ARE OFFSHORE CHEATS GETTING OFF TOO EASY?

Posted on May 11, 2013 by

A recent Wall Street Journal Article, “Leniency for Offshore Cheats,” by Laura Saunders cited statistics that reveal a discrepancy between sentences handed down in offshore cases versus those dolled out in tax shelter criminal cases.  The article reports:

  • The average sentence following an offshore conviction has been less than 15 months.
  • 75% of those charged in offshore cases have pleaded guilty.
  • Only 50% of the offshore sentences handed down involved jail time.
  • The average sentence following tax shelter convictions (over a three-year period) has been 30 months.

Why are offshore tax criminals getting lighter sentences than tax shelter criminals?  The article cites opinions of tax lawyers that cite possible reasons:

  • Poor case selection in the early cases brought.
  • The possibility that judges have been more lenient because they are taking into consideration the very harsh civil FBAR penalties that have been assessed usually equal to ½ of the highest balance in the account.
  • Cooperation provided by the defendants with government investigations of banks and others.
  • Perhaps a sentiment among some judges that it is unfair to treat too harshly those with the same culpability as others receiving amnesty in the OVDP programs.

The case of Mary Estelle Curran illustrates both poor case selection and impact of the large FBAR penalty on sentencing.  Curran is a 79-year-old financially unsophisticated grandmother and homemaker who relied on her husband to make their financial decisions. He’d grown a $1 million inheritance left offshore into about $43 million left offshore.  Upon his death Curran was advised by her European bankers to continue the offshore structure.  Later she tried to enter the 2009 OVDP but was rejected as her name was among the initial 250 UBS customers handed over to IRS.  She pleaded guilty, agreed to pay a 22 million FBAR penalty and faced up to 37 months of jail time, although probation was suggested and agreed to by the prosecution.  West Palm Beach U.S. District Judge Kenneth Ryskamp called her prosecution “a tragic situation.”  He sentenced her to one year probation and then immediately revoked the probation. He went further, suggesting that her attorney’s seek a presidential pardon.  Judge Ryskamp further commented, “The government should have used a little more discretion.”

One may write off this case as an aberration, a reflection of poor selection by the government, but other offshore defendants have also received relatively light sentences in relation to possible guidelines sentencing ranges and sentences handed down in tax shelter cases:

  • Sybil Nancy Upham received 3 years probation for hiding about $11 million offshore (4/10/13) – The Guidelines sentence range would have been 30 to 37 months. The FBAR penalty to be paid was $5.5 million.
  • Michael Canale, a former doctor with the VA, received a 6 months sentence for hiding $1.5 million offshore (4/25/13). The Guideline sentence range would have been 24 to 30 months.

What impact will these sentences have on offshore compliance?

  • Some still out in the cold may choose to take their chances figuring the wallop will not be too hard if caught.   Such thinking may be self-deception since few sentences have been handed down.  But, these cases do form a base to argue from. 
  • More of those who want to come in from the cold may decide to submit quiet disclosures despite IRS admonitions in all three sets of FAQS (2009, 2011 and 2012) that higher penalties and possible criminal sanctions could come to them.  These are likely to be those with no criminal exposure who can file qualified amended returns to avert the accuracy related penalty and present strong arguments against the draconian willful FBAR penalties. Those who opt for this process are trading certainty in the OVDP for a hoped for result.
  • Some may now feel the OVDP is less certain after the DOJ rejected some applicants it had provisionally accepted (clients of Israeli Bank Leumi).  The question raised, Is IRS playing fair?   It would seem that once applicant’s names are cleared they should not be rejected even if IRS finds later that it actually had their names already.  Actions like submitting false or incomplete information may rightfully lead to expulsion, but IRS should not go back on its provisional acceptance when it has made a mistake.  That sort of action is unwise, creating a huge hole of uncertainty about the program.

 All in all, the OVDP for many is still a wise choice.  But, each case stands on its own facts and the initial review of a particular taxpayer’s situation, to decide the proper course to a safe harbor, is the most delicate part of the job faced by a tax lawyer representing offshore clients who want to come in from the cold.

