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Tax refund fraud occurs when a person submits false information to the Internal Revenue Service (IRS) with the aim of obtaining money from the treasury. Tax refund is regarded seriously and leads to serious financial consequences for the perpetrator. In cases of repeat offenses, accused persons face long jail terms. Tax refund fraud is a federal crime because the U.S. treasury suffers financial loss owing to misleading or false statements or significant omissions.
What is Tax Refund Fraud?
Tax refund fraud implies filing tax returns using false information. In many cases, tax refund fraud involves the crime of identity theft. Tax returns can be submitted online using one’s name, date of birth, and their social security number. When the return is filed, the IRS issues the refund within 30 days as provided in the law.
Stolen Identity Refund Fraud
A return can be filed with information implying that IRS owes a large refund. The money is sent before the taxpayer, whose identity has been used, or the IRS is aware of the swindle. The losses from stolen identity refund fraud (SIRF) are on the rise. IRS has little control over this form of fraud because it is difficult to change the processing and tax filing systems. Defendants who are caught in this type of fraud face charges for multiple offenses including wire fraud, and identity theft.
According to the American Institute of Certified Public Accountants, 2015 saw the leaking of over 100 million social security numbers. In February 2016, fraudsters used 460,000 stolen social security numbers to acquire e-PINs for filing fraudulent tax returns.
In order to make returns without arousing suspicion, fraudsters are creative when creating a tax payer profile. One common way is to act like they are the CFO or CEO of a company and sending correspondence to an unsuspecting employee with a request for employee data. The innocent employee will eventually send W-2 information to the fraudster. For tax fraudsters, e-filing services have made it easier to commit refund scams through automated systems.
Investigations into Tax Refund Fraud
The first measure that IRS will take when investigating a person for fraud is to pull their tax returns and send them a notice. If the offender is guilty of amounts that are less than $100,000, IRS will request that they address the issue and repay the amount immediately or face a formal investigation.
If the amount is more than $100,000, two IRS agents will approach the defaulter and question them. At this point, it is advisable to contact a tax refund fraud lawyer. IRS prosecutes 75% of the cases that it investigates; therefore, one is likely to incriminate themselves by handling fraud charges without a lawyer.
Fraud Vs Negligence
Fraud is an intentional act to defraud the IRS. Keeping two financial books, claiming you have a dependant when you are single, or using a fake social security number, are examples of fraud. However, in some cases the complexity of tax laws may cause one to make mistakes when filing returns. IRS understands that sometimes taxpayers may be negligent when filing returns. A careless mistake when making returns increases your tax bill by 20% while tax fraud results in a 75% penalty to your tax bill. Determining negligence and fraud is usually difficult for the courts and IRS.
How Does One Detect Tax Refund Fraud?
The warning signs that someone has filed returns and received a refund on your behalf are as follows:
When you do not receive the 1099 or W-2 form that you are expecting
You file taxes online and your returns are rejected automatically
You get a notice or bill from a tax preparation service because someone filed for a return
You do not get your tax refund check
You get a letter from IRS claiming you under quoted your income from a job you do not have
Steps to Take in The Event of Tax Refund Fraud
If your federal tax return is rejected, file an identity theft affidavit with IRS. Fax or mail the form to the IRS together with copies of your identity like your driving license. If the IRS does not respond within 24 hours, call their hotline or report the identity theft to the federal trade commission. It is also advisable to put out a fraud alert on your credit records with the three credit bureaus TransUnion, Equifax, or Experian to prevent them from opening unauthorized accounts. Lastly, make sure you report the matter to the police.
Tax Fraud Lawyers
Accusations of playing fast and loose with tax reporting and return preparation is not something anyone wants to face. Even so, there are individuals and business operations that are dealing with charges of fraud this very minute. Choosing to learn more about tax fraud, what sort of events can lead to allegations, and the kind of penalties that may be imposed is something every taxpayer must understand. Here is some information that will help the individual know if the time has come to seek help from a tax fraud lawyer.
What is Tax Fraud?
Tax fraud involves a conscious decision to falsify tax records and returns. In most cases, the motivation for committing such an act is to avoid paying the rightful amount of taxes due on personal income, business profits, inventories, and other types of financial assets.
It’s important to note that mistakes can be made with accounting records that in turn lead to using incorrect information when filing reports and returns. Tax agencies look upon mistakes that were made with no intent to defraud in a different light. Unless there is solid evidence that actions were taken with the specific desire to reduce the amount of tax owed, obtaining a conviction will be difficult.
How is the Fraud Committed?
Altering reports and returns in order to lower the amount of taxes owed can involve several different strategies. One of the more common approaches it to claim exemptions or deductions that are not legitimate. In this scenario, it’s not unusual for individuals or business owners to create documentation that on the surface seems to confirm that the deduction or exemption is valid. It’s only upon closer examination of bank records and various financial documents that the legitimacy of the exemptions is questioned.
