Earlier this year, the IRS posted a list of the 12 most blatant tax scams. These scams included among others:

Abusive Roth IRAs (shifting under-valued property to Roth Individual Retirement Arrangements), Disguised Corporate Ownership (domestic shell and other entities formed and operated to disguise ownership of business or financial activity), Zero Wages (showing little or zero wages or rebuttal or wages and taxes reported by the taxpayer to the IRS), Return Preparer Fraud (dishonest tax preparers), Trust Misuse (improperly transferring assets into trusts which do not deliver the promised tax benefits), Structured Entity Credits (improperly setting up partnerships to own and sell state conservation easement and federal rehabilitation or other credits without a valid business purpose), and Abuse of Charitable Organizations and Deductions (improperly shielding income or assets including the overvaluation of contributed property).

The IRS is proceeding against several tax preparation services as noted in recent news reports which involve one or more of the common scams listed by the IRS:

On November 14, 2006, a Nevada federal court permanently barred James DiLillo of Las Vegas from continuing to prepare taxes and promoting a tax scheme that allegedly concealed his clients’ funds though the creation of sham trusts. According to the complaint, this scheme was promoted in 8 different states and has cost the U.S. Treasury over $2.25 million since 2002.

On November 16, 2007, the Department of Justice announced that Archie Pugh, Jr. and Theodore Pugu were enjoined from preparing tax returns for other people. They had operated Archie’s Tax and Accounting Service in Jamaica, N.Y. The injunction issued out the of Eastern District of New York said that they charged customers to prepare income tax returns using the “claims of right tax-evasion scheme,” which fraudulently claims that compensation paid for work is not subject to income tax. The court has found that this misconduct has caused losses to the U.S. Treasury in excess of $2.4 million.

On November 16, 2007, the Department of Justice announced that the operators of Century One Resorts, Ltd. COA Financial Group LLC. and Eagle Financial Services LLC. in San Diego, California were barred from preparing tax returns for others. The suit was specifically filed against Roosevelt Kyle and Rebecca Tyree of San Diego and their businesses. It is alleged that this misconduct of understating their customers’ tax liabilities by preparing returns with fabricated business-expense and charitable deductions has cost the United States Treasury a total of $18 million. According to the complaint, it appears that the IRS has penalized Roosevelt Kyle three times in the past for understating his customers’ tax liabilities. In 2002 he was found guilty of failing to file his own 1995-1998 tax returns.

The IRS is following up with complaints and injunctions against operators of tax preparation services who promote fraudulent tax schemes. Such evidence could be the basis of a tax whistleblower lawsuit.

To learn more about being a tax whistleblower contact us.

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Brazilian authorities are saying that Cisco Systems Inc.’s Brazilian unit is under investigation for setting up a scheme to defraud by evading the payment of import duties, local sales and corporate taxes on behalf of Cisco.  Police said they arrested 40 people on temporary warrants including the chief executive of Cisco do Brasil, Pedro Ripper and other Cisco executives.  Six Federal Revenue Service agents were also arrested in connection with the case. Cisco confirmed that Brazil represents approximately 1% of its overall business.  “Local police are talking with U.S. authorities about warrants for the arrest of give other people there…”We’ve contacted U.S. authorities and they are taking the appropriate steps…It’s inevitable that we’ll arrive at the corporate headquarters (of the U.S. company),” said Erika Nogueira, the Federal Police agent in charge of the investigation. She also commented that “The investigation is ongoing, but eventually those involved could be fined for tax evasion, “ she added. 

This article reminds us that blue chips may be held liable for tax underpayments that are carried out by a few, with or without company knowledge. 

To read more click here or visit the Tax Whistleblower Legal Network.

Since 2001 the Department of Justice’s Tax Division has enjoined more than 245 tax preparers and promoters of tax fraud schemes. The Government is becoming increasingly aware and sensitive to the extent of systematic fraud caused by tax preparers facilitating offshore schemes. One of the latest reported cases on this issue involved 4 individuals and 2 businesses, Bright Enterprises Inc. and Hawaii Financial Specialists, Inc., who promoted a scheme that created false tax deductions. According to the Department of Justice, customers using the scheme would transfer money offshore as either tax deductible insurance premiums or IRA investments and then got the funds back, concealing that fact that the customers were merely recovering their own funds. The methods and means included sham loans, foreign credit cards and programs involving “scholarships” which purportedly were used to pay customers’ expenses for their children’s tuition. Customers would receive 80% of their transferred funds back in this fashion. The estimated losses to the U.S. Treasury as the result of this scheme exceeded $2 million.

To read more click here.

“Evidence and analysis is what we are looking for rather than hearsay and speculation,” said Stephen A. Whitlock, director of the IRS’s new Whistleblower Office. “People who come in with hearsay, speculation and a motive tend to be less reliable. This shouldn’t be about personal vindictiveness.”

“The better developed the information from the source,” Whitlock said, “the better we can pursue it.” Whitlock ran the Department of Defense fraud program for years. For more views from Whitlock as reported by Columnist Kristy Kristof, click here.