 © 2013 by Robert S. Steinberg, Esquire
All rights reserved

Posted in 2012 OVDP, FBARS, NEW OVDP, TAX CRIMES, Uncategorized | Tagged , , , , , , , , , , , | Leave a comment

THEY’LL SING NO MORE IN SINGAPORE

Posted on May 6, 2013 by

Tax cheats holding unreported offshore money in Singapore’s huge financial center will soon either sing no more or sing a sadder tune.  For as many Swiss banking clients were dumped by their bankers facing a new stricter global anti-tax evasion regime, Singapore tax-scofflaws may find the cozy Asian private bank hideaway suddenly unwelcoming.  In 2009 Singapore changed its laws to come into compliance with OECD anti-tax haven rules and has since entered into scores of exchange of tax information agreements with other OECD compliant countries.  These moves took Singapore of the so-called “gray list” of tax havens kept by the OECD. 

 Under its new laws Singapore banks have until July 1 to identify accounts strongly suspected of holding funds attributed to fraudulent or willful tax evasion.  After July 1, continuing to handle accounts containing the proceeds of tax crimes will subject the offending banks to potential criminal sanctions under Singapore law.

 Banks are fearful of the new rules and mindful of the taint to reputation that can attach to identified violators.  Thus, it is expected that banks will weed out suspicious accounts even if there is no hard proof of tax evasion.  The Monetary Authority of Singapore issued guidelines requiring banks by July 1 to identify and review existing “high-risk” accounts and end the relationship, when appropriate.  Other accounts must be reviewed by June 30, 2014.  The banks are expected to react to identifiable red-flags that include:

  •  Depositors who employ complex corporate structures to shield account holder identity.
  • Accounts with a large proportion of total client wealth not connected to other business or personal relationships with the city-state.

 Singapore has become the world’s fourth largest offshore financial center.  That it is joining other former tax havens in coming into line with OECD rules is evidence of the global pressure on tax havens to become better financial citizens in an increasingly inter-connected world financial system.  Expect this trend to continue and spread further reducing the foxholes to hide away money from the tax people.  The tax posse is chasing tax offenders from one hideout to another.  This game of cat and mouse will continue between tax authorities and those who are unwilling to read the writing on the wall.  The tax haven game is ending. Or, as we used to say when we’d play Monopoly, “Go to Jail.  Do not pass Go and do not collect $200.”

This post is partially based on a May 6 Reuters article by Rachel Armstrong, Saeed Azhar and John O’Callaghan, “Banks in Singapore Agonize Over Rich Clients in Tax Evasion Clampdown.”

© 2013 by Robert S. Steinberg, Esquire
All rights re

Posted in 2012 OVDP, FBARS, NEW OVDP, TAX, TAX CRIMES, TAX INFORMATION EXCHANGE AGREEMENTS, VOLUNTARY DISCLOSURE | Tagged , , , , , , | Leave a comment

OFFSHORE PROBES EXPAND BEYOND SWITZERLAND: NOMINEE ENTITY FAILS TO SHIELD TRUE ACCOUNT OWNER

Posted on May 5, 2013 by

Two recent guilty pleas in a California District Court, announced in April by the DOJ, should shake what complacency remains for those with unreported offshore accounts outside of Switzerland.  The IRS can find you even if your account is in the name of a nominee entity and other evading tactics are used to hide your identity.

