IRS Q&A TIME

Question: I just received a letter form the IRS informing me they want to audit my 2014 income tax return. I really didn’t need this right now. What should I do?

Answer: First, take a deep breath knowing there is expert help available to you. As part of the IRS’s audit process they’ll ask you dozens of very innocent sounding questions, however many of these can be invasive as well as intrusive.  The answers to which can “seal” your fate with the IRS auditor. But there is a “right way” to answers these questions. The IRS’s mission is to determine the accuracy of your tax return and they will leave no stone unturned to accomplish this.  We have found that many taxpayers who decide to handle an IRS audit themselves wind up with a substantial bill owing the IRS thousands of dollars. Auditors are trained to obtain information from you that in a lot of cases is not required under the law. They get away with this because most people fear them and don’t know their rights.

Our clients generally NEVER meet or speak with the IRS. We handle everything for you so you don’t have to take time away from your job or business to deal with all of the IRS’s paperwork. Simply forward your audit letter to us and we’ll handle the rest.   Don’t let them walk all over you. We know the law.  We know your rights. We can help!

Delivery Business Owner Gets a Package from the IRS

David B. Schmitt of North Tonawanda, NY was sentenced to 30 months in prison and ordered to pay $748,459 in restitution for his conviction of tax evasion.

Schmitt, who operated three delivery businesses, attempted to evade payment of a large part of federal employment taxes by filing false forms with the IRS, having nominees open bank accounts to conduct business for the corporation and creating fraudulent trusts for the corporation.

Pizza Store Owners Fail to Report a lot of “Dough” to the IRS

Charles and Mary Bangle, owners of a popular pizza restaurant chain, who reside in Ocean City, NJ, both pled guilty to tax evasion.  Charles pled guilty to structuring transactions to avoid reporting requirements to his 2010 personal tax returns.  His wife, Mary Bangle, pled guilty to knowingly making false statements to IRS special agents.

Charles Bangle admitted in court to failing to report income he deposited in cash in his personal bank account.  On his 2010 tax return, he listed his income as $127,955 and omitted additional income of $263,113, thereby avoiding an additional $91,577 in taxes. Bangle also admitted to making cash deposits of in increments of less than $10,000 to prevent the bank reporting the deposits to U.S. Department of Treasury (known as structuring).

In court, Mary Bangle admitted she lied to special agents of the amount of cash she deposited into her personal bank account.

Charles Bangle was sentenced to 15 months in federal prison, three years supervised release and ordered to pay $248,560 in restitution and fined $5,000.  Mary Bangle was sentenced to three years probation and fined $3,000.

What is a John Doe Summons?

Federal law requires U.S. taxpayers to pay income tax on all earnings worldwide.  U.S. taxpayers are also required to report to the IRS any foreign financial accounts if the value of those accounts exceeds $10,000 at any time in a calendar year.

U.S. taxpayers seeking to hide their assets in offshore accounts can use the services of companies that open foreign accounts, create false corporations or other entities and serve as nominee officers.

In order to obtain a list of customers who use these companies, the IRS issues a John Doe summons, which allows the IRS to get the names of all taxpayers in a certain group.

One company that received an IRS John Doe summons was Sovereign Management & Legal (SML), a Panamanian company run by Michael Behr of Bozeman, MT. It’s alleged that SML advertises several different “packages” which allow taxpayers to hide assets offshore.  One of these “packages” includes creating corporations owned by other entities (including fake charitable foundations), which are all held in the name of the nominee officers of SML.  SML then opens bank accounts for these entities and provides debit cards in the name of the nominee to the taxpayer. By using these debit cards, the taxpayer can access their funds without revealing their identity.

Dentist Gets Drilled by the Federal Court

A Washington state couple, dentist Dr. James Hood,  and his wife, Karen Hood were found in contempt from a Federal Court for violating a previous permanent injunction requiring them to file payroll tax returns and pay payroll taxes in a timely manner.

The Court previously entered a permanent injunction against the Hoods and their entities to comply with federal employment laws.

The Court found the Hoods in contempt for showing a consistent pattern of disregarding their tax obligations by making incomplete employment tax payments, making dishonored payments and missing deadlines. The Hood’s failed to pay their taxes for the fourth quarter 2016 by the end of January 2017.  They also found that the Hoods attempt to make payroll tax payments were dishonored due to insufficient funds in their accounts.

As a result, the Court ordered the Hoods to close their dental business, cease operating as employers and barred them from opening any new businesses where they would serve as employers.

Owner of Iceoplex Skates on Thin Ice with the IRS

A tax attorney from Pittsburgh, PA and co-owner of the Iceoplex recreational sports facility, Steven Lynch, was sentenced to 48 months in prison for failing to collect, account for and pay over employment taxes to the IRS.

