William D. Deutchman, CPA

The "Dirty Dozen" of Tax Scams

noreply@blogger.com (wddcpa.com) — Tue, 10 Jan 2012 19:00:00 +0000

The Internal Revenue Service has issued its 2010 “dirty dozen” list of tax scams, including schemes involving return preparer fraud, hiding income offshore and phishing.

“Taxpayers should be wary of anyone peddling scams that seem too good to be true,” IRS Commissioner Doug Shulman said. “The IRS fights fraud by pursuing taxpayers who hide income abroad and by ensuring taxpayers get competent, ethical service from qualified professionals at home in the U.S.”

Tax schemes are illegal and can lead to imprisonment and fines for both scam artists and taxpayers. Taxpayers pulled into these schemes must repay unpaid taxes plus interest and penalties. The IRS pursues and shuts down promoters of these and numerous other scams.

The IRS urges taxpayers to avoid these common schemes:

Return Preparer Fraud
Dishonest return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by promising refunds that are too good to be true. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued injunctions ordering hundreds of individuals to cease preparing returns and promoting fraud, and the Department of Justice has filed complaints against dozens of others, which are pending in court.

To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of steps for future filing seasons. These include a requirement that all paid tax return preparers register with the IRS and obtain a preparer tax identification number (PTIN), as well as both competency tests and ongoing continuing professional education for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents.

Setting higher standards for the tax preparer community will significantly enhance protections and services for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. Other measures the IRS anticipates taking are highlighted in the IRS Return Preparer Review issued in December 2009.

Hiding Income Offshore
The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.

IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. While special civil-penalty provisions for those with undisclosed offshore accounts expired in 2009, the IRS continues to urge taxpayers with offshore accounts or entities to voluntarily come forward and resolve their tax matters. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution.

Phishing
Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. IRS impersonation schemes flourish during the filing season and can take the form of e-mails, tweets or phony Web sites. Scammers may also use phones and faxes to reach their victims.

Scam artists will try to mislead consumers by telling them they are entitled to a tax refund from the IRS and that they must reveal personal information to claim it. Criminals use the information they get to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Taxpayers who receive suspicious e-mails claiming to come from the IRS should not open any attachments or click on any of the links in the e-mail. Suspicious e-mails claiming to be from the IRS or Web addresses that do not begin with http://www.irs.gov should be forwarded to the IRS mailbox: phishing@irs.gov.

Filing False or Misleading Forms
The IRS is seeing various instances where scam artists file false or misleading returns to claim refunds that they are not entitled to. Under the scheme, taxpayers fabricate an information return and falsely claim the corresponding amount as withholding as a way to seek a tax refund. Phony information returns, such as a Form 1099 Original Issue Discount (OID), claiming false withholding credits usually are used to legitimize erroneous refund claims. One version of the scheme is based on a false theory that the federal government maintains secret accounts for its citizens, and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS.

Nontaxable Social Security Benefits with Exaggerated Withholding Credit
The IRS has identified returns where taxpayers report nontaxable Social Security Benefits with excessive withholding. This tactic results in no income reported to the IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.

Abuse of Charitable Organizations and Deductions
The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets including situations where several organizations claim the full value for both the receipt and distribution of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

Frivolous Arguments
Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance.

Abusive Retirement Plans
The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited.

Disguised Corporate Ownership
Corporations and other entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number.
Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.

Zero Wages
Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme. Filings of this type of return may result in a $5,000 penalty.

Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and to hide assets from creditors, including the IRS.

The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.

Fuel Tax Credit Scams
The IRS receives claims for the fuel tax credit that are excessive. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But other individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and potentially subjects those who improperly claim the credit to a $5,000 penalty.

How to Report Suspected Tax Fraud Activity
Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.

Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

William Deutchman, CPA www.wddcpa.com

Asset Recovery of Unclaimed Funds

noreply@blogger.com (wddcpa.com) — Sat, 23 Apr 2011 18:37:00 +0000

Over the course of my career of 35-plus years, I'd would say that the most interesting and satisfying work has been investigative work. Some call it forensic accounting, but I prefer not to use that term because it is most familiar to people when used in criminal matters. Another term that applies to this work is Asset Recovery.