Guity Kashfi, a U.S. citizen is a California business woman who runs a clothing business called Countess of California.   Countess had a$2.5 million line of credit with Mizrahi Bank secured with inventory.  When the bank demanded more collateral she and the bank used back to back loans to hide the fact that offshore funds (certificates of deposit) were being used as the additional collateral.  The accounts at the time were in a nominee name to prevent IRS from discovering the unreported funds.  Following the arrest of a Mizrahi banker, her account was moved to Luxembourg to avoid repatriating the unreported funds. The bankers there assured her of secrecy and gave her a German cell phone to conceal communications with them.  IRS found her anyway.  She pleaded guilty to one count of conspiracy to defraud the U.S. government under 18 U.S.C. 371 (commonly called “Klein Conspiracy”).  The co-conspirator banks not named in the information are said to be Israeli banks: Bank Leumi Le-Israel Ltd (Israel’s largest bank), and Mizrahi Telfahot Bank Ltd., both of which are under investigation.  The conspiracy plea carries criminal sanctions of up to 5 years imprisonment and a fine of up to $250,000.  The plea agreement for Kashfi states a civil tax loss of $70K (rounded) on unreported interest income of approximately  $211K  The FBAR penalties agreed to will be approximately $1,250,000, 50% of the highest balance for only one year (approximately $2.5 million) during the period 2005 through 2011.  This is a large penalty in relation to the tax due but considerably less than the maximum FBAR penalty that could have been assessed, 50% of the highest balance for each year of non-reporting.  Assessment of the maximum FBAR penalty is the equivalent of a seizure of the asset. 

In the other case, Los Angeles businessman, Zvi Sperling (Born in Israel), who also used the back-to-back loan scheme to shield his unreported account activity, plead guilty to the same one-count conspiracy and likewise agreed to pay an FBAR penalty of 50% of the highest balance ($4 million) for only one year.  Sperling’s unreported income on the accounts was approximately $381K

Both Kashfi and Sperling have agreed to cooperate in the DOJ investigation of the Israeli Banks.  The probe is said to involve a Grand Jury. The end-game could be an indictment and guilty plea as in the case of Wegelin & Co (Oldest Swiss private bank) or a deferred prosecution agreement as was worked out with UBS AG (Largest Swiss Bank) which paid a $780 million fine and submitted depositor names.    Whether the Israeli banks will agree to submit depositor names remains to be seen.

Late last year Bank Leumi in a letter to its U.S. depositors suggested that they consult lawyers about participating in the OVDP.  Kashfi and Sperling did not enter one of the Offshore Voluntary Disclosure Programs.  Other former Leumi and Mizrahi clients, however, entered one of the Offshore Disclosure programs and made disclosures that revealed the back-to-back loan arrangements.  In April, attorney’s for some Bank Leumi depositors who had been provisionally accepted into the program received faxes from IRS Criminal Investigation that, “upon further review,” they had been disqualified.  Some had already submitted complete disclosures making later prosecution murky, since tainted evidence would be difficult to separate from properly acquired proof.   

Other banks investigated since UBS and Wegelin include Credit Suisse AG, (Second largest Swiss Bank) and HSBC Plc. (Europe’s largest bank).   The net is yet widening.  On April 30, DOJ announced that a federal court had authorized IRS to serve a “John Doe” summons seeking records of U.S. depositors at Canadian Imperial Bank of Commerce First Caribbean International Bank (FCIB), from its U.S. correspondent bank Wells Fargo.  FCIB is based in Barbados and operates branches in many Caribbean countries. 

The guilty pleas and new investigations are evidence that IRS intends to continue its full-court press on discovering and prosecuting offshore tax scofflaws.  Those still out in the cold, are wise to consult with knowledgeable tax counsel about entering the2012 OVDP which offers amnesty from criminal prosecution and relief from the potentially draconian maximum civil FBAR penalties. 

© 2013 by Robert S. Steinberg, Esquire
All rights reserved

Posted in 2012 OVDP, TAX, Uncategorized | Tagged , , , , , , , , , , , , , , | Leave a comment

“LISTEN, DO YOU WANT TO KNOW A SECRET?”

Posted on April 13, 2013 by

The Beatles sang in the 1960s of sharing secrets and promising not to tell.  In an age of  prying governments with big eyes and long arms, malicious internet hackers, of snoopers panting to expose, and whistle-blowers coveting gain, what reality remains in these naïve expectations?  The answer growing ever more apparent is not much.  Tax Havens and tax evasion live on the supposition that identities will remain clothed in obscurity.  Adhering to that notion is fast becoming delusional.

