Hurricane Sandy: IRS Warns of Scams in Aftermath

Hurricane Sandy
Hurricane Sandy

After Hurricane Sandy, IRS spokesman Mark Hanson warned that individuals to be cautious in the aftermath, as there are unscrupulous individuals who see the disaster as an opportunity to prey upon the unsuspecting.

Aftermath of Hurricane Sandy

With social media and the news disseminating stories of the destruction on the East Coast as a result of Hurricane Sandy, taxpayers may feel the need to donate to charities that promise to use the money to assist in the clean-up and rebuilding of towns affected by the storm. Unwary individuals who do not do their research before donating may find themselves giving money to scam artists, who inevitably appear where there is opportunity for exploitation.

To ensure that the money they donate is going to the right source, the IRS recommends visiting its website to confirm the validity of the organizations.

The IRS also recommends that taxpayers check the IRS website to ensure that deductions for such contributions are properly made.

If you need assistance with tax-related matters, please contact your knowledgeable tax professional.

 

 
Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

501 (c) (3) Organizations and the IRS: Part 1

For those of you looking to set up a 501 (c) (3) organization, there are a few things that you should know before you navigate the requirements set forth by the Internal Revenue Code.

What is a 501 (c) (3) Organization?

Commonly referred to as “charitable organizations,” a 501 (c) ()3) organization is the portion of the US Internal Revenue Code that allows for federal tax exemption of nonprofit organizations, specifically those that are considered public charities, private foundations or private operating foundations.” Regulation of these organizations falls under the Department of Treasury through the IRS.

Exemption Requirements

The IRS requires that the organization must be organized and operated exclusively for exempt purposes set forth in the section of the Internal Revenue Code

Maintaining Your 501 (c) (3) status

In order to maintain your status as a tax exempt organization, you must be sure to comply in the following areas: private benefit/inurement, lobbying, political campaign activity, unrelated business income (UBI), annual reporting obligation, and operation in accord with stated exempt purpose(s).

· Private Benefit/Inurement:

o Private Benefit: The activity of the organization must be directed solely at some exempt purpose. The organization’s activities cannot serve the private interests of any individual or organization (other than the organization itself) if it is more than a negligible amount. It is the public interest that should be served with the formation and activity of a 501 (c)(3) organization.

· Inurement:

o According to the concept of inurement, there is no portion of the organization’s net earnings that may inure to the benefit of a shareholder or person who has the opportunity to influence the organization through any connections he has to it.

Check back tomorrow for Part 2, which will discuss other aspects of 501 (c)(3) organizations.

If you have any questions about such organizations and their relationship with the IRS, please contact your knowledgeable tax professional. A tax attorney can help you navigate the Internal Revenue Code and ensure that your organization is compliant.

 

Segal, Cohen & Landis, LLP 
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Owner of Tax Franchise Arrested for Fraud

According to the Internal Revenue Service, the Memphis Franchise owner of Mo’ Money Taxes Jimi Clark and several of his employees were arrested for fraud on Wednesday. The IRS alleges the individuals falsely claimed educational tax credits on 47 filed returns in the year 2009.

This is not the first time the tax preparing service has faced federal scrutiny. The high-profile Memphis firm, one of the largest tax preparers based in Tennessee, has struggled in the recent months against pending allegations. Its headquarters underwent a change, as its sign was replaced by Southern King Taxes last month.

Before the arrests occurred, IRS officers had entered and removed boxes of records from the head office located at 5090 Millbranch. The firm has also garnered attention from attorney general offices in the states of Missouri and Illinois after hundreds of clients complained that they did not receive refund checks. Whether or not the raid has any implications on the case against Clark remains to be seen.

The individuals were indicted by a federal grand jury on October 10. All were indicted on one felony count each of conspiracy to commit tax fraud.

In a statement released on Wednesday, the IRS discussed the allegations saying, “The defendants were trained on educational tax credits including the American Opportunity Credit.” The IRS also noted that Clark allegedly abused the program at the Mo Money franchise during the 2009 tax season in order to bring clients to the business and retain them. The statement indicated that at least 47 returns were falsely filed and inflated with American Opportunity Credit line items.

The Mo’ Money franchise, which caters to working class taxpayers, allegedly abused credits and filed false returns. It remains to be seen how the cases against the individuals will unfold.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Small Businesses and Looking Forward to Post-Election Changes

In a recent issue of Forbes, the U.S. President of Operations at Xerox, Jamie Sutherland, and the chief creative officer at Blumer and Associates, Jason Blumer, co-wrote an article regarding the effects prospective tax changes will have upon small businesses. According to the article, “the ultimate dilemma for the next President will be getting the tax revenue to balance the budget, decreasing the national deficit and spurring our economy back to health.” This all must be accomplished by an equality of taxation that reaches all demographics. This is no small task, and the implications of these changes could very well affect most Americans.

