Sunday, July 27, 2014
Investigations of the IRS are taking place not only in Congress but also in court. One case, which has developed slowly since it was filed in 2010, reveals much about both the long reach of the agency and the interwoven nature of the broader federal bureaucracy.
Defending IRS commissioner John Koskinen against the claims of the pro-Israel group Z Street is Andrew Strelka — and before joining the Department of Justice’s civil-trial section, Strelka worked at the IRS for Lois Lerner, who was then the agency’s head of exempt organizations. As it happens, this is the very IRS division at which the mistreatment of Z Street is alleged to have occurred — and Strelka worked there at the very time Z Street’s application for tax-exempt status was being considered.
Scott Coffina, a partner at the Washington, D.C. law firm Drinker Biddle & Reath and a former Justice Department prosecutor says Strelka’s representation could violate Washington, D.C.’s rules of professional conduct for lawyers in “several” ways, in particular the rule that prohibits a lawyer from representing a client in a matter where “The lawyer’s professional judgment on behalf of the client will be or reasonably may be adversely affected” by his personal interests. “If Mr. Strelka was involved in the targeting of conservative groups,” Coffina says, “it is hard to imagine that he can give dispassionate advice. He would have a tough time evaluating the merits of the plaintiff’s case and advising his client on strategies in the litigation. He seems to have a personal conflict of interest.”
Another rule proscribes attorneys from participating in cases in which they might be called as witnesses, though Coffina explains that to be called as a witness and Strelka’s testimony would have to be necessary to the case. “The government might be able to get around it and keep the lawyer in place in there is another IRS employee available to testify on what the lawyer might testify to himself,” he says.
Z Street founder Lori Lowenthal Marcus tells National Review Online of the situation: “Nothing surprises me.”
She filed the group’s application for tax exemption in 2009, and Z Street, whose mission is to educate people about Zionism, sued the IRS for alleged violations of its First Amendment rights the following year. According to Marcus, an IRS employee told her Z Street’s application was sent to Washington for extra scrutiny because the group was “connected with Israel” and expressed opposition to the Obama administration’s foreign policy. (An IRS agent subsequently told the House Oversight Committee that the applications of pro-Israel groups were considered “specialty cases” and routinely sent to an antiterrorism unit for extra screening.) Though the IRS has attempted since 2010 to get the case thrown out of court, Judge Ketanji Brown Jackson ruled in late May that it will move forward, and the agency will have to defend itself in court. Z Street has yet to receive its tax-exempt status.
While at the IRS, documents indicate, Strelka was kept abreast of the agency’s targeting practices. He is one of 14 employees who received an e-mail from agency attorney Ronald Shoemaker on March 17, 2010, instructing them to “be on the lookout for a tea party case.” Shoemaker told the group that if they received any applications “involving an exemption for an organization having to do with tea party [sic], let me know.” Status reports from July and September 2010 tracking the progress of particular applications show that Strelka was handling a case that had been designated to Group 7825, which at the time handled tea-party applications.
Strelka — who did not respond to an e-mail seeking an interview — was working at the IRS as a part of the Presidential Management Fellows Program, a two-year program that aims to groom government leaders in part by placing participants in jobs throughout the federal government. According to his LinkedIn profile, after completing his two years at the IRS, Strelka left for the Justice Department’s civil-trial section in August 2010 and was detailed in the White House Counsel’s office for seven months, from last December until June.
Friday, July 25, 2014
Revenue & Customs needs better in-house skills to cope when its current £7.9bn IT contract expires in 2017, the spending watchdog has said.
The National Audit Office said the tax authorities needed more expertise to challenge suppliers over their performance and value for money.
It said the Aspire contract had brought benefits but contractors had made much larger profits than envisaged.
Revenue & Customs said it had become "less dependent" on outside knowledge.
Aspire is the government's largest IT project, with expenditure of £7.9bn between July 2004 and March 2014.
Under a contract agreed by the last Labour government, French IT firm Capgemini and its subcontractors maintain and operate Revenue & Customs (HMRC) tax systems as well as providing other ICT services such as computers, telephony, printing and networking.
In its first review of the contract for eight years, the NAO said it had helped improve the agency's operational capability, enabling more tax and VAT returns to be submitted online and reducing fraud and error.