The International Consortium of Investigative Journalists is a Washington-based group of reporters from many countries that collaborate on in-depth investigative stories (see www.icij.org ).  The group announced a blockbuster last Thursday: that it had somehow breached the offshore-bank veil of secrecy; and, had obtained identities of thousands of individual and entity account holders.  The records are allegedly from ten tax havens but predominantly from the British Virgin Islands, the Cook Islands and Singapore. The message, however, should be very scary to offshore tax scofflaws: If these records could be obtained, obviously, records in other locations may be equally vulnerable.  The leaked files disclose information about more than 120,000 offshore companies and trusts and almost 130,000 individuals and agents.

 Among those exposed to uncomfortable light are some very prominent and wealthy persons including:

  •  A Spanish heiress
  • The daughter of former Philippine dictator Ferdinand Marcos
  • Denise Rich, former wife of scandalized, then pardoned trader Mark Rich.
  • The wife of Russia’s deputy Prime Minister
  • Spain’s richest art collector
  • The President of Azerbaijan.

 Not disclosed is how the investigative group acquired the information or its source. The ICIJ website states the leaked files show the workings, facts and figures of:

  • Cash transfers
  • Incorporation dates
  • Relationships between companies and individuals, and,
  • Ghost companies that are populated with directors who are mere fronts for those who want to hide behind a company name.

This is not the first leak of its kind:

  • A leaked offshore connection forced the resignation of the budget minister of France.
  • An HSBC official leaked the identities of over 8,000 customers with accounts based in the JerseyIslands.
  • Germany offered to buy other stolen identities from another HSBC employee.
  • Swiss financial advisor Beda Singenberger was indicted after he’d inadvertently mailed a list of clients he’d helped hide $184 million in offshore accounts. The letter went astray and wound up in FBI hands. Clients named on the list number 60, all of whom are now swimming in thick hot soup.

What should those with undisclosed offshore accounts tax away from these developments?  Don’t count on not being discovered.  Seek professional tax assistance in deciding how to come in from the cold with the least painful result.  The window of opportunity to avert criminal charges and/or draconian civil penalties shrinks with each passing day of procrastination and illusion.

© 2013 by Robert S. Steinberg, Esquire
All rights reserved

Posted in 2012 OVDP, COMPLIANCE, FBARS, TAX, TAX CRIMES, UNFILED RETURNS, VOLUNTARY DISCLOSURE | Tagged , , , , , , , , | Leave a comment

IRS TO GET MORE EASY PICKINGS OF OFFSHORE FRUIT

Posted on March 23, 2013 by

Two high level IRS Criminal Investigation (CI) officials participated an American Bar Association, Tax Section, Webinar, “Criminal Tax Enforcement Hot Topics: The IRS Perspective,” (March 20, 2013).

 Edward “Ted” Cronin is the Division Counsel/ Associates Chief Counsel (Criminal Tax) in the IRS Office of Chief Counsel.
 Paul A. Camacho is Special Agent-in-Charge, IRS Criminal Investigation

Without ascribing statements specifically to either IRS official, the sense of the comments about the IRS Offshore perspective is:

 International is second only to Identity Theft as the top priority for IRS CI activity.
 IRS efforts to combat offshore evasion of tax has been re-invigorated by the success the agency has had with:

 UBS and Wegelin Bank cases.
 The participation in and leads created by its Offshore Voluntary Disclosure Initiatives in 2009, 2011 and 2012.
 The movement of nations in the international community to sign, or negotiate, or, begin discussions concerning Intergovernmental Agreements under FATCA.
 The OECD impetus for more nations to sign Tax Information Exchange Agreements.
 The success in overcoming, under the “required records doctrine,” Fifth Amendment objections to subpoenas of U.S. citizens to produce foreign bank records.
 The growing trend of individual foreign banks to cooperate with IRS is its anti-evasion efforts.
 The increasingly large Bank Secrecy Act data-base developed using FBARS, SARS and other bank and currency reports that enable IRS to connect the dots between individuals, promoters and institutions involved in offshore evasion or money laundering (described as “tax evasion in progress).
 The use of attaché offices and training of foreign jurisdiction tax personnel to spot indications of so-called “badges of fraud.”
 Beginning in 2014, that foreign banks will begin issuing Forms 1099 to U.S. account holders.
 90 percent of tax cases ending in a guilty pleas.

