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Tax Times Newsletter - May 2009

- Jay Schlichting

We help real people with real tax issues - successfully.

TOP NEWS

• The IRS’s Dirty Dozen: 12 Tax Scams to Avoid
       With people looking for ways to save money this year, the tax-scam artists are having a field day. But here are the 12 scam you are most likely to encounter - April 15 has come and gone. You can check off one more line in the Death and Taxes column.
       But that doesn’t mean you should relax. With identity theft on the rise and scamsters preying on taxpayers looking for a break in these hard economic times, it can be a scary, scary taxpaying world.
       For that reason, the IRS is continuing in its annual tradition of releasing a “Dirty Dozen” list — the 12 most common tax scams that could put you in a world of financial hurt.
       Whether perusing your e-mail inbox or the local classifieds, beware of these 12 tax scams in 2009:

  1. Phishing: Internet-based scam artists use phishing to trick victims into revealing personal or financial information for the purposes of identity theft. Phishing scams often take the form of an e-mail that appears to come from a legitimate company org government entity, such as the IRS. The IRS never initiates unsolicited e-mail contact with taxpayers.
  2. Hiding Income Offshore: This is a time-honored tax evasion scam. But don’t fall for it. Today, even Swiss banks are opening up records to the IRS. Using this scam could land you in prison.
  3. Filing False or Misleading Forms: Some scam artists promote frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims.
  4. Abuse of Charitable Organizations and Deductions: Watch out for people claiming you can shield income form taxes using tax-exempt organizations.
  5. Return Preparer Fraud: Be skeptical of tax return preparers who guarantee large refunds. They aren’t working magic; they’re cheating.
  6. Frivolous Arguments: A number of tax-shelter promoters nationwide use frivolous arguments that do not withstand court scrutiny. You can find a list of legal arguments taxpayers should avoid at www.irs.gov.
  7. False Claims for Refund and Requests for Abatement: This scam involves a request for abatement of previously assessed taxes using Form 843, Claim for Refund and Request for Abatement.
  8. Abusive Retirement Plans: Be wary of anyone encouraging you to shift large assets into IRAs or companies owned by IRAs.
  9. Disguised Corporate Ownership: The IRS actively investigates the use of corporations to facilitate the underreporting of income.
  10. Zero Wages: Some scam artists advocate simply filing your taxpayer income as $0.
  11. Misuse of Trusts: Although there are legitimate uses of trusts, scam artists employ them as tax shelters.
  12. Fuel Tax Credit Scams: This tax credit was largely intended for commercial farmers, but some individual taxpayers are abusing it by submitting frivolous credit claims.
   

• IRS Catch One of Their Own; Agent Guilty
       A revenue agent with the Internal Revenue Service has agreed to plead guilty to a federal tax fraud charge for filing a personal income tax return that claimed he suffered a loss in a real estate transaction when in fact he realized a substantial profit.
       In a plea agreement, Jim H. Liu, 43, of Diamond Bar, Calif., agreed to plead guilty to subscribing to a false tax return — a charge that carries a penalty of up to three years in federal prison. As an IRS employee, Liu conducted audits of taxpayers.
       Liu admitted he filed a false tax return for the 2002 tax year that improperly claimed a loss on his sale of a property in Pomona. Liu sold the property for a profit of more than $48,000, but he instead claimed a loss of more than $4,200. The tax loss to the government, as a result of Liu’s filing, was approximately $14,642.88.
   
• California Trio Hit with Tax Charges
       A California chiropractor, his wife and their taxpayer representative have been charged with conspiracy to evade the payment of taxes, three counts of tax evasion, and four counts of presenting a fictitious instrument to the IRS.
       According to prosecutors, Vincent Steven Booth, 52; Louise Q. Booth, 49, both of Bakersfield, Calif.; and Michael S. Ioane, 48, of Atwater, Calif., conspired together to evade the payment of more than $1.3 million in taxes from 1995 to present by creating sham trusts, filing bogus liabilities against the Booths’ properties to impede the IRS’s collection efforts, submitting “Bills of Exchange” to the IRS in an effort to erase the Booths’ tax liability and creating frivolous deed transfers of the Booths’ properties to keep them out of the reach of the IRS.
       The government alleges the Booths evaded $322,879 in taxes for 1995, $332,737 in taxes for 1996 and $702,414 in taxes for 1997.   If convicted, all three face prison sentences and fines that could exceed $100,000.
   
• Real Estate Agent Tried to Evade Paying $1.6m
       A commercial real estate agent in Florida has been charged with tax evasion. The government alleges Thomas W. Daugherty, 53, of Fort Myers, evaded paying approximately $1.6 million in taxes from 1998 to 2005.
       According to the government, Daugherty maintained a cash lifestyle to hide his earnings. He refrained from depositing his commission checks into his bank account and instead converted his commission checks into cash and multiple cashier’s checks payable to him. He then deposited cash into his personal accounts to cover expenses about to clear. From November 2002 to April 2008, Daugherty purchased more than 200 cashier’s checks for more than $2.1 million.  He faces up to five years in prison.
   