While the contract had helped bring in higher tax yields and deliver significant cost savings, it said, the tax authorities had been "overly dependent" on the technical capability of its suppliers, limiting their ability to manage the contract and secure commercial benefits.
It suggested there was evidence that HMRC's relationship with Capgemini and other firms had become "too accommodating" and had "ceased to offer performance challenge or to create price tension".
It said Capgemini and its major subcontractors, including Fujitsu, had made £1.2bn in total profits from the contract so far, double the level that had been modelled in 2004.
The suppliers' profit margins, while not out of line with the industry average, were higher than anticipated as the contract had been extended and more work awarded, it said.
While acknowledging that steps had been taken to build up HMRC's internal IT resources, such as the hiring of a new digital director, it said there were still "significant gaps" in its expertise.
Since coming to power in 2010, the coalition government has insisted that Whitehall departments work with a wide range of contractors to drive competition and innovation and that contracts were not automatically extended.
The NAO said the Aspire contract was "no longer consistent" with this model, but while HMRC and Capgemini had agreed to make changes to the contract in 2012, it warned that there had been "limited success" so far.
It said HMRC faced a "considerable challenge" in reforming the contract while also developing a successor programme from 2017 that would "modernise and digitise" tax-collection systems while also ensuring value for money and guaranteeing levels of service to the public.
"HMRC faced complex, long-term technology challenges, and Aspire provided an appropriate means of working through them and limiting risk," said Amyas Morse, the head of the NAO.
"However, there has been a lack of rigour in HMRC's commercial management of the contract. It is essential in any contract that the client retains the independent expertise to challenge the supplier."
Labour MP Margaret Hodge, who chairs the cross-party Commons Public Accounts Committee, said the handling of the IT contract had been "unacceptably poor".
"It is deeply depressing that once again a government contract has proved better value for the private companies involved than for the taxpayer," she said.
HMRC said Aspire was one of the largest outsourced contracts in the world and had helped to generate tax yields of more than £500bn to the Exchequer last year while providing a range of other services.
"The NAO recognises the progress that HMRC has made over the last two years in developing in-house technical skills, so that we are less dependent on external suppliers," a spokesman said.
"For instance, we recently opened a new digital delivery centre in Newcastle as part of our digital transformation programme.
"We will continue to improve the performance of the contract over the next three years."
Wednesday, July 23, 2014
The government has confirmed that it will review the tax charge on pension funds held in a drawdown product at death or uncrystallised after age 75, stating the current rate of 55 per cent may be too high when the new freedoms come into force in April 2015.
The Treasury will continue to consider the options for altering the rate and will confirm its intention as part of the Autumn Statement.
Its final rules on pension freedoms, published yesterday (21 July), state: “Discussions with a wide range of stakeholders on this issue have confirmed the view that the 55 per cent charge is too high, and needs to be changed.
“However, this is a complex area and any changes have the potential for unforeseen and unintended consequences.”
Dave Roberts, senior consultant at Towers Watson said: “The government is continuing to mull over whether, or more likely how far, to cut the 55 per cent tax that applies to income drawdown pension pots when the pension saver dies.
“Without this, terminally ill pensioners who have already accessed tax-free cash may feel they need to rush to withdraw the remaining balance from their pension so that it is only taxed at their marginal rate and not more punitively.”
Andrew Tully, pensions technical director at MGM Advantage, said: “Care needs to be taken as this won’t change until April 2015, so a tax charge of 55 per cent remains for any deaths before then where benefits have been taken.”
“Taking benefits in phases remains a tax efficient approach so speaking to a professional financial adviser will help people understand the most suitable approach for their circumstances.”
Standard Life previously called for the flat rate tax on so-called ‘death benefits’ to be moved in line with inheritance tax to make them fairer. The 55 per cent tax charge applies in two situations where a lump sum is paid out, most commonly with a self invested personal pension, according to Standard Life.
Where a person dies, aged over 75, the 55 per cent tax charge applies to the whole fund, regardless of whether the customer had taken any withdrawals from their pension yet or not.
Where a person dies before the age of 75 and had started to take withdrawals, it applies to the part of the pension which has been touched, known as ‘the crystallised fund’.