The bottom line is that IRS is not letting go of this issue and those who still think they are safely hidden offshore need to rethink their strategy. Alternatives may include:

 Entering the 2012 OVDP for those with criminal exposure or who face draconian civil FBAR penalties.
 Entering the 2012 OVDP and opting out for those who want safety from criminal sanctions but believe the civil penalties outside of the 2012 OVDP will be lower than the 27.5% highest penalty within the program.
 Filing delinquent returns and FBARS directly with IRS for those who are quite certain of reasonable cause grounds or for the lesser non-willful FBAR penalty scheme, or,
 Utilizing the 2012 OVDP streamline process for expats who meet certain requirements.

What is clearly evident to all but the blindest of blind – the tax haven world is shrinking and IRS will be picking more low-lying fruit from the offshore tree as more leads are developed and investigated.

Each case involving unreported offshore accounts is unique and a first step in every matter is deciding how to most safely proceed. This involves sound judgment as much as knowledge of the law and process.

© 2013 by Robert S. Steinberg, Esquire
All rights reserved.

Posted in 2012 OVDP, AMENDED RETURNS, COMPLIANCE, DELINQUENT RETURN, FBARS, NEW OVDP, TAX, TAX CRIMES, TAX INFORMATION EXCHANGE AGREEMENTS, UNFILED RETURNS, VOLUNTARY DISCLOSURE | Tagged , , , , , , , | Leave a comment

TO FILE OR NOT TO FILE JOINTLY: AN ANNUAL DILEMMA

Posted on March 11, 2013 by

It is tax time again and most married couples will file jointly without considering the consequences or considering only the dollar tax-savings (marriage bonus) from rate splitting for single-earner couples. Couples with two wage earners more likely face a marriage penalty not bonus compared to two single filers. Sometimes a spouse will ask, “Should I elect to file separately?” The question is posed especially when divorce proceedings are ongoing or concluded after December 31 of a tax-year. The question shows a lack of understanding about tax filing-status. Married couples must affirmatively elect to file a joint return. Absent the election by filing jointly, each spouse’s tax liability is determined separately and each spouse’s liability for the tax owed is individual, not “joint and several” as is the case when a joint return is filed (unless one spouse qualifies for relief under the so-called “innocent spouse” rules of Section 6015). Even tax scholars sometimes have misstated the rule. For example Professor Michelle Lyon Drumbl’s exceptional paper, “Decoupling Taxes and Marriage: Beyond Innocence and Income Splitting (Washing & Lee Legal Studies Research Paper Series, No. 2012-37, 11/27/12), states on page 2, couples may choose to “file separate returns by electing the “married filing separately status.” The difference is not mere semantics. For example if no joint return is filed at all, IRS cannot prepare a substitute joint-return under Sec. 6020 but must prepare two separate returns for each spouse, assuming both would be required to file a return. Separate-return status means that each spouse is liable only for the tax determined on his or her separate income and allocated joint items of income and expense. Only separate assets or separate interests (also tenants by entireties interests) in joint assets may be levied upon, seized or foreclosed upon to pay the individual tax debt.

A spouse may rightly not wish to file jointly for many reasons. Some reasons stated in my article (co-authored with Melvyn B. Frumkes, Esquire, “Can and Should a State Court Order an Unwilling Spouse to File a Joint Federal Income Tax Return?”, Journal of the American Academy of Matrimonial Lawyers, Vol. 25, November 2012):

 A joint return carries with it joint and several liability for the tax shown to be due on the return or later assessed with regard to the return year.

 While Section 6015 offers limited relief to a so-called “innocent spouse,” the facts justifying relief from joint and several liability can be difficult to establish.

 The right of indemnification from the other spouse, almost always included in marital settlement agreements, is an imperfect protection because IRS is not bound to first pursue the indemnifying spouse and collection efforts against the indemnified spouse may cause hardship to the spouse who files jointly with little income to report.

 A joint return is signed under express penalties of perjury carrying felony consequences for falsity, although criminal liability is individually determined.  

 In a divorce the lesser earning spouse often has already been deceived in the relationship and does not believe in the honesty of the other spouse.