Failing to report income is another approach sometimes used to commit tax fraud. Individuals who are employed full time but also have a side job where they are paid in cash may decide to not include the proceeds from that second source of income. The belief is that without any type of paper trail, it would be difficult for anyone to question the return that is filed using the documentation provided by the primary employer.
Claiming personal expenses as business expenses is also one of the ways that fraud can be committed. An employee who travels for work and is reimbursed for credit card charges and out of pocket expenses as a result has essentially not sustained any type of business expense. Choosing to forget about the reimbursement by the employer and claiming those expenses on a return may lower the amount of taxes owed, but it does constitute fraud.
What are the Penalties for Tax Fraud?
There are civil and criminal penalties associated with a conviction of tax fraud. The type of action taken will depend on the manner in which the attempt to defraud the tax agency was structured.
Choosing to submit statements that are false is considered a felony. It is possible to be sent to prison for up to three years. There is also the chance of being fined. Currently, individuals may be fined as much as $250,000 USD for including false statements in their reporting. Business operations are subject to a much greater fine.
Seeking Help from a Lawyer
Receiving notice that a tax agency is conducting an investigation and charges of fraud are pending is not something anyone wants to experience. Should such a notification be received, now is the time to engage the services of a tax fraud lawyer.
The lawyer will arrange for professionals to go over all documents submitted to the tax agency as well as evaluate the accuracy of all financial records in the client’s possession. The goal is to determine if there are any signs of an intention to withhold information from the agency or manufacture exemptions or deductions that are not valid.
Should the effort reveal nothing more than errors that appear to be the result of making postings in haste or failing to post an expense to the proper account, the lawyer is in a position to defend the client by pointing out there was no intent to defraud.
Remember that the legal counsel will be present throughout the process. In the best case scenario, it will be possible to confirm that any discrepancies are the result of an honest mistake and not a conscious attempt to commit fraud.
Online Tax Fraud
Nowadays, with the help of the Internet, it has become easier than ever to watch an HD-quality movie, book a ticket, order a meal, or say, file your tax returns. But despite the many pleasures the Internet provides, it turns out that not so many people know exactly how to use this technology safely, especially when it comes to protecting one’s identity. Read this article to learn how to avoid online tax fraud.
With the development of new technologies, not only law enforcement has more resources to detect and fight fraudulent activity, but also unscrupulous individuals have more ways to deceive others at their disposal. One of such ways is using the Internet to steal one’s identity.
A lot of people use some kind of software to calculate their taxes and then submit their income information via the Internet. The first threat you may encounter during this process is choosing software. It might turn out that the program you are using is actually a kind of malware that steals your personal information (name, social security number (SSN) and date of birth) and then transmits this data to a fraudster over the Internet. The malware might even change some of your personal computer software so that once you’ll attempt to access the Internal Revenue Service (IRS) website, you’ll be redirected to a similar-looking website and, instead of filing a return, reveal everything a criminal needs to know to steal money from you. The criminal may then use these details to file a return in your name and then try to claim a refund, essentially making you a fraud victim.
Another way you can be approached by scammers is by phishing text messages, email or even social media. Someone claiming to be an IRS agent or a representative of a legitimate tax preparation company, will try to talk you into giving them your personal data or issue a wire transfer as an advance payment for their services. The offender may also target businesses trying to obtain its employees personal information from an HR or finance department representative, sometimes using a compromised email account of someone from the company’s senior management.
As you see, the ways are many. Still, you can protect yourself against scammers. As experienced tax attorneys with a leading NYC law firm, we have dealt with multiple cases of online tax fraud, and based on our experience we suggest you follow these guidelines when preparing your returns.
Tips on How to Protect Your Identity
Take your time to educate yourself. Browse the official website of the IRS (www.irs.gov) for guidelines on using tax prep software and efiling returns. Pay special attention to tips on avoiding tax-related identity theft.
Never give out your SSN and other personal information to anyone except for established, trusted entities authorized to lawfully request such information from you. Their number is strictly limited and includes tax prep businesses, insurance companies, credit institutions, a few credit reporting agencies, investment advisors and some other companies whose services require notification to the IRS.
Be wary when hiring a tax prep. You may use the IRS directory of returns preparers with credentials and qualifications to find a legitimate professional near you. Mind that if a tax prep is not on the list, it does not mean he or she is a not licensed.
Don’t fall for promises of free services. If someone is offering you to prepare your returns for an unreasonably low fee or absolutely free of charge, stay alert as most surely it is fraud.
Approach tax reduction cautiously. If someone offers you to help reduce your income tax payments, first ask advice from a licensed tax attorney.
Ignore unsolicited emails or messages. The IRS doesn’t use these channels to communicate with taxpayers. And neither do licit tax prep companies. Be especially wary of emails with attachments – these may carry malicious software.
Ask for recommendations. Before using any complementary software, ask someone you trust what software they use and what they can recommend.
Ensure your online security. Set up spam filters for your email box. Keep your anti-virus protection up to date. When you’re filing or paying your taxes online, make sure you use an HTTPS-encrypted connection, that is, the URL at the link bar of the website should start with https. It means the connection is secure.
