Archives For Fraud

Update 1/14/12: AP Source reveals Lance Armstrong confesses to using performance enhancing drugs during Oprah interview.

To put it nicely, there is no end in sight to the diminishing reputation of former cycling hero Lance Armstrong. The worst can always get worse, and recent reports suggest just that. A number of media outlets report that Armstrong’s cancer awareness non-profit, Livestrong, is allegedly under investigation by the IRS. If you haven’t been following the story, here is what has happened to Armstrong recently, and why the news is so brutal.

Continue Reading...

Image

At the end of the day it’s understandable to complain to friends and family about a particularly difficult client and we all deal with frustrating people.  But most of us have the good sense not to hire someone to kill them. Not so Steven Martinez.

Martinez, a former IRS agent turned private tax preparer, was arrested in March of this year in Sorrento Valley, California, and accused of trying to hire a hit man to kill witnesses – some of them allegedly former clients – in a case against him. Last year, Martinez was indicted on 49 criminal counts including mail fraud and money laundering.

Originally, Martinez pleaded not guilty to charges stemmed from allegations that Martinez stole $11 million from his clients by lying about the amounts they owed to tax authorities. Martinez told his clients that they owed more than they did – and convinced them to write checks to his trust account to pay their liabilities, which he promised to take care of. He pocketed the rest, which worked out to be a lot of cash.

So what did Martinez do with the cash? He bought a beach house, vacationed in Mexico, used a private aircraft to jet around, went to the Super Bowl, paid off debts and made some investments. Oh, and he also used it to pay a hit man to kill witnesses while waiting for his trial.

The hit man, a former employee, said that Martinez provided photos of the witnesses to be killed and the promise of cash to a hit man: $40,000 down and the balance of $60,000 after the job was completed. Some of that cash (just over $42,500) was found in a cereal box in the alleged hit man’s home.

The saga finally came to an end last week. Martinez pleaded guilty to a number of felonies including solicitation of a violent crime, interstate commerce in murder for hire, witness tampering and mail fraud. His sentencing is set for November 30, 2012. Martinez could face up to 100 years in prison.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

Image

Oops.

The Internal Revenue Service may have delivered more than $5 billion in refund checks to identity thieves who filed fraudulent tax returns for 2011, Treasury Department investigators said Thursday. They estimate another $21 billion could make its way to ID thieves’ pockets over the next five years.

The IRS is detecting far fewer fraudulent tax refund claims than actually occur, according to a government audit that warned the widespread problem could undermine public trust in the U.S. tax system. Although the IRS detected about 940,000 fraudulent returns for last year claiming $6.5 billion in refunds, there were potentially another 1.5 million undetected cases of thieves seeking refunds after assuming the identity of a dead person, child or someone else who normally wouldn’t file a tax return.

In one example, investigators found a single address in Lansing, Mich., that was used to file 2,137 separate tax returns. The IRS issued more than $3.3 million in refunds to that address. Three addresses in Florida, the epicenter of the identity theft crisis, filed more than 500 returns totaling more than $1 million in refunds for each address.

In another troubling scenario, hundreds of refunds were deposited into the same bank account, which is a red flag for investigators searching for ID thieves who may be filing for refunds for multiple people. In one instance, the IRS deposited 590 refunds totaling more than $900,000 into one account.

Topping the list of concerns is the IRS’s lack of timely access to third-party information it needs to verify returns and root out fraud.

Thieves are also exploiting vulnerabilities in the way the IRS delivers refunds, investigators found. Of the 1.5 million undetected cases of potential fraud, 1.2 million used direct deposits, including pre-loaded debit cards. Thieves often prefer those methods to a paper check, which require a physical address to receive the check and photo ID matching the taxpayer’s name to cash it.

IRS officials said the growth of identity theft-related fraud is one of its biggest challenges. Already this year, the agency has stopped almost $12 billion in confirmed fraud, it says. And it says its criminal investigators are actively pursuing those who perpetrate fraud – including the previously undetected cases identified by the audit.

The IRS agreed with the inspector general that Congress should expand the agency’s access to resources that could help it fight theft, including the National Directory of New Hires, a database created to help states enforce child support orders. The IRS specifically asked Congress for that authority in its 2013 budget request.

Investigators went back through a sample of the 1.5 billion undetected cases to see why the IRS never flagged them as fraudulent. In 49 of 60 returns, investigators said, the return didn’t score high enough on the IRS’s fraud filter to merit a closer review. In eight of the 11 cases where the IRS did perform an additional review, it never verified the income and withholding on the return.

Florida Sen. Bill Nelson (D), whose home state contains the top two cities where fraudulent tax returns originate: Tampa and Miami, joined with Republican Sen. Tom Coburn of Oklahoma to introduce legislation designed to curb identity theft in the tax system.

The bill improve protections for Social Security numbers that thieves need to file returns, and would expand an existing program that gives previous victims of ID theft a personal identification number to deter repeat offenses against the same taxpayer.

The IRS said it is already putting a number of new measures in place, including new ID theft screening filters that will hold on to refunds until the IRS can verify a taxpayer’s identity. That filter had thwarted about $1.3 billion in potentially fraudulent refunds through April, the audit said. Another system flags returns filed with Social Security numbers of those who have died.

For those who fall victim to identity thieves, the recovery process can be less than smooth. A separate report by the inspector general in May found that the IRS wasn’t providing good customer service and proper assistance to victims of ID theft, increasing the burden for those whose identities are stolen. The Federal Trade Commission has listed identity theft as the No. 1 consumer complaint for the past 12 years.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

On a typical day, you may run the ATM to grab some money. After taking your cash and card, you get a receipt with your remaining balance. Just before you crumple the receipt and toss it in the trashcan, you notice an extra $110,000 in your account. What do you do?