It's probably the enjoyment that comes from the "hunt." I've always been on the lookout for information that leads to the recovery of assets, both monetary and tangible. With my unclaimed funds work, once I find the money, I have to locate the company or person to which the money belongs. The longer the money has been sitting dormant, the more likely that some changes have occurred which add to the challenge. Companies have closed, merged, been acquired; people have moved, changed names or have passed-away.

Also, it's never boring. I keep finding more and better resources to do the necessary research. I'm developing ways of being creative and letting my curiosity take me to new and interesting places. I believe that it results in finding and recovering assets that others have missed.

I take real pleasure in reuniting money with its owner when the money has been sitting dormant, often for decades. A recent example involved money that went missing when the man was in his early 40's and now he is in his early 80's.

Congress's View on Unclaimed Funds Recovery

noreply@blogger.com (wddcpa.com) — Fri, 04 Mar 2011 22:14:00 +0000

As a result of the recent Congressional expenditure of billions of dollars in federal monies directed at keeping companies solvent, the government is now closely scrutinizing companies’ finances and practices. This scrutiny has revealed that many companies receiving bailout money actually have millions of dollars in unclaimed funds, to which they are entitled, but have consistently failed to claim.

US Representative Barney Frank, Chairman of the House Financial Services Committee, is demanding that such companies recover their unclaimed funds. Chairman Frank believes that if these companies were claiming their monies, there may not be a need for them to take federal bailout money.

Chairman Frank is now calling for a formal Congressional investigation into the failure of businesses to recover unclaimed funds, stating he will be insisting “they tell us what their whole systems [for recovering unclaimed funds] are, how did this happen, and more importantly, how do they stop it from happening in the future."

-As detailed in a March 2009 investigative report featured on Fox 7 Miami and NBC 7 Boston.

Great News for First-Time Homebuyers Who Failed to Close by June 30

noreply@blogger.com (wddcpa.com) — Thu, 01 Jul 2010 14:03:00 +0000

First-time homebuyers will have until Sept. 30 to close on their purchases and still receive an $8,000 tax credit under a bill passed by the Senate late Wednesday. The House overwhelmingly approved the bill on Tuesday.

President Obama is expected to sign the bill. The deadline had been June 30.

The bill doesn't extend the benefit to anyone currently shopping for a home. Buyers must have signed a contract by April 30 to qualify for the tax break. At issue is when the deal must be finalized. Many buyers who signed contracts by April 30 ran into delays that prevented the deal from closing by June 30. The extra 3 months granted by this bill is of great benefit to those buyers.

Qualified existing homeowners also have until Sept. 30 to close on new homes and receive a tax credit of up to $6,500.

William Deutchman, CPA www.wddcpa.com

Congress Extends and Expands Home Buyer Credits

noreply@blogger.com (wddcpa.com) — Fri, 06 Nov 2009 20:59:00 +0000

The $8,000 first-time homebuyer credit that I wrote about months ago has been extended beyond its original expiration date this fall. The credit which was to expire at the end of November has been extended to the end of April, 2010.

In addition, the law has been expanded to allow homeowners who have occupied their homes for 5 consecutive years during the last 8 years to be eligible for a $6,500 tax credit. The law also increases the income limits and home purchase price limits that existed in the original law.

These changes are expected to continue to stimulate the home real estate sector of the economy.

William Deutchman, CPA
www.wddcpa.com

First-Time Homebuyer Tax Credit - up to $8,000

noreply@blogger.com (wddcpa.com) — Sat, 11 Jul 2009 16:58:00 +0000

Did you buy a home after April 8, 2008? If so, and it is your personal residence and you (and your spouse if married) did not own any other main home during the 3-year period ending on the date of the purchase of a new home, you probably qualify for a large tax credit. If you bought your home in 2009, and you qualify, you can even claim the credit on your 2008 tax return.