The Bush-era tax cuts are set to expire at the end of the year. Both parties are interested in extending the tax cuts. The cuts affect individual income tax rates, as they include a reduction; capital gains and dividends rates, also reduced; marriage penalty relief; the $1,000 child tax credit; the child and dependent care credit; and the Alternative Minimum Tax. The tax benefits, which have been popular, will expire on December 31, 2012.

One of the candidates, Romney, has said he would extend all Bush-era tax cuts without change. President Obama has also agreed to extend the cuts, except for the wealthy—which, according to his administration, classify as individuals making over $200,000 and family units making over $250,000.

In regards to C Corporations, both candidates have expressed willingness to reduce the corporate tax rates. According the Forbes article, passing such legislation is not an easy process; it may take one or two years for this legislation to have any effect on businesses.

There are more aspects to the Bush-Era tax cuts that could affect small businesses. It is essential to stay attuned to developments and to have a trusted tax attorney to advise you.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Refundable Credits Oversight Enhanced by IRS

Refundable Credits
Refundable Credits

According to an audit performed by the Treasury’s Inspector General for Tax Administration, the IRS will implement new procedures to prevent the wrongful issuance of refundable tax credits. The audit discussed the fact that the IRS had incorrectly issued and estimated $2.3 billion in refundable credits from the years 2006-2009. The report also found that the government continued to send out checks to individuals who had wrongfully received checks in the past.

Oversight of Refundable Credits

The report indicated that the IRS could have saved hundreds of millions of dollars from being wrongly issued if they had merely checked refund claims for both refundable credits, the Additional Child Tax Credit (ACTC) and the Earned Income Tax Credit (EITC).

The IRS has promised that additional scrutiny will be considered for those taxpayers who had erroneously received refund tax credits in the past. The IRS also said it would develop a screening method to ensure that the history of a taxpayer would be on display when refund credits are being considered for issuance.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

70,000 IRS Tax Liens Open Against New York Businesses

According to an article in the New York Post, the IRS has about 70,000 liens open against businesses in the New York area. Information from public records show that there is a range of amounts owed; the highest amount to be paid is $92.3 off, while the lowest is 15 cents.

The group of businesses with tax liens is as diverse as the amounts owed. The list includes a top surgeon’s medical practice, a top lobbying firm, and a designer house that has outfitted the First Lady.

The records, obtained through a request made under the Freedom of Information act, shows that these outstanding liens are a problem for both the IRS and the business under lien. There are debts that are unlikely to ever be paid to the IRS, including one amounting to $12.7 million dollars belonging to the now-defunct Pan Am Airline. Knatten, the entity that holds the dubious honor of holding one of the largest tax liens in the country, is also out of business.

Not even powerful lobbying firms are exempt from the list. Patricia Lynch Associates owes $1.3 million dollars in back business taxes. The powerhouse owes $500,000, a fine from the attorney general, for the business it conducted with former Comptroller Alan Hevesi. ‘

The list of business with tax liens is long. For those of you with tax liens, contact a trustworthy tax professional to get the issue resolved.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Creationist Couple in Trouble with IRS

Those who think tax law is dull and boring, filled with less money and more rules, should take a look at a recent tax court case. While the less money and more rules part may be accurate, the words “dull” and boring” certainly do not. A recent article in Forbes, entitled “Young Earth Creationists Whipsawed by the IRS,” highlights a tax court case with very interesting circumstances.

Several years ago, Jo Delia Hovind and her husband, Kent E. Hovind, began a non-denominational ministry purportedly to teach willing evangelists the creationist theories surrounding the beginning of the Earth 6,000 years ago. Using information with its origins in Genesis, they started Creation Science Evangelism, their ministry that focused primarily on distributing educational material and disseminating the ideas found in the Bible.

The ministry turned out to be a rather lucrative endeavor, easily allowing the Hovinds to create jobs. Unfortunately, they did not easily pay the appropriate taxes required when creating and sustaining those jobs. According to tax court documents, the Hovinds seemingly found a way to circumvent the paying of taxes owed. Mr. Hovind decided, on the advice of ministerial lawyer Glen Stoll, to form trusts to manage assets owned by the ministry; the action also provided that the management of the tax assets would be “tax-free.” Mr. Stoll advised his clients to associate the ministerial trusts with a corporation sole. Unfortunately for Mr. Hovind, following the advice landed him in jail.