Thursday, July 10, 2014
Accountants argue changes to the way tax fraud is investigated will lead to more prosecutions against tax evaders
A rule change quietly introduced by HM Revenue & Customs has blocked people accused of tax fraud from trying to clear their names before a criminal or civil investigation is launched.
Previously taxpayers who believed they were innocent had the option to co-operate with HMRC and were invited to supply evidence to support their innocence.
But this option has been phased out. Instead individual’s have two options: either admit or deny the allegations made. Those who plead ‘not guilty’ will be investigated straight away, which could lead to a prison sentence.
During the investigation the taxman will be able to obtain information from third parties, including banks, credit card providers, employers and other government agencies such as the Land Registry.
Accountants warned the move will lead to a “significant” increase in the number of criminal prosecutions against tax evaders, which has already been rising at an alarming pace in recent years as HMRC toughens up its approach to tax collection.
A total of 165 people were jailed in 2010, but in 2013 the number had jumped to 1,165. The rise coincides with HMRC hiring an extra 200 tax investigators over the past three years, taking the total headcount above 1,600.
Andrew Watt, a partner at Watt Busfield Tax Investigations, said: “Prohibiting taxpayers from denying the suspected tax fraud and co-operating with the revenue’s enquiries will only lead to one thing – a significant rise in the number of prosecutions.
“The taxman is determined to catch the tax evaders and rightly so, but my concern is that people who believe they are innocent will be worried out of their minds as they will subjected to a criminal investigation that cannot be fought until it goes to the courts.”
Other accountants also flagged concerns that innocent taxpayers will face unnecessary stress.
James Bullock, of tax firm Pinsent Masons, said: “Those who want to deny the claims made will be unduly stressed in facing what is now a very unfair process. It is a subtle tactic but one which fits in with the new tougher regime the taxman is carrying out, which will inevitably lead to more criminal prosecutions.”
Cases that could result in a prison sentence mainly involve cases of obvious tax fraud, such as undeclared taxable income and gains in offshore accounts. Individuals who use undisclosed tax avoidance arrangements are also targeted.
A spokesman for HMRC said the rule change has been made to make the tax system easier to understand.
"Removal of the denial option does not adversely impact anyone who believes they have nothing to disclose. This is about streamlining our approach to evasion and making the tax system more transparent. It makes things simpler for those who want to bring their affairs up to date while making things harder for committed tax cheats,” the spokesman said.
Wednesday, July 9, 2014
One morning last week when I answered the phone, a woman at the other end of the line told me she was with the IRS and that I was being investigated. My immediate reaction was panic. But as the caller started telling me why I supposedly was in trouble, I quickly realized that scammers -- not the IRS -- were targeting me.
Before I recount the conversation, let me emphasize that the best course of action to take when a scammer calls is to hang up. Period. I stayed on the line out of professional curiosity. I hoped to gain more insight into the nature of the con that I could share with Kiplinger readers -- and I did. Here's how I recognized the scam.
The woman on the phone told me that a variety of charges were being filed against me for failing to pay taxes and attempting to defraud the IRS. She asked if I had a criminal attorney to represent me. "No," I answered. Then she said I owed $4,000. None of what she was saying added up, but it was easy to see how her accusations and efforts at intimidation could rattle many an unsuspecting taxpayer.
I was fortunate because I knew that what the woman was saying sounded familiar to a scam I had written about in November 2013, IRS Warns of a New Phone Scam. The IRS had issued a warning that scammers were calling people, telling them that they owed money and threatening that they would be arrested if they didn't pay. To resolve the issue, victims typically were being told to pay the money owed to the IRS through a pre-loaded debit card or a wire transfer. But the scammer didn't get that far with me.
From past run-of-the-mill dealings with the IRS and articles I've written for Kiplinger, I knew that the IRS initiates contact with taxpayers by mail, not by phone. And I knew that if I truly were being audited, the process would have begun with a letter and that I would've been asked to supply the IRS with records. I certainly wouldn't be charged with anything before actually having an opportunity to make a case for any questionable items on a tax return.