 Preparing the joint return will involve communicating information to the tax preparer, often retained by the other spouse. The preparer’s loyalty is to the other spouse and positions taken in the return may not be in the best interest of the lesser earning spouse.

Return preparers should discuss with married clients the risks and rewards of filing a joint return, beyond mere dollar tax savings, that each spouse can make an informed decision to file or not file jointly with his or her spouse.

Professor Lyon Drumbl and other tax scholars propose eliminating the joint filing status completely. Each spouse would file a separate return. The added cost and complexity of universal separate returns she feels is outweighed by the greater fairness such a system would bring. She points out that low-income taxpayers, who must file jointly, to obtain the earned-income credit, and two-earner couples are especially prejudiced under the current filing-status regime. For my part, there is even greater prejudice against “married filing separately” (MFS) couples. I would retain three filing statuses: Married filing jointly, individual and Head of Household. Keep the rate-splitting for those opting for the simplicity and convenience of joint filing. Eliminate the MFS filing status and single filing-status and replace them with “filing as an individual.” Keep the Head of Household rate for single parents. Why not continue to allow spouses to choose whether to elect rate-splitting, convenience and relative simplicity of filing a single joint return with absolute joint and several liability (I’d do away with the much litigated and little understood innocent-spouse exceptions),or, elect to file and be liable as an individual taxpayer with rates closely following the present single-filer rates? Where limitations for certain family benefits require family income to be considered, each spouse could supply the necessary information. Regulations like those for present MFS returns could provide how benefits are to be allocated, such as to the spouse with the greater income.

Professor Lyon Druml’s paper delves much more deeply and thoughtfully into reasons for eliminating joint filing or at least joint and several liability. I do not here seriously take up the argument but merely offer some casual passing thoughts. Like most cursory, unstudied comments, however, further consideration will probably find reason to reflect further on the idea. In any event, the discussion is meritorious and should be pursued.

In the meanwhile, preparers and couples are forewarned not to take casually the filing of a joint return. Preparers need remember they represent both spouses; and, spouses should focus on all of the benefits and burdens a joint return election holds.

© 2013 by Robert S. Steinberg, Esquire
All rights reserved.

Posted in COMPLIANCE, DIVORCE, INNOCENT SPOUSE, JOINT RETURNS | Tagged , , , , , | Leave a comment

IRS EXPLAINS WHAT YOU SHOULD KNOW ABOUT ID THEFT AND TAXES – BUT OFFERS INADEQUATE HELP TO VICTIMS

Posted on February 23, 2013 by

IRS TAX TIPS: Special Edition Tax Tip 2013-05
Protecting taxpayers and their tax refunds from identity theft is a top priority for the IRS. This year the IRS expanded its efforts to better protect taxpayers and help victims dealing with this difficult issue.
When your personal information is lost or stolen, it can lead to identity theft. Identity thieves sometimes use your personal information to file a tax return to claim a tax refund. Then, when you file your own tax return, the IRS will not accept it and will notify you that a return was already filed using your name and social security number. Often, learning that your return was not accepted or receiving a contact from the IRS about a problem with your tax return is the first time you become aware that you’re a victim of identity theft.

How to avoid becoming an identity theft victim.
• Guard your personal information. Identity thieves can get your personal information in many ways. This includes stealing your wallet or purse, posing as someone who needs information about you, looking through your trash, or stealing information you provide to an unsecured website or in an unencrypted email.
• Watch out for IRS impersonators. Be aware that the IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information or notify people of an audit, refund or investigation. Scammers may also use phone calls, faxes, websites or even in-person contacts. If you’re suspicious that it’s not really the IRS contacting you, don’t respond. Visit our Report Phishing web page to see what to do.
• Protect information on your computer. While preparing your tax return, protect it with a strong password. Once you e-file the return, take it off your hard drive and store it on a CD or flash drive in a safe place, like a lock box or safe. If you use a tax preparer, ask how he or she will protect your information.

How to know if you are, or might be, a victim of identity theft.
Your identity may have been stolen if the IRS notifies you that:
• You filed more than one tax return or someone has already filed using your information;
• You owe taxes for a year when you were not legally required to file and did not file; or
• You were paid wages from an employer where you did not work.