Even if you already filed your 2008 return, your return can be amended and you can get a refund of up to $8,000. I know it sounds too good to be true, but this is the federal government's way to stimulate the housing market that has been in a slump in recent years. The tax incentive is part of the recently enacted Housing and Economic Recovery Act of 2008.

I am a Certified Public Accountant (CPA) in Cleveland, Ohio and I can assist you by determining if you qualify and taking appropriate action if you do. Please see my contact information below and we can arrange to do what is in your best interests.

P.S. If you know of others who might be eligible for this tax credit, pass this information on to them. They will thank you for thinking of them.

216-621-1120
http://www.wddcpa.com/
wddcpa1@aol.com

Save Your 2005 Tax Refund !!

noreply@blogger.com (wddcpa.com) — Mon, 30 Mar 2009 00:35:00 +0000

...

Believe it or not, an unfiled individual federal income tax return that will show a refund, may soon be unavailable to the taxpayer.

The reason is that although a late-filed return shows that the government owes the taxpayer, it may be too late to collect the money. The good news is that the taxpayer will not be penalized for late filing and late payment, and will not be assessed interest. But the bad news is much worse.

If the return is filed after the statute of limitations has run out, the government wins and the taxpayer loses. Normally, the time for filing a return and obtaining a refund of an overpayment runs out 3 years after the return was due. That is sometimes referred to as the statute of limitations.

The point is that a 2005 individual tax return must be filed by this coming April 15th. It would be wise to send it certified mail to be sure that you get proof that it is received timely by IRS.

If you need help getting your return done, please contact me at 216-621-1120. But, Hurry !!!!

www.wddcpa.com

Cost Segregation for Real Estate Investors

noreply@blogger.com (wddcpa.com) — Sat, 31 Jan 2009 04:11:00 +0000

I just attended a webinar on Cost Segregation which can provide tax savings in the early years of ownership of a property.

Cost Segregation is a strategic tax savings tool that allows companies and individuals, who have constructed, purchased, expanded, or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.

What are the benefits of a Cost Segregation Study?

Generates immediate increase in cash flow through accelerated depreciation deductions.
Reduces income taxes and can also reduce real estate property taxes.
Provides an easy opportunity to claim ‘catch up’ depreciation on previously misclassified assets (you may be able to deduct depreciation that was not taken in the years you have already owned the property).
Provides an independent third-party analysis (engineering study) that will be available to withstand IRS review.

Contact us at 216-621-1120 if you would like to determine if your property is a good candidate for a Cost Segregation study. We can arrange to have this study performed for you which might lead to significant tax savings.

www.wddcpa.com for your real estate tax and accounting needs

Abbreviation Expansion Presentation I Gave in September, 2000

noreply@blogger.com (wddcpa.com) — Sun, 16 Nov 2008 02:40:00 +0000

I just came across the following announcement for a presentation I gave in September, 2000. It was associated with my profile on ZoomInfo. It's amazing how the internet retains information and then organizes it. ZoomInfo is a recent creation, yet it picked-up this newsletter article from years ago.

The presentation I gave pertains to a great productivity tool that I use in writing. With it, a minimium number of keystrokes produces much, much more on the screen. It expands a user-defined abbreviation (that I previously set-up) into a word, phrase, paragraph, or document that was associated with the abbreviation. I have even developed creative ways to use the software that go way beyond the basics of the program. I use this software in every application that I use. It even checks my spelling in every application, therefore, I'm not limited to the spell checking when I'm using MS Office. I turn off the spell checker in MS Office.

If you are interested in learning more about abbreviation expansion, or speedwriting, and this software, please send me an email to RapidWriter123@gmail.com

Greater Cleveland PC Users Group Web Page - [Cached Version]
Published on: 1/31/2001 Last Visited: 7/19/2002

Please welcome GCPCUG members Dave Pfeil, H.F.E.S, president of Ergonomically Correct LLC, and Bill Deutchman, CPA, who together have volunteered their time and energy to present a program on these compelling topics.
...
Bill will point out why a utility program that expands user defined abbreviations can be a valuable input tool, especially when other technologies such as voice recognition or scanning aren't feasible, practical, or accessible.

