Monday, September 29, 2014

Congress Takes Action to Stop Future IRS Tax-Exempt Scandals

Imagine that you have just started a small advocacy company for the purpose of helping save the whales. Unfortunately the IRS agent in charge of your case, who has the power to give you a tax exempt status, doesn’t agree with your cause. The agent has no legal right to turn you down, but does so anyway.

To make matters worse the agent somehow allows the names of your members, subscribers, or donors to get into the hands of an opposition group. This group then harasses your associates for being in league with you.

This is what happened in the run up to the 2012 presidential campaign, and now Congress may be about to do something about it.

The House of Representatives has passed H.R. 5418, prohibiting IRS officers and employees from using their personal email accounts to conduct official business. While it should seem obvious that a government agent with such power should keep a public paper trail regarding their deliberations, correspondence, and actions, this does not seem to be the case. 

The House also passed H.R. 5419, designed to provide tax-exempt groups with the right to an administrative appeal if they are turned down for tax-exempt status. It is remarkable that this appeal process was not already in place. The power to grant or turn down an application for tax exempt can be a dangerous tool in the hands of administrators who have inappropriate intentions.

 At the same time, the house passed H.R. 5420.  Some taxpayers have had their personal taxpayer information leaked to opposition groups for the purpose of chilling their first amendment rights. This bill would permit the release of certain information to these victims regarding the status of investigations into and such leaks of their personal taxpayer information.

All of these bills are in response to the ongoing investigation into inappropriate and illegal actions taken by various parties in the IRS determining tax-exempt status prior to the 2012 presidential campaign.

The bills now go on to the Senate.

Saturday, September 27, 2014

Update: IRS Scammers Take Taxpayers for Billions

The darker the color, the more complaints

Phone call scams take innocents for hundreds of dollars each

The IRS is continuing to put out the alert as this phone scam is ripping off thousands of innocent taxpayers. We reported on the scam earlier, but felt that a new warning was necessary.


Listen below to a recording of one of these criminals attempting to get an unsuspecting target to send them some cash.

The scammers know that only a very few people will fall pray to their trap. So they call thousands of numbers hoping to just get a few to take part.  They have honed their pitch to make it sound very convincing. We all get a bit tense when we are dealing with an authority like the IRS. Some folks will allow fear to overcome common sense. 

That is why we try to make the situation simple. The IRS will always send you two to four letters asking you to call them before they call you.  They will not threaten you, but ask how you want to pay what you owe.  If you owe less than $20,000 and can make 60 equal monthly payments to fully pay your liability in five years, your best move is to call the IRS directly. For these smaller amounts, the agents are generally reasonable in trying to help you set up a payment plan.

However, if you owe more than $20,000 your smartest move is to call a tax professional like the ones at Demetriou, Montano & Associates. We can help you negotiate an acceptable payment plan or settlement.  Call now at 888-987-1040 to speak with an Enrolled Agent.

Tuesday, September 9, 2014

Tax Avoidance or Tax Evasion – The Difference Can Result in Jail Time

“I’m 80% sure the home interest deduction doesn’t apply to me, but I’m going to take it anyway.”

“I won some money in Vegas, but I ‘forgot’ how much and there is no record.”

“I don’t get a W-2 or 1099 for half of my income, the IRS will never know.”

Tax avoidance?  Not a chance.   Black’s Legal Dictionary, Avoidance of Tax - “the method by which a taxpayer reduces his tax liability without committing fraud.”
In other words, tax avoidance is using all legal means to reduce your tax liability and we all have the right to avoid taxes.

When does tax avoidance reach the level of tax evasion?  Most of the time, just like the above, people know when they are doing something wrong or fraudulent.  Regrettably some folks do not know you can go to jail for tax evasion.  Some folks who have taken part in such schemes have found themselves not only owing hundreds of thousands of dollars to the taxing authorities, both federal and local, but also facing jail time. A good rule of thumb when evaluating such schemes might be, “If it sounds too good to be true, it probably is.”

Some taxpayers participate in obvious tax evasion as a daily practice.
·      Cash transactions that never see the books.
·      Paying employees “off books” to avoid employment taxes
·      Failing to report income with full intent to evade paying taxes
·      Trumping up expenses that have absolutely no basis in reality
·      Keeping two set of books

The result of these evasions can result in significant fines or even jail time.  Two recent convictions turned out badly for the miscreants (from

Horany, a business owner, admitted to underreporting his income by approximately $175,000, which resulted in his underreporting his tax due and owing by over $60,000 in 2007 alone. In total, Horany underreported his tax due by more than $145,000; he was sentenced to 12 months in prison for his actions. Sometimes taxpayers try to convince themselves that the IRS won't go after them because they are "minnows." This case is a warning that it is not necessary to evade millions of dollars in taxes in order to be prosecuted for tax evasion.

Sathre, also a business owner, was a much bigger fish; he pled guilty to charges of tax evasion and was sentenced to 36 months in prison and was ordered to pay $3,113,882 in restitution for willfully evading payment of his taxes for 1995 and 1996. According to the Department of Justice press release, Sathre concealed income from a property he sold, for which he received over $3 million in installment payments. Sathre compounded the problem by sending over $500,000 during 2005 and 2006 to an
offshore bank account in the Caribbean, and later wired $900,000 from the sale of another property to the same offshore account in an attempt keep the funds out of the reach of the IRS. In addition, Sathre supplied the Caribbean bank with false declarations and false promissory notes and also claimed he was neither a citizen nor a resident of the United States. Although not mentioned in the press release, one would assume that Sathre also failed to file Foreign Bank Account Reports (FBARs) on TD-F 90-22.1 (now known as FinCEN Form 114). These criminal tax cases (among many others) demonstrate that the IRS takes the issue of underreporting income very seriously and will not hesitate to press for a prison sentence in cases involving tax evasion.

So where should you draw the line. You should take advantage of every possible expense deduction and loophole regarding earnings, but understand that when you go too far, it may cost you dearly in dollars or even a unexpected vacation in the Federal penitentiary.