Respond quickly using the contact information in the letter you received from the IRS so that we can begin to correct and secure your tax account.

If you think you may be at risk for identity theft due to a lost or stolen purse or wallet, questionable credit card activity, an unexpected bad credit report or any other way, contact the IRS Identity Protection Specialized Unit toll-free at 1-800-908-4490. The IRS will then take steps to secure your tax account. The Federal Trade Commission also has helpful information about reporting identity theft.

If you have information about the identity thief who used or tried to use your information, file a complaint with the Internet Crime Complaint Center.

For more information – including how to report identity theft, phishing and related fraudulent activity – visit the Identity Protection home page on IRS.gov and click on the Identity Theft link at the bottom of the page.

IRS Works to Protect Taxpayer Refunds, Detect and Resolve Identity Theft Cases
The IRS takes identity theft-related tax fraud very seriously and realizes that identity theft is a frustrating process for victims. By late 2012, the IRS assigned more than 3,000 employees — more than double from 2011 — to work on identity theft-related issues.
The IRS continues to enhance its screening process to stop fraudulent returns. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

The IRS recently announced that a year-long nationwide focus on tax refund fraud and identity theft has resulted in more than 100 arrests in 32 states and Puerto Rico. In January 2013 alone, the IRS targeted 389 identity theft suspects resulting in 734 enforcement actions. To learn more, see IRS Intensifies National Crackdown on Identity Theft on www.IRS.gov.

RSS Comment:  The IRS may be sincere in its efforts to assist taxpayer victims of ID Theft, but sincerity does not beget efficiency.  Regrettably, my experience tells me that one who experiences this unfortunate event will find frustrating IRS’s clumsy efforts to separate the genuine taxpayer’s account from the bogus return filed by the fraudster.  For example, I’ve experienced the following:

  • Taxpayers e-file a joint return.
  • IRS rejects return as an earlier return received using husband’s SSN.
  • Taxpayer submits as advised by IRS a paper return with an ID Theft Affidavit.
  • No response received for months until, IRS matching program Letter CP-2000 received matching husband’s Forms 1099 received, with bogus return which, of course, did not include any of the taxpayers dividends and interest. The CP-2000 indicates there is large unreported dividend and interest income which of course is nonsense.
  • Taxpayer Advocate contacted and after more months of waiting, taxpayer assured that his account has been separated from the bogus return and all is good.
  • Months later, taxpayers wife receives notice asking for her return for the year for which the joint return was originally e-filed and then paper filed.

In another case, IRS issued a Notice of Deficiency to the honest taxpayer proposing a deficiency for disallowing a refundable credit on the bogus return. 

Problems for taxpayers:

  • Refund is due on the original legitimate return is delayed and the honest taxpayer waits and waits and waits.
  • Taxpayer must pay for the professional time to deal with the IRS inefficiency. 
  • Process  treats the victim like a criminal. 

National Taxpayer Advocate criticism of IRS handling of ID Theft cases:

In her 2012 report to congress the TA stated in part:

  • IRS is moving backward in retreating from a centralized approach to assisting ID theft victims from beginning to end, thereby increasing the burden on taxpayers and risk that some may fall through the cracks. 
  • As of September 30, 2012, IRS had almost 650,000 ID theft cases in inventory.
  • “The victim is often sent on a journey through IRS process and procedures that may take years to complete.”
  • ID theft cases often involve more than one issue and now comprise 25 percent of the TA Service’s (TAS) cases.

RSS Comment:  Without TAS assistance, it is very difficult to resolve ID Theft cases, but as noted in the above example, TAS assistance is not a foolproof solution.  The digital universe is more convenience but also more threatening to our privacy, sensitive data and personal identity.  The wise will follow IRS suggestions and employ professional assistance and the TAS to resolve the digital entanglements that harm and complicate life for victims of ID theft crimes. 

Copyright 2013 re. comments by Robert S. Steinberg, Esquire
All rights reserved

Posted in COMPLIANCE, IDENTITY THEFT, TAX | Tagged , , , , | Leave a comment