From 2012 to 2015, Lynch controlled the finances for the business and withheld more than $790,000 from the wages of his employees but failed to turn those funds into the Internal Revenue Service.

According to Principal Deputy Assistant Attorney General, Caroline Ciraolo, “Business owners and operators who choose not to pay over to the United States that they withheld from their employee’s wages are stealing from the U.S. Treasury and should plan on facing prosecution and incarceration.”

In addition to his prison sentence, Lynch will serve three years supervised release, pay $793,145 in restitution and a $75,000 fine.

If you owe payroll or employment taxes, it is important to contact an attorney to see whether you may be prosecuted.  The IRS is cracking down on employment taxes – shutting businesses down and even prosecuting the liable parties.

Talk to Your Adult Children About Tax Scams

Many twenty-somethings are just filing their tax returns for the very first time.  Unless they are informed about how the IRS works, they could easily fall victim to the IRS phone scam.

Let your children know that the IRS will NEVER contact them by phone.  If there is an issue with their tax return, the IRS will send a notice in the mail.  If your child does receive a call, tell them to not share any information, or answer any questions, but to promptly hang up—no matter how threatening the person on the other end sounds.

The IRS Puts the Brakes on “Denson’s Fast Tax Services”

A tax preparer from New Orleans, LA, Tiga Bryant, was named in a civil suit filed by the US to bar her from preparing tax returns as they were found to be fraudulent.

In the suit, the government claims Bryant attempted to fraudulently reduce her customer’s tax liabilities by claiming bogus deductions, false fuel tax credits and non-existent business expenses. In one instance, she claimed more business expenses than the wages the client earned.

Fraud involving the fuel tax credit was one of the IRS’s Dirty Dozen Tax Scams for 2016.  The fuel tax is limited to off-highway business use and not generally available to most taxpayers.  In one return, Bryant claimed her client used 2,500 gallons of fuel for off-highway business when the customer did not even own a vehicle.

Of the 197 tax returns Bryant prepared that were audited, it was found that 189 returns had false deductions and/or credits that her clients were not entitled to, and understated the tax liability by over $800,000.

IRS Audit Appeals: “Hazards of Litigation”

Most often when we are engaged to represent a taxpayer in an audit we are able to achieve a fair and  accurate assessment.  That the entire goal of an audit – to determine the actual tax liability due.  However, we sometimes encounter a situation in which we are either dealing with an overzealous Revenue Agent, or the Revenue Agent fails to comport with our understanding of the facts and laws surrounding the audited items.

Thus said, we sometimes are forced to appeal their assessment.  When dealing with the Appeals Officer they can settle based either upon an analysis and application of the facts and/or law, or due to “hazards of litigation.”  In our experience most cases are settled according to the “facts and law” approach.  Under this method, the appeals officer will review the facts of the case, potentially gather more facts or date, and apply the law to those facts in order to reach a decision.  However, in certain rare situations a settlement can be achieved through the “hazards of litigation” approach.  This method is solely described as:

“A fair and impartial resolution is one which reflects on an issue-by-issue basis the probable result in event of litigation, or one which reflects mutual concessions for the purpose of settlement based on relative strength of the opposing positions where there is substantial uncertainty of the result in event of litigation.”

In applying this method the Appeals Officer will determine whether the taxpayer may have a successful outcome in Tax Court.  If so, they are more willing to settle the claims.  In our opinion the reason for doing so is such that the IRS does not want to create bad case law – for the government.  The vast majority of current Tax Court case law is unfavorable to taxpayers.  The reason being is that taxpayers often make their appeals either with unfounded arguments, or on a pro se basis, where they are unable to fully articulate their argument before the Court.

A Sovereign Citizen Loses His Sovereignty

Harold Stanley of Peculiar, Missouri, is yet another individual who tried, but failed, to declare himself a sovereign citizen in order to avoid paying taxes.  Stanley, 62, was a consulting electrical engineer who refused to pay any federal income tax on his income.  From 2005 to 2009, Stanley received $971,604 in his capacity as an independent contractor.  From 2007 through 2009, he filed correct tax returns bu failed to submit payment.  Then, starting in 2010, Stanley filed to file a tax return.

The IRS wasn’t interested in debating his sovereign citizen claim, which asserts that he inst subject to government statutes and that he gets to interpret the common law as he so choose.  Eventually Stanley was arrested for tax evasion and was subsequently convicted of evading taxes in excess of $1 million.

What made matters worse for Stanley was that he submitted fake money orders as payment to the IRS.  He was ultimately sentences to five years in federal prison without parole.

Our firm sometimes encounters those who have some claim that they do not have to pay tax, whether the argument is based off of the sovereign citizen philosophy or some US Supreme Court case from the 1930’s – those “tax protesters” unfortunately have bought into an unfounded claim that will ultimately result in their prosecution.