Abbreviation expansion can also be helpful for people with physical impairments who use a keyboard with difficulty, or for keyboarders who type using the hunt & peck method. Bill calls the use of a tool such as abbreviation expansion "working smarter, not harder" and has adopted the motto "save time, save torque"; he points out that reducing keystrokes also helps minimize computer stress injuries. Bill will offer strategies for users at different levels -- light, heavy, and power -- and he'll share suggestions for remembering abbreviations.

At our September 9th general meeting, count on gaining information to help you feel more comfortable at the keyboard and more productive with your computer, both for work and play.Please enjoy your Labor Day weekend, and then plan to join us on Saturday, September 9th, 2000!

Copyright © 2000 GCPCUG.

www.wddcpa.com for your tax and accounting needs

Take a Load Off and Feel Better !!!

noreply@blogger.com (wddcpa.com) — Thu, 30 Oct 2008 14:49:00 +0000

You know who you are. You haven't filed tax returns for several years. It makes you uncomfortable, you're stuck in quicksand and you can't get motivated. Sound familiar?

One big step in removing this weight from your shoulders is to make an appointment with a tax preparer. Many preparers will give you a tax organizer for each tax year which will guide you in gathering your information. A tax preparer will provide other assistance if needed.

Then, give your organizers and any necessary tax documents to your preparer and let the preparer do the rest.

Waiting too long to file a return can have detrimental consequences. A big one is that if a refund is expected and the statute of limitations has run (usually 3 years from the due-date of the return), it will be unavailable. Lost! (not the reality TV show) Ouch !!!!

Let me know if I can help. A short introductory phonecall won't cost you a dime because it is complementary. Let's talk !!!

William Deutchman, CPA
www.wddcpa.com
216-621-1120

A Comp or Not A Comp .. That is the Question

noreply@blogger.com (wddcpa.com) — Fri, 26 Sep 2008 00:55:00 +0000

Buyers of single family homes, whether investor or homebuyer, often check for recent market sales of comparable houses. Ideally, a comparable would be an identical house, on the same size lot, probably located next door, in the same condition, same landscaping, same interior decoration, etc. In the real world, though, that doesn't happen.

But, there is still a way to use information acquired from various sources and make dollar adjustments to account for the differences between the recent sale and the property being considered for purchase, often referred to as the "subject."

Be careful, though. If the reported sale amount is not a good measure of value, any adjustments to that amount for the differences between the properties are meaningless. The following are just a few examples:

1) a property acquired by the lender through foreclosure; that price doesn't represent a sale

2) a property acquired from relatives is not an arms-length transaction and may be for less than fair market value; this won't be obvious when the last names of the sellers and buyers are different

3) even if the property appears to be very similar on the outside, significant differences might exist on the inside that influenced the price that was paid for that property; it's often said that kitchens and bathrooms sell houses, so consider that if the house had completely remodeled kitchen and bathrooms it would likely sell for more than a house that had it's original kitchen and bathrooms

www.wddcpa.com for your real estate investor tax preparation and accounting needs

CPA ... Sooner is Better

noreply@blogger.com (wddcpa.com) — Thu, 04 Oct 2007 02:48:00 +0000

Qualifying for a loan is much harder than it was before the subprime crisis. That's not news.

When you seek a loan, whether from a conventional, hard money, or private lender, you should expect that the lender will be more careful than in recent years. Now, lenders are demanding more and better information as part of their increased level of due-diligence. When you have to provide your tax returns in support of your loan application, you will be better off when you are able to provide tax returns prepared by a CPA, and have a CPA who can provide other requested information.

What this means to you as an investor is that you have should have an accountant on your team. Successful investors have accountants who are experienced in real estate. When you start your real estate business you should pattern it after the business model of a successful investor. It just makes sense.