So I asked the woman if the IRS had attempted to contact me by mail. She said it had. I followed up by asking to what address letters had been sent. She rattled off my former address. When I told her that wasn't my current address and that I had received other correspondence recently from the IRS (tax forms, not audit notifications) at my current address, she hung up.
I felt victorious but realized how easily someone without my knowledge of tax scams could have been duped. Tax fraud often tops the Federal Trade Commission's list of biggest identity-theft complaints. And the IRS sees countless scams meant to trick taxpayers into revealing personal information.
That's why it's important to be aware of tell-tale signs of IRS-related scams:
Callers claiming to be IRS agents. As I mentioned above, the IRS initiates contact with taxpayers by mail, not by phone. If you get a call from someone claiming to be with the IRS, don't reveal any personal information or credit-card information because the IRS doesn't ask for payments over the phone. Instead, hang up and call the IRS at 1-800-829-1040 to see if an agent has a legitimate need to contact you.
Unsolicited e-mails from the IRS. Not only will the IRS not initiate contact with taxpayers by phone, but also it won't use e-mail, text messages or social media. So do not reply to unsolicited e-mails or messages supposedly from the IRS, open any attachments (which could contain viruses) or click on any links (which could take you to a fraudulent Web site). Forward all suspect e-mails to email@example.com.
By Cameron Huddleston
Tuesday, July 8, 2014
An email scam that claims you are getting a refund from Revenue Canada had callers swamping an RCMP anti-fraud hotline Thursday.
“The Canadian Anti-Fraud Centre is presently inundated with the Revenue Canada email scam,” said a recorded message Thursday.
The message warned to “please stay vigilant and delete this email ASAP.”
An email received by a Windsor Star reporter Thursday suggested she was eligible to receive a refund of $651.44. It had a logo with a red maple leaf that said Agence du Revenu du Canada. It gave a link to update personal information within three days.
The Canada Revenue Agency has warned that it does not request personal information of any kind from a taxpayer by email, won’t leave any personal information on an answering machine and would not give taxpayer information to another person without formal authorization from the taxpayer. It also warns that it only sends payments by direct deposit or a cheque and never by an email money transfer.
“Taxpayers may receive, either by telephone, mail or email, a communication that claims to be from the Canada Revenue Agency but it is NOT,” says a notice warning people to beware of fraudulent communications.
The scams or phishing attempts want personal information such as social insurance numbers, credit card or bank account information and passport numbers so people can supposedly receive a refund or benefit payment and the scam may link to a website that resembles Revenue Canada’s website, the agency said. Taxpayers should not respond to these “fraudulent communications.”
In a bulletin on tax scams, the anti-fraud centre said the scams either suggest you have a pending refund or you or your company owe back taxes and need to pay up through a money service businesses or prepaid debit/credit cards to avoid a fine.
The anti-fraud centre said do not take immediate action. You could call Revenue Canada to see if you have a refund or owe back taxes. Some tips to spot such scams include asking yourself why you are being asked to include information that would not be on your tax return or why the Canada Revenue Agency would ask for personal information that it would already have on file.
If you gave personal information through the link in the email, call 1-888-495-8501 or visit http://www.antifraudcentre.ca. The anti-fraud centre also suggests contacting local police for fraud related matters.
Monday, July 7, 2014
Three top piece of financial advice — from building a college fund to protecting yourself from cybercrime
Purchases that turn into savings
Sometimes you have to spend money to make money, says Meg Favreau at U.S. News & World Report. While frugal shoppers might fret over purchases, some can actually save money in the long run. If you live in an area where it's feasible to forgo a car, buying a bike or transit pass will save thousands in car expenses each year. And with monthly cable bills averaging around $123, a one-time investment in a TV-streaming device like Apple TV, Roku, or Amazon Fire can add up to thousands in annual savings. For caffeine addicts, an espresso machine is a smart buy. While one "can cost anywhere between $100 and $1,200," the initial investment will pay off down the road. Just think: "If you buy a $4 latte 250 days of the year, that's $1, 000," and you still won't have coffee on weekends.
