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.

IRS Secret: They don’t want to seize your assets

The IRS often sends notices to delinquent taxpayers threatening to seize their assets, however this is actually somewhat uncommon.  Now the term asset is up for deliberation.  They will absolutely levy your bank account or garnish your wages without the blink of an eye.  Those “assets” are the low hanging fruit.

The assets they often do not seize are houses, cars, boats, equipment, etc.  The reason why they rarely seize assets of those kind is such that it can often be difficult for the IRS Agents to move through that process.  In most cases it can be expensive and takes too long.  They need to identify, seize, store and then auction the asset.  The IRS auctions often find less than a fair market value which put you and the IRS at a disadvantage.

The IRS would much rather threaten seizure and have you sell the asset on your terms, but as quickly as possible.  Depending on the asset, the IRS will step in at closing and take the proceeds of the sale.  If the IRS is notifying you that they intend on seizing your assets give us a call to see whether there is an alternative strategy worth exploring.

The History of Income Tax In the United States

The first tax on income was created in 1861 to finance the Civil War. Congress also passed the Internal Revenue Act in 1862 which created the Bureau of Internal Revenue which eventually became the IRS. The Bureau initially placed excise taxes on goods ranging from tobacco to jewelry, but it did not last and wasn’t renewed in 1872. The Revenue Act also created a federal estate and gift tax. After the end of the Civil War, the estate and gift tax was reversed but to raise money for the Spanish-American War, in 1898 another death tax was enacted.

Congress passes the Wilson-Groman tariff in 1894, which was a tax on income of 2% for earnings over $4,000, but the Supreme Court overturned the tax the following year.
In 1913, the 16th Amendment was ratified to the Constitution which granted the power for Congress to collect taxes on personal income.

The first IRS form was the 1040, which is still in use today but is re-issued annually. A test run was conducted where people sent in their forms to the bureau to check for accuracy but did not have to pay any tax. In 1915, Congress expressed concerns that the 1040 form was complex and too difficult to prepare!

Staff Director for Homeland Security Tries to be Sneaky

Issac Avant, a former Congressional Staffer was sentenced to 4 months in prison and ordered to pay $149,962 restitution for failing to file an individual tax return from 2009 to 2013.  Avant also had no federal income tax withheld, filing a form with his employer claiming he was exempt from federal income taxes.

 

 

 

 

 

 

 

I’d Like to Hear From You!

If you have an IRS issue, or just want to refer a friend, relative or client, we’d love to hear from you.  We can provide a no-obligation confidential consultation to help you solve you IRS problems.˂˂Your information goes here˃˃

Attorney-Client Privilege for Accountant: Kovel Letter

Attorney-client privilege affords taxpayers great relief when dealing with the IRS.  Communications between a taxpayer and their attorney are privileged and are non-discoverable to the IRS or any other taxing agencies.  Accountants however do not hold such a privilege.  Statements, denouements or omissions given to your accountant (whether CPA or EA) are open to discovery; meaning that the IRS can compel them to divulge those potentially incriminating secrets.

The Kovel letter, named after United States v. Kovel, enables an attorney to hire an accountant to prepare your returns and brings them under the attorney-client privilege umbrella.  Kovel is premised upon the notion that the accountant’s communications were “made in confidence for the purpose of obtaining legal advice from the lawyer.”  See United States v. Adlman.  Thus said, in order to effectively retain the Kovel, the accountants communications should be addressed directly to the attorney.

What the IRS doesn’t want you to know

Giving too much information to the IRS can often cause more harm than good.  We often speak with Taxpayers who just want to speak with the IRS one last time before retaining us to see whether they can work out a deal.  After they cannot get a favorable or manageable negotiation they then come to us for help.  Every IRS employee is trained to elicit as much information from you as possible.  This works to your disadvantage.

One of the benefits of retaining a Tax Attorney is such that we handle all IRS communications; and all of our discussions are covered under attorney-client privilege.  If you were to hire a CPA or EA to represent you, there is no privilege.  This means that any information they know about or that you share with them is open to IRS discovery.

If you find yourself in a precarious position which may lead a potential criminal tax matter, there is a substantial benefit to hiring a Tax Attorney.  In fact, we are often retained by clients whose tax liabilities have emerged into criminal proceedings.  From there, a CPA or EA is of little help to you.

Your IRS Questions Answered Here…

Question: I’m currently separated from my spouse, who owns his own business, and we are in the process of getting a divorce.  I have always filed jointly with my spouse and now the IRS is sending me notices stating I owe $35,000.  I have no idea how they are coming up with this amount as my spouse said he was paying the IRS.

 

Answer:  You may be able to avoid this liability entirely under the IRS’s Innocent Spouse Relief rules.  Under federal law if an income tax return is signed by both husband and wife, both spouses are 100% responsible for the taxes owed.  However, the law permits special consideration where a spouse cannot be held responsible for mistakes that are attributable to the other spouse.

If you meet the following criteria you may be able to apply for innocent spouse relief:  Your spouse didn’t report all their income; and you were not aware of it and no reason to know about it when you signed the tax return; and it would be unfair to hold you liable for the taxes owed due to your spouse’s error. If you feel you were deceived by your spouse or tricked into signing a return you thought was correct this will help your case too.  There are many other ways you may be eligible for relief under the IRS’s innocent spouse rules and we can help sort this out and determine the proper path for resolution.