If there is any doubt in your mind, any temptation to wait, you should try to visualize how you how you will be perceived and your loan application will be evaluated by the loan committee. If you don't like what you see, then find the kind of CPA you need to prepare your tax returns. The sooner, the better.

Live From New York, it's ... Alan Greenspan

noreply@blogger.com (wddcpa.com) — Fri, 21 Sep 2007 02:46:00 +0000

A couple of nights ago, I had the privilege of attending a live interactive interview of Alan Greenspan, the recently retired Chairman of the Federal Reserve Bank. In my case, "interactive" meant that he was in New York and I was watching it on a large screen in Cleveland.

His length of service as chairman is impressive in that it lasted more than 18 years, during which time there were four presidents, not all of the same party. He talked about his working relationships with them.

He was interviewed by Andrea Mitchell, the journalist, who is also his wife. She was very professional in asking tough questions, but there was the occasional exchange between spouses that caused them and the audience to laugh.

The event had been scheduled a while ago, but it happened just as his book was released, and coincidentally, occurred on the evening of the day during which his successor, Ben Bernanke, cut the federal interest rate by 50 basis points. He's making appearances on TV because of the book, but the interview I saw lasted for an hour and a half, during which time so many subjects were discussed.

His life, prior to becoming interested in economics, is fascinating. Once he gave up being a professional musician, however, he established himself over the years to eventually advise Presidents Nixon and Ford. Hearing him describe the personalities of these men as an insider provided information not generally known about them. All of that was before taking over the Federal Reserve Bank.

The topics of discussion were of particular interest when talking about why decisions were made and whether he thought that they stood the test of time. One topic of current interest is the problem resulting from subprime mortgages and how it has disrupted the real estate market. He explained that what the Fed decided didn't cause the abuses that lead to many of the problems with these loans. These problems were caused by others.

He gave an opinion on the war. He also discussed the future, including his serious concerns about the ability of the government to keep it's promises to the large numbers who will be retiring in the coming decades, particularly Social Security and Medicare.

www.wddcpa.com for your real estate investor tax preparation and accounting needs

Ohio Homestead Exemption

noreply@blogger.com (wddcpa.com) — Wed, 12 Sep 2007 03:44:00 +0000

Governor Ted Strickland signed into law a new Homestead Exemption for Ohio homeowners and eliminates the old exemption rules. The new exemption will allow homeowners to shelter the first $25,000 of market value, not taxable value, from real estate taxation.

An application must be filed with the county auditor before October 1st in order to reduce the taxes due in 2008. To be eligible the homeowner must live in the home as their primary residence and be 65 years old or will be 65 in 2007, or be certified totally and permanently disabled as of January 1, 2007, or be the surviving spouse of a qualified homeowner who was at least 59 years old on the date that the spouse died. If you believe that you qualify, contact your county auditor and request an application form or contact our office for assistance. The application must be filed before October 1, 2007 to receive the exemption in 2008.

Those homeowners who already qualified for the homestead exemption do not have to file an application to qualify for the new homestead exemption.

www.wddcpa.com for your real estate investor tax preparation and accounting needs

You want this from your advisor, right?

noreply@blogger.com (wddcpa.com) — Thu, 30 Aug 2007 04:23:00 +0000

First, we seek to understand our client's situation. Then, we strive to apply the right tools, in the right way, and at the right time to that situation. This puts our clients in a position to make informed decisions.

Even when a businessperson is very knowledgeable, s/he may not remember, or maybe never fully understood a concept, or may not recognize when something applies. The advisor brings expertise to the matter, isn't distracted by emotional involvement, has a fresh set of eyes, and possesses objectivity. Being equipped with these skills provides an opinion that helps the client to evaluate the situation again, and make a decision that is likely to be better than acting alone.

Everyone would agree that a professional golfer knows how to use all the clubs in the bag. Yet, the professional golfer still considers the advice of the caddie in deciding which club to use and how to play the ball. Why should it be any different for anyone else regardless of their pursuits?