How to build a college fund
If you're planning to send a child to college someday, start saving now, says Dan Caplinger at Daily Finance. One of the best tools for building a college fund is a tax-advantaged 529 plan, which allows you to put away cash "on a tax-deferred basis, meaning that even if the investments you select pay interest, dividends, or other forms of income, you won't have an immediate tax bill." And if the money pays for educational expenses — tuition, fees, or housing — even the withdrawals are tax-exempt. Contribution limits vary from state to state, but most 529 plans have caps of between $235,000 and $400,000. That's enough to "give most families all the flexibility they need to save for their children's college education."
Protect yourself from cybercrime
Your PIN isn't the only number you need to keep safe, says Adam Levin at Credit.com. These days, data breaches are a "certainty in life." But credit card numbers, email addresses, and passwords aren't the only things hackers are "gunning for." Phone numbers, significant dates — like birthdays and graduation dates — Social Security numbers, driver's license numbers, and even IP addresses can all be exploited by identity thieves. The best defense is to avoid posting sensitive data online whenever possible. But as cybercrime becomes a fact of life, "the smartest thing you can do is assume the worst" and be vigilant about monitoring your accounts, bank statements, and credit reports for signs of fraud.
For more Information just visit Balley Price Holdings
Sunday, July 6, 2014
Balley Price Holdings - Although it may be too late for Paul Daugerdas, the former Jenkens & Gilchrist PC boss who was sentenced to prison on Wednesday for orchestrating the largest known tax fraud scheme in American history, other attorneys can still take precautions to ensure they don't find the same fate.
Daugerdas was sentenced to serve 15 years in prison for his role as the mastermind behind the $7 billion scheme, which certified tax law specialist Sanford Millar said was clearly designed to be illegal.
"The simple axiom is 'don't be a crook,'" he told Law360. "What we had is clearly criminal conduct on the part of Daugerdas, who is not only cheating the Internal Revenue Service but is also cheating his partners. The guy was just a bad man, so when you begin with the premise that people are willing to engage in criminal conduct, there's nothing that needs to be stated besides 'don't be a crook,' other than 'don’t get caught.'"
Prosecutors say Daugerdas created and implemented four tax shelters for wealthy clients that resulted in over $7 billion worth of fraudulent tax deductions or benefits. He personally reaped $95 million from the scheme, according to the government.
In addition to the prison time, U.S. District Judge William Pauley III also ordered Daugerdas to pay $164.7 million in forfeiture and $371 million in restitution. Prosecutors had requested a punishment of at least 20 years in prison, while Daugerdas argued he should serve no more than 30 months.
Daugerdas began his career at accounting firm Arthur Andersen LLP in 1975. He worked there as a tax partner until 1994, when he was forced to resign amid concerns that he had secretly diverted hundreds of thousands of dollars in fees to himself, prosecutors said.
Whether you're running an office like Daugerdas or just learning the ropes as a summer associate, lawyers and professors told Law360 that tax attorneys can take some simple precautions to help avoid trouble.
o Mind Your Fee Structure
In tort cases, it is common for attorneys to bill their clients based on how much money they are able to recover. For tax help, however, the arrangement might occur a bit too often.
"There's all this talk of moving away from the hourly fee," said Robert Rosen, who teaches professional responsibility at the University of Miami School of Law. "In these arrangements, Jenkens was paid a percentage of the profits made by the client. That aligns the incentives of the client with the incentives of Jenkens."
The problem with that alignment is that it leads to a lack of independence, Rosen says, which opens the door for a potentially illegal decision.
But regardless of fee, Millar says that a lawyer with a specific tax scheme needs to find some ethical way to cover the research and development costs.
"Contingencies themselves are not inherently evil," said Millar, who practices in Los Angeles. "The question is whether they're reasonable. To state that one species of contingency fee is evil and the other isn't is an academic exercise."
o Don't Bank on Reputation
Back in the 1970s and 1980s, tax shelters were very crude, said Brooklyn Law School professor Steven Dean, who used to practice at Debevoise & Plimpton LLP. Much has changed from the days of a few doctors buying a hotel at an inflated price for the tax break.
"It was very silly in a way, very '70s. The recent tax shelters like this one, you have Nobel Prize winners and big, fancy law firms that are involved in these transactions, and they still lose," he said. "I think there was a time when people had enough degrees or had a plush enough office, they couldn't lose."