Stephen McDow, was the person who had that mysterious luck. Although, his luck has turned into a greater misfortune that may result in imprisonment at a Federal Penitentiary. McDow opened his account one day and found the IRS issued a tax refund for $110,000 that was intended for a 67-year old woman. As a result of this mistake, McDow used the money to pay off personal expenses, like student loans and mortgage payments. As responsible as his spending was, the IRS found out about their error and understandably took action against McDow. Now, he is faced with a $110,000 bail (ironic, yes) and potentially four years behind bars.

This is where things went wrong: the 67-year old woman changed her bank account number without notifying the IRS, and McDow was the man who inherited her previous number. Thus, when the IRS registered the tax fund under her bank account, it went right to McDow’s hands. After discovering that McDow had her money, the woman demanded it back, yet McDow had spent nearly half of the refund. He offered to pay back $65,000 with monthly payments until the money had been fully reimbursed. The woman declined.

What can we learn here? When changing financial information, including bank account numbers, routing numbers, and addresses, be sure to notify the proper authorities, particularly at the IRS. Furthermore, when filling the information out, check to confirm you wrote down the correct numbers or else some other McDow could acquire the funds that are rightfully yours.


Useful Links:

Article about the case:

IRS information on direct deposit:

Direct Deposit FAQ’s


What will happen if I enter an incorrect routing or account number?

Be very careful entering your account and routing numbers. IRS will handle account or routing number errors on split refunds the same as for regular direct deposits and mistakes can result in several different scenarios. For example, if:

  • You omit a digit in the account or routing number of an account and the number does not pass IRS’ validation check, IRS will send you a paper check for the entire refund;
  • You incorrectly enter an account or routing number and your designated financial institution rejects and returns the deposit to IRS, IRS will issue a paper check for that portion of your refund; or
  • You incorrectly enter an account or routing number that belongs to someone else and your designated financial institution accepts the deposit, you must work directly with the respective financial institution to recover your funds.

IRS assumes no responsibility for taxpayer error. Please, verify your account and routing numbers with your financial institution and double check the accuracy of the numbers you enter on your return.

20120125-235642.jpg

In recent news, there have been multiple firms, (including some well known lawyers, like Roni Deutch) and other “tax professionals,” indicted and/or prosecuted by the IRS or state attorney’s general for misrepresenting what they could accomplish for people with tax problems. You’ve seen the commercials on TV, or heard them on the Radio—they generally indicate that these firms have settled tax cases for “pennies on the dollar”, and often create the impression that you don’t need to pay your full amount of tax.

Tax Resolution firms and their promoters (Roni Deutch) aren’t a silver bullet for taxpayers, and many have created more tax headaches then they’ve resolved. Roni Deutchcharged many of her clients thousands and thousands of dollars, without resolving any of their problems.

Some people turn to easy alternatives to be swiftly finished with the process, yet these easy alternatives could result in difficult consequences. For example, if you go into a tax resolution firm and they claim their firm is the best at helping their clients pay pennies on the dollar, get up and leave. One tax resolution firm cannot significantly decrease your taxes than another firm, so be wary of situations like this.


Here are some ways to be aware of tax relief scams:

  1. Avoid tax firms that center their pricing structure around the percentage of the amount of refund—this practice is generally illegal under the IRS Circular 230.
  2. Make sure the firm is reliable – check BBB ratings or with local bar associations before retaining a firm. Make sure that there are lawyers or accountants and not just enrolled agents that can answer any of your questions in a timely and truthful manner
  3. REVIEW your return and make sure to ask questions on anything you do not understand.
  4. YOU are the one ultimately responsible for your tax forms, not the tax firm—the IRS won’t allow a defense of they prepared it, I just signed it.
  5. Make sure the employees in the firm are all accredited with the proper credentials, e.g. CPA, Accredited Tax Preparer, Licensed Public Accountant, Tax Attorney, Etc.
  6. If you are on a website, make sure the firm’s website is on a secured network when filling out important information, e.g. “https” rather than “http”
  7. BE SMART – if it seems too good to be true, it probably is…

Here are links to the IRS’s web site on ways to avoid tax relief schemes and your taxpayer rights:

http://www.irs.gov/advocate/article/0,,id=98206,00.html

http://www.irs.gov/businesses/small/article/0,,id=106788,00.html


Tax Resolution Firm Score Cards?

While Attorneys are subject to discipline from local bar associations and state administrators, and accountants are subject to their own rules of professional conduct, Tax Resolution Firms are often not structured as law or accounting firms. In many instances these firms are owned by people who are neither lawyers or accountants, or even enrolled agents.

The Better Business Bureau rates many of these firms very poorly—wise consumers should check with the BBB before engaging a Tax Resolution Firm, that is not a law firm or an accounting firm. Lawyers are frequently rated on sites like AVVO, which lists disciplinary complaints and compile ratings based on a lawyers reputation and experience.

Some BBB Scores for well known Tax Resolution Services follow:

Roni Deutch (not rated by BBB)

J.K. Harris (F, 822 complaints in 3 years)

Tax Masters (Unsatisfactory, 276 complaints)

Freedom Tax Relief (F, 17 complaints)

Nationwide Tax Relief (F, 37 complaints)

American Tax Relief (F, 139 complaints)

20120126-000843.jpg