There are other issues abound in this case. According to the tax court documents, when IRS agents entered the home of the Hovind couple, they asked Mrs. Hovid if there was cash on the premise. Mrs. Hovind reportedly stated that there was $3,000 dollars in cash in the home. However, when the agents searched the home themselves, they found $42,000 dollars in cash. The cash was located in several locations that agents had a hard time believing Mrs. Hovind did not know about, including a safe next to her desk.

In the end, the whipsawing was what caused the most trouble for the Hovinds. Because the Hovinds jointly engaged in business practices while also living together, the fact that they did not file tax returns becomes increasingly difficult to sort out in the eyes of the IRS. The IRS is forced to send deficiency notices for the full amount to each taxpayer, as it is impossible for them to distinguish who is at fault for failing to report the income. After penalties and interest, the total amount, from the years 1998 to 2006, amounts to more than $3 million dollars.

The U.S. Tax court sided with the IRS, stating that such an assessment was justified, as the question of who was liable was sufficiently ambiguous.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Whistleblowing on Tax Cheats Increases Dramatically

Whistleblowing
Whistleblowing

Bradley Birkenfield, the recipient of the $104 million dollar whistleblowing reward from the Internal Revenue Service, has apparently inspired an increase in individuals who are hoping to cash in on similar situations. The information he provided to the IRS allowed the government to collect hundreds of millions of dollars in tax money that had been hidden away in UBS AG, a Swiss bank where Birkenfield was once employed.

According tax attorney Dean Zerbe who handled Birkenfield’s case, there has been a marked increase in the number of individuals coming forward with information they believe would be valuable to the IRS, and to the individuals themselves via the rewards of the whistleblower program.

Are the whistleblowing calls legitimate?

Some tax lawyers are even going so far as to call it a “watershed moment for whistleblowing.” Although not all o f the calls have claims as strong as Birkenfield, attorneys say that the legitimacy of the calls has increased dramatically.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Study Shows IRS Agents Lack Adequate Firearms Training

When one thinks of an IRS agent, a gun-toting officer with permission to use force does not immediately come to mind. Although most officers spend the majority of their time behind a desk, as the average taxpayer would imagine, there is a group of IRS agents who do, in fact, carry guns and wear bullet proof vests. These agents belong to the IRS Criminal Investigations Division.

This division, created in 1919, was the group of agents who took down one of the century’s most notorious criminals, Al Capone, for tax evasion. Since its inception, the division has assisted the IRS in catching and convicting criminals accused of tax crimes. Reports indicate that the division has the highest conviction rate among the agencies.

Despite its ability to convict at an astonishing rate, the division does have an imperfection that the IRS watchdog sees as problem for the safety of the agents. According to a Treasury Inspector General study highlighted by a recent article in The Wall Street Journal, agents who belong to the Criminal Investigations Division do not possess sufficient training in the use of firearms. The study goes on to say that the criminals being pursued by the agents for various tax crimes may use extreme measures to evade the officers; therefore, it is imperative that the officers are equipped both physically and mentally for any dangerous situation that may arise.

The report from the Treasury Inspector General suggests that in order to ensure that officers are adequately prepared to handle work in the field, the IRS must revise policies outlined in the Internal Revenue Service Manual. If the IRS decides not the force agents to surrender their weapons if requirements are not met, the TIG suggests that the IRS revise the manual to include consequences for the inability to meet requirements set forth in the manual.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS Agent has Legal Troubles

An article in today’s New York Times discussed the hatred of one former IRS agent for the agency he once worked for, and the consequences of allegedly violating federal laws against conflict of interest and illegally disclosing confidential IRS information.

The complaint filed last Thursday illuminated these charges, also noting that Lerner has expressed how much he hated his job in a series of emails he had addressed to a friend. In one email, the IRS Agent even went so far as to say, “I get paid next to nothing and work with fools,” and calling his manager an idiot.

IRS Agent

According to the complaint, Lerner was extremely unhappy with his job with the Internal Revenue Service that, while still employed, he negotiated with a bank he was auditing for employment. Once he had commenced his job at the bank, Lerner disclosed the name of an employee who had acted as a whistleblower in the audit he had conducted while at the IRS to another bank employee.

After being arrested on Thursday at his home in New Jersey, Lerner was released on bond.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999