Category Archives: Individual Tax

IRS Fraud: The Whopping $21 Billion Fraud on the IRS

IRS Fraud: The Whopping $21 Billion Fraud on the IRS

In 2014, the IRS was subject of a $6.5 Billion fraud. Some reports say it was bigger. What is this IRS fraud? It’s called tax refund fraud and it’s quite simple really. Fraudsters obtain large lists of taxpayers’ names and social security numbers (from where, who knows? the dark web?). Then they electronically file false tax returns with the IRS claiming tax refunds. The problem has become so big for the IRS, and lucrative for criminals, that the fraud is expected to reach a whopping $21 Billion in 2016.

I can tell you from personal experience as a tax attorney that the fraud is very difficult to detect and prove. Aside from a list of identities, a criminal needs little more than a laptop and internet connection to perpetrate the fraud. In more than one case I’ve recently been involved with, the fraudsters have even stolen a legitimate preparer’s identity to process fake refunds.

Perhaps you’re thinking, can’t they track the tax refund checks? Well, yes and no. Imagine that a stolen identity (i.e. someone’s real identity) is used to establish a bank account. Additionally, fraudsters use third party refund companies that offer “refund advances.” Refund advance companies have the ability to issue rapid refunds in the form of pre-paid debit cards.

The IRS has recently issued a statement advising that hackers had stolen more than 700,000 identities from an online tool known as “Get IRS Transcript,” which allowed taxpayers to log in and obtain a copy of their IRS records. Nevertheless, this transcript contained enough information for thieves to file fraudulent returns. Just yesterday (3/26/2016), the IRS announced that it now believes more than 1 Million accounts may have been stolen.

The IRS has taken a significant number of measures to protect the public. Its wage and income division reported it prevented $63 Billion of false refunds from being paid. While admirable, this number demonstrates how pervasive the problem is.

The IRS offers a person who has been subject to identity theft the ability to file an identity theft affidavit, and the IRS will “place a marker on your account to assist with future protection.” The IRS had offered an Identity Theft Protection Pin as a limited pilot program in 2015 and 2016 for residents of Florida, Georgia, and Washington, D.C., whose residents had the highest per capita tax related identity theft. Residents of those states could apply for a unique PIN number issued anually to prevent unauthorized returns from being filed. However, as of March 7, 2016, the IRS suspended the IP PIN online tool because it “is looking at further strengthening the security features on the tool.”

As of January 1, 2012, tax return preparers were required to use IRS e-file, eliminating paper tax returns. Henceforth, the problem has amplified into a hacker’s dream and a $21 Billion IRS problem. As of the writing of this post, the IRS reported a 400% surge in phishing and malware incidents so far this tax season. Finally, threatening phone calls by criminals impersonating IRS agents remain an ongoing threat. The IRS has seen a surge of these phone scams in recent years as scam artists threaten taxpayers with police arrest, deportation, license revocation and more. These con artists often demand payment of back taxes on a prepaid debit card or by immediate wire transfer.

In conclusion, the three biggest problems facing the IRS and taxpayers are (1) identity theft (false tax refunds) (2) email phishing/malware and (3) threatening phone calls, all fraud. I can report from my own experience, at times it seems more than 50% of my clients’ IRS accounts are compromised without them knowing it. Furthermore, I have received several calls from very worried clients and prospective clients who believe the IRS is on the other line claiming they’ve committed tax fraud–and it can be remedied through a quick credit card payment.

If you need so,e assistance in this area, please feel free to call me (786) 464-0403 or visit for more information.

W-2 Deadline January 31

W-2 Deadline Dates To File W-2s

January 31st February 29th* March 31st*
Deadline to distribute Forms W-2 to employee Deadline to file using paper Forms W-2 Deadline to file using Business Services Online

* If this date falls on a Saturday, Sunday or legal holiday, the deadline will be the next business day.

W-2 Deadline Changed as a result of Identity Theft.

Tax information from 104,000 filers was recently stolen. The IRS is paying for credit monitoring for victims. Victims can also apply for identity theft numbers. In a major about face, the IRS indicated it WILL give victims copies of the false returns to help taxpayers assess the damage from the intrusion. ALERT: The IRS and Congress also move up the date for employers to file W-2s with the feds to January 31 from March 31.

Identity Theft Letter.

Potentially impacted individuals are notified of the data loss via Letter 4281C, IM Breach Notification Letter. See IRM (12-02-2014).

Estate Taxes.

Estates wanting to elect portability must timely file an estate tax return, even if not required. Under the portability rule, when one spouse dies, the unused estate and gift tax automatically passes to the surviving spouse. In order to take advantage, file a 706.

High Incomers.