What to Do if You Have Become a Cyber Tax Fraud Victim
If despite all the precautions taken you have fallen victim of cyber tax fraud, there is still something you can do to try to get your money back.
You are most likely to learn that you’ve been defrauded only when you file a return yourself and then find out that a return associated with your SSN has already been submitted. In this case, the Internal Revenue Service recommends you to follow these guidelines:
Visit identitytheft.gov to report fraud.
Visit the official website of either Equifax or Experian or TransUnion to warn them your accounts may have been compromised. This will make it harder for the identity thief to open an account in your name.
Contact banks and other financial organizations whose services may be accessed with the data stolen to check whether your accounts have been tampered with and to freeze them if necessary.
Check all recent transactions.
File a police report.
If you’ve been approached by the IRS, start dealing with the issue as soon as possible. Consider contacting a tax fraud attorney for a confidential consultation before calling the agents.
The penalties for cyber tax fraud hardly differ from the more traditional type. However, in this case identity theft is often involved, which may make the final sentence for an indicted person twice as harsh. However, the tax system is far from being easy to make out, which makes it easy for anyone to commit fraud, be it a regular taxpayer or a licensed professional. Therefore, it is necessary to hire a skillful tax fraud lawyer who will be able to prepare a solid defense case.
What’s the Difference between Negligence and Fraud Tax Evasion?
The tax code is complex, and if you make a mistake while filing your taxes, you could be breaking the law, putting you at risk of penalties levied by the Internal Revenue Service (IRS).
If that happens, one of the key factors will be whether you were negligent in filing your taxes or if you committed tax evasion, which is a type of fraud. The difference between these comes down to intent. Although it can be difficult to determine which of these two applies to your situation, the IRS uses the information at hand to figure it out.
Here’s what you need to know on the difference between negligence and tax evasion.
How Negligence Works
The simplest way of defining negligence when it comes to your taxes is that it’s an honest mistake. You did something wrong which likely resulted in you paying less in taxes, but you weren’t intentionally misleading the IRS with your tax return.
Here are a few situations where the IRS would likely consider you negligent with your taxes but not guilty of tax fraud:
• You reported the incorrect amount of income from one of your employers because of a typo.
• You are a freelancer who worked for many clients throughout the previous year and you forget to report one of them.
• You claim a deduction without reading the requirements because you assume you qualify for it, but you actually don’t quality.
What’s important here is that you made what the IRS considered a reasonable attempt to follow all tax laws.
Negligence can obviously be tricky to prove one way or the other, as you can see by the examples above. For example, how can the IRS know if you forgot one of your many clients, or if you were trying to slide by without reporting that client? You’ll need to explain the situation to demonstrate that you weren’t trying to evade your taxes. If your story is reasonable, the IRS will usually give you the benefit of the doubt.
How Fraudulent Tax Evasion Works
When you commit tax evasion, you’re intentionally doing something wrong to avoid a tax that you either know you owe or believe you owe. This can be obvious or subtle, depending on the type of tax evasion. For example, if you don’t file your taxes at all, that’s an obvious method of tax evasion. More subtle methods include the following:
• Underreporting your income or failing to report certain income.
• Making up fake deductions or deducting more than you should for legitimate deductions – it would be fine to deduct a small portion of your house payment if you have a dedicated home office for business purposes, but deducting 75 percent of your home payment would be far too much.
The most common way that people evade taxes is by underreporting their income. This is particularly common among those who are self-employed and those who work in industries where cash payments are common.
It can be difficult to tell the difference between negligence and tax evasion, which is why the IRS will often give the benefit of the doubt to an extent. Let’s use the home office example to illustrate this.
If you deduct a bit more than you should have for your home office and you tell the IRS that you simply got the math wrong on the square footage of the office, that’s a plausible explanation, and you would likely just be considered negligent. If you were deducting most of your home payment for an office that is just one room, that’s a different story. A reasonable person would know that the office takes up only a small portion of their home, which would make that deduction fraudulent tax evasion, not negligence.
The distinction between negligence and tax evasion is critical because the penalties for tax evasion are much more severe. The fines are higher and punishment can even include jail time. It’s important that if there were any issues with your taxes, you demonstrate to the IRS that you only made an honest mistake and were not trying to evade paying what you owed.
Spodek Law Group have offered me excellent support and advice thru a very difficult time. I feel I've dealt with someone who truly cares and wants the best outcome for you and yours. I'm extremely grateful for all the help Spodek Law Group has offered me. I can't recommend them enough.
Spodek Law Group was incredibly professional and has given me the best advice I could wish for. They had been helpful and empathetic to my stressful situation. Would highly recommend Spodek Law Group to anyone I meet.
Best service I ever had. Todd is absolutely class personified. You are in the safest hands with spodek. They have their clients interest in mind.
We provide superior service, excellent results, at a level superior to other criminal defense law firms. Regardless of where your case is, nationwide, we can help you.
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