IRS Commissioner John Koskinen dragged before Congress for multiple hearings, the agency destroyed a computer hard drive belonging to an IRS official connected to the subject of a Congressional query.

Earlier this year, the IRS was ordered by a federal judge to preserve documents including electronic documents that were possibly related to an ongoing dispute between the agency and Microsoft.

Related: New Lerner Emails Mean IRS Targeting Scandal Creeps Closer to DC

The disagreement between the IRS and the software giant centered on compliance with the federal tax code, specifically, the agency was looking into the companys transfer pricing practices. A major concern in establishing the tax liability of multinational corporations, transfer pricing refers to the sale of goods and services between entities that are part of the same corporate structure.

Some companies have been known to illegally reduce their tax liabilities by mispricing the goods and services exchanged between their subsidiaries.

The computer hard drive the IRS destroyed belonged to Samuel Maruca, who oversaw the transfer pricing section at the agencys Large Business and International division.

In the Microsoft case, the software giants attorneys became curious when they were directed to meet with, and in some cases have their clients give depositions before non-IRS attorneys as part of the case.

Related: 32,774 Found IRS Emails Prompt Criminal Probe

The company filed a Freedom of Information Act request, and discovered that the IRS had spent more than $2.5 million on outside legal assistance, often to trial lawyers charging the government $1,000 per hour or more.

The revelation led Microsoft to protest that senior executives from the company ought not to be forced to comply with demands to testify, on the grounds that the private attorneys do not have the legal standing to conduct interviews related to an IRS audit.

A federal judge disagreed, and though he said that the involvement of the outside attorneys was troubling, told the company to comply.

However, while the courts might have sided with the IRS, the Senate Finance Committee and the House Oversight and Investigations Committee were not pleased to learn that the agency, which employs thousands of tax attorneys, spent millions of dollars on outside legal help.

Related: Treasury IG Finds IRS Destroyed More Lerner Emails

Sen. Orrin Hatch, the Utah Republican who chairs the Senate Finance Committee, wrote to Koskinen in May, noting, The IRS has over 40,000 employees dedicated to enforcement efforts, including more than 36,000 tasked specifically with exams and collections. If none of these employees, nor IRS Office of Chief Counsel or Department of Justice tax attorneys, have sufficient expertise to undertake the examination at hand, we should have a broader conversation about your agencys hiring practices and recruitment needs.

Hatch also challenged the idea that it was acceptable to allow non-government attorneys to participate in the audit of a private firm.

Unlike private contractors, Treasury Department officials are required to swear an oath to the Constitution and are subject to rules of conduct and federal law regulating their interactions with taxpayers. Turning over inherently government functions such as the conduct of an examination to private contractors not only jeopardizes the rights of taxpayers, but also confuses the examination process and changes the well-regulated relationship between revenue examiners and private taxpayers.

The revelation that the agency had destroyed a hard drive that Congressional investigators viewed as central to an ongoing inquiry infuriated House Oversight and Investigations Committee Chairman Jason Chaffetz (R-Utah).

Related: IRS Stirs Up New Crisis With Non-Profits Over Social Security Numbers

In a letter to Koskinen last week, co-signed by Ohio Rep. Jim Jordan, he wrote, It is stunning to see that the IRS still does not take reasonable care to preserve documents that it is legally required to protect, and demanded information related to the agencys document retention policies.

In a line that seems to presage further uncomfortable Congressional hearings for Koskinen, they also wrote, The destruction of evidence subject to preservation orders and subpoenas has been an ongoing problem under your leadership at the IRS.

Source: http://www.thefiscaltimes.com/2016/01/25/Here-We-Go-Again-IRS-Destroys-Another-Hard-Drive

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