2012 data show: the average tax rate of the top 1% of earners was 22.83%. The top 1% is defined as AGI of at least $434,682. The rate at the top 0.01% was 19.53%. These 13,608 taxpayers had AGI of $12.1 MIL. At the top 0.001; 17.6%. AGI was $62 MIL.

IRS Priorities.

Employee or not employee (independent contractor)? That is the question. Worker misclassification. Labor Dept to get involved. IRS suspects employers near 50 workers will 1099 some to avoid ACA mandate. There is a reduced penalty for voluntarily correcting errors. IRS uses three part test: behavioral, financial, and type-of-relationship.

FBAR: Foreign Bank Accounts: Do You Have unfiled FBARs from prior years? Act Now

FBAR = Foreign Bank Account Report. Do You Have unfiled FBARs from prior years? Act Now.

The Internal Revenue Service (IRS) has Delinquent FBAR Submission Procedures, which an international tax attorney can assist you with.

Taxpayers who do not need to use either the Offshore Voluntary Disclosure Program OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:

  • have not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form TD F 90-22.1),
  • are not under a civil examination or a criminal investigation by the IRS, and
  • have not already been contacted by the IRS about the delinquent FBARs

should file the delinquent FBARs according to the FBAR instructions.

Follow these steps to resolve delinquent FBARS

  • Review the instructions
  • Include a statement explaining why you are filing the FBARs late
  • File all FBARs electronically at the Financial Crimes Enforcement Network or FinCEN
  • On the cover page of the electronic form, select a reason for filing late
  • If you are unable to file electronically, contact FinCEN’s Regulatory Help line at 1-800-949-2732 or 1-703-905-3975 (if calling from outside the United States) to determine possible alternatives to electronic filing.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

FBARs will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.

Tax Refund. How much is my refund? Average IRS Payment is $3,120; what did you get? 1040X…

Tax Refund. How much is my refund? Average IRS Payment is $3,120; what did you get? 1040X…

Imagine This: You’re at work talking to your colleague. She states she got $3,000 in a tax refund check from the IRS. You talk to other colleagues, they each got about $3,000 tax refunds. You’re now saying to yourself, I got less… Why? You look online and find out the average tax refund in 2015 was $3,120. Perhaps you missed something in the tax return or you didn’t include a deduction you were entitled to. You look at your return and you spot an error…what to do… 1040X… HELP

The purpose of Form 1040x is to amend your income tax return. Use it increase your tax refund. You may later find out that you didn’t claim a deduction or credit that you were eligible for. Some common mistakes that people make on their tax returns are the wrong filing status, total income is off, not claiming dependents, and not claiming deductions or credits. HELP

Some common issues for international taxpayers include filing a 1040 instead of a 1040NR, figuring foreign tax credit and foreign earned income exclusion, incorrectly, failing to include forms applicable to foreign dealings, such as 926 Return by a U.S. Transferor of Property to a Foreign Corporation, 3520 and 3520-A Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, 5471 Information Return of U.S. Persons With Respect To Certain Foreign Corporations, 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, 8858 Information Return of U.S. Persons With Respect to Foreign Disregarded Entities, 8865 Return of U.S. Persons With Respect to Certain Foreign Partnerships, 8938 Statement of Foreign Financial Assets, and FinCen Form 114 Report of Foreign Bank and Financial Accounts (FBAR). HELP

If you need help, give us a ring…

I Haven’t Filed A Tax Return Yet?! Here’s what to do…

I Haven’t Filed a Return Yet?! We’re all adults here. But if you haven’t filed your tax return, the IRS is going to make you feel like you’ve been grounded like a misbehaving middle-schooler. IMAGINE THIS: You come home after a particularly stressful day at work to find an exnvelope from the Internal Revenue Service. Then you’re reminded that you forgot to file your tax return–perhaps for more than one year. It might be an intimidating feeling as interest and penalties may be lurking around the corner.

Here’s what can you do. If you are entitled to a refund, you have three years from the date your return was due (April 15) to claim the refund. You don’t have to worry about penalties because they only apply if you owe taxes.

If you owe taxes and have not filed a timely return, you may be subject to the failure to file penalty, unless you can show reasonable cause for failing to file timely. If you did not pay your tax in full by the due date of the return, you may also be subject to the failure to pay penalty, unless you have reasonable cause for your failure to pay timely, or the IRS has approved your Application for Extension of Time for Payment of Tax Due to Undue Hardship. Interest is charged on taxes and penalties not paid by the due date, even if you have an extension of time to file.

Attorneys can advise people on some tax advantages when they are filing their tax returns. It is the attorney’s responsibility to find deductions people are eligible for that they might not be taking advantage of. In addition, tax attorneys can provide advantages in protecting against an audit and filing taxes. It is never too late to turn to the professional for assistance in filing their taxes and help with auditing issues. CONTACT US.

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