• Tire Store Owner Diverted $430,000
       The owner of a tire store in Alabama pleaded guilty to one count of tax evasion. Timothy Smith, of Cullman, Ala., the owner of College Tire, was indicted in September 2008 and charged with two counts of tax evasion relating to the tax years 2002 and 2003.
       According to court records, Smith diverted customer receipts from his tire business into two personal bank accounts. Smith also used cash and cashiers’ checks to make substantial principal payments on the mortgages for vacation homes in North Carolina and Florida. In all, Smith diverted more than $430,000 from his tire business to his personal bank accounts and mortgages. In about August 2003, he also purchased a real estate lot in North Carolina near his vacation home with $68,100 in cash.
       Smith concealed the diverted funds from his bookkeeper, records show. Smith also took substantial fraudulent tax deductions in relation to a purported farm at his personal residence. As a result, Smith filed false personal and business tax returns for tax years 2000 to 2003. The tax loss resulting from Smith’s scheme was more than $400,000.
       As part of his plea agreement, Smith agreed to a binding sentence of 30 months in prison and agreed to pay $170,380 in restitution to the IRS, including a lump sum payment of $50,000 to be paid prior to sentencing. As part of the plea agreement, the government agreed to dismiss tax charges against Smith’s wife, Lori Ann Smith.
   
• ALASKA DENTIST TRIED TO EVADE $575,000 IN TAXES; DEDUCTED NEARLY ALL EXPENSES
       Glenn E. Lockwood, 61, of Kenai, Alaska, was sentenced to five years in prison for his conviction on four counts of tax evasion. In addition to prison, Lockwood was ordered to pay a $10,000 criminal fine and an additional $42,000 for the costs of prosecution.
       According to court records, Lockwood was a practicing dentist who owned the Kenai Dental Clinic and attempted to evade more than $575,000 in federal income taxes for the years 2000 to 2003. As set forth in the indictment, Lockwood improperly leased his professional services to an Irish entity, which leased his services to a Nevada company, which in turn leased Lockwood's services back to his professional corporation, Glenn E. Lockwood, DDS, PC.
       The evidence presented at trial established that Lockwood used nominees, offshore accounts and a sham trust to disguise his interest in assets. He hid his money offshore, funneling it through Ireland and the Caribbean island of Nevis and the Bahamas.
       Evidence at trial also showed that Lockwood deducted practically every expense in his life from the relatively little income he did report, including deducting expenses to massage parlors as “continuing education.”
   
• MASS. BUSINESSMAN CHARGED WITH EVASION
       Gary P. Mallows, of Longmeadow, Mass., was indicted on charges of tax evasion and failure to file tax returns.  The government alleges Mallows concealed assets and income that he received from various sources. It also alleges Mallows evaded payment of a Trust Fund Recovery Penalty assessed by the IRS in 2001 in the approximate amount of $86,237.08. In addition, Mallows allegedly failed to file timely tax returns for 2002, 2003 and 2004.
   
• ARIZ. MAN FACES FIVE YEARS FOR TAX ISSUES
       Arlan R. Turley, 60, of Gilbert, Ariz., was indicted on two counts of willful failure to file a tax return and 20 counts of willful failure to pay over taxes. Turley, a licensed dentist in Arizona, operated the East Valley Dental Service in Mesa, Ariz.
       The indictment alleges that the charges for failure to file are the result of Turley’s non-filing of his 2002 and 2003 income tax returns. In fact, Turley has not filed an individual tax return for the years 1997 to 2007. The charges for failure to pay are alleged to be the result of Turley not turning over his employees’ payroll taxes to the government. If convicted, he faces up to five years in prison and a fine of up to $250,000.
   
• IRS INVESTIGATION RESULTS IN 18-MONTH PRISON SENTENCE
       Lee B. Woodbury, 51, of Gilbert, Ariz., was sentenced to 18 months in prison and ordered to pay restitution of $97,232 after pleading guilty to willfully filing a false tax return. Until contacted by the IRS Criminal Investigation Division, Woodbury had not filed returns for tax years 1998 to 2001. He later underreported his income in returns. In total, the tax loss as a result of Woodbury’s willfully filing false tax returns was $35,633.
  
  
• ASK THE EXPERTS:

  Question:  I’ve read a little bit about the Offer in Compromise and the Installment Agreement. Which one is better?
  Answer:  The question here shouldn’t be: “Which one is better?” It should be: “Which one is better for you?”  Ultimately, you’ll want to get the answer to that question from a qualified tax professional. But let me explain the differences to give you a better idea which one might be the best for you in your current situation.
       Some quick background: After years of chasing deadbeat taxpayers with bare-knuckled tactics, the IRS discovered that a gentler, more flexible approach can actually increase the government’s collection efforts. In that spirit, the IRS introduced the Offer in Compromise and the Installment Agreement. They are both powerful, but vastly different, options for taxpayers.
       The Offer in Compromise is intended for taxpayers who, for whatever reason, find themselves with substantial tax debt and an inability to pay that debt, even over time. This situation can occur in a variety ways — due to business failure, legal liability, medical problems, etc. No matter what the reason, the Offer in Compromise allows taxpayers who quality to settle their entire debt amount with the IRS for less than they owe..
       The Install Agreement, by contrast, is for taxpayers who are currently unable to pay their current tax debt — but who can pay that tax debt over time. With an Installment Agreement, the taxpayer makes monthly payments toward the debt that will not drastically alter the taxpayer’s lifestyle but which, over time, will pay down and eliminate the debt.
       If you have tax problems and believe either of these programs may benefit you, consult a qualified tax professional.

       I solve IRS problems like yours every day. I’m an IRS Problem Solver. For a free, no-risk consultation, please call our office.

Tax Times Newsletter is an online Publication by
The Schlichting Group
Specialists in IRS Representation and Tax Preparation