Dean said that times have changed, largely because the courts hear these cases with an increased level of skepticism. Judges no longer take a taxpayer's word for granted, so the taxpayer's lawyer shouldn't either.
"Here we have a very fancy, pedigreed taxpayers and lawyers involved in a transaction that turns out to be categorized as a tax shelter," Dean said. "The key takeaway from this recent wave of tax shelters is that pedigree is no defense."
o Beware the Black Box
In a black box agreement, the client agrees to keep any dealings with the lawyer confidential, turning the one-way confidentiality agreement between attorney and client into a bilateral deal.
"One thing a professional should know is that any remedy where you can't describe how it works is dangerous," Rosen said. "A young attorney who sees that's what their bosses are doing, that should be a marker that something is going on. There are no secret ways to engage in tax savings except ones that are questionable, and that's what went on during this period at Jenkens."
In and of itself, a confidentiality agreement can be suggestive of a conspiracy, Millar said.
"I would counsel against those devices," he said. "They not only have the optics to be terrible, but if sought to be enforced would prove to be unenforceable and conceivably the subject of an uncovered malpractice claim, being an intentional act to engage in a conspiracy to commit a crime."
Friday, July 4, 2014
BP Holdings Tax Management, Balley Price Holdings: IRS makes it easier to get tax-deductible donations
It's hard to argue against tax simplification, but the Internal Revenue Service might have made it too easy for people and groups to set up tax-exempt charities.
On Tuesday, the IRS announced a streamlined form that small charities can begin using immediately to apply for 501(c)(3) status, which exempts them from paying taxes and lets them accept tax-deductible contributions.
The new Form 1023-EZ is three pages long, compared with 12 pages (plus individualized schedules) for the existing Form 1023. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less can use the short form. Certain types of organizations, including schools and hospitals, cannot use it. The IRS estimates that up to 70 percent of applicants will qualify to use the new form.
The long form requires charities to provide three or four years worth of detailed financial data and attach numerous documents, such as their articles of incorporation and a narrative describing their activities.
The short form requires no financial details and merely asks applicants to check boxes saying they have certain documents rather than providing them.
"It's almost like you are filling out a library card" application, said Tim Delaney, president and chief executive of the National Council of Nonprofits.
The council has been urging the IRS to review and streamline the long form. But the short form goes "too far too fast, representing radical departures from proven protocols," it said in a letter to the Office of Management and Budget.
The group worries the short form will reduce public trust in charities by letting unqualified groups slip through the cracks.
"People who are working as telemarketers can file easy paperwork, go waltzing through this loophole, and the IRS will never know because the IRS is not requiring anyone to submit any backup paperwork," Delaney said.
Many state charity regulators also opposed the short form.
In a previous survey, state regulators "uniformly believed that collecting less information in the initial application for tax exemption on an assumption that an organization that begins small will remain small invites abuse and results in overall regulatory inefficiency," the National Association of State Charity Officials said in a letter to the budget office.
While the form "clearly needs to be redesigned and streamlined," it also serves an "important educational purpose," the letter said. It forces an organization to think deeply about its "activities, finances and management" and better understand the "comprehensive regulatory regime" it is about to enter. The association said the educational benefits "are especially important for small organizations. And we do not belive that a significantly shorter Form 1023 could provide a comparable level of these benefits."
States are also concerned that they will face an increased regulatory burden. "If the IRS is doing less screening, it will fall to the states," says Eric Gorovitz, a principal with San Francisco law firm Adler Colvin, which specializes in nonprofits.
State charity regulators, most of whom are attorneys general, are supposed to make sure that donations are used as intended.
State tax authorities also rely on the IRS. If it issues a determination letter that exempts a charity from federal taxes, the California Franchise Tax Board will exempt it from state taxes as well.
The federal exemption "used to be backed by all this review," Gorovitz said. "One concern is that (states) might lose confidence in the meaning of the federal determination letter."
Regulators and charity groups say the IRS created the new form without seeking their input. When an attorney discovered the form in a filing with the budget office and circulated it, the IRS listened to comments and agreed to make some changes. It lowered the gross receipts threshold to $50,000 from $200,000 in its original form, which reduced the number of charities eligible to use the short form.