Saturday, June 28, 2014

Learning to Be a Bad Guy

Originally published on Passive Activities and Other Oxymorons on May 2nd, 2011.
IRSIG TAS-13.1-10-0311-001

I'm not going to explain the acronym above.  It's internal IRS stuff that only a real nerd would go combing through.  At any rate this document gave my evil inner self some more material to work with.  I occasionally reflect on how I could be a much more effective villain than many of those you see portrayed in movies.  Just a couple of items.  When I get the drop on the good guy, it's bang, bang and I'm out of there.  I won't spend half an hour gloating about the genius of my nefarious plot, while unbenknownst to me the forces of good are converging.  When the forces of good have finally converged they will find a dead good guy and will be none the wiser about my master plan.  Secondly and perhaps more importantly, my minions will be well trained in the use of their weapons.  If you want to be one of my minions, you better fire at least expert.  None of this stuff with the good guy running through a gauntlet of fire picking off my minions with a pistol while they can't hit him with rifles.  If the nefarious plot can't finance a few thousand rounds of small arms ammunition to maintain proficiency, it's real not worth doing.

Probably, though, I would start off my career as a villain by moving to the dark side of the tax preparation business.  You can learn about the opportunities from studying the cases of people who have been encouraged by the courts to take up another trade.  Here is a post I wrote about them a while ago.  Now some new ideas come from an unexpected source.  The Taxpayer Advocate Service is an independent agency within IRS that helps people sort out problems.  Some of those problems are the collateral damage caused by rouge preparers.  The IRSIG (whatever that stands for) is giving guidance on unscrambling those eggs :

There is a small segment of the tax return preparer community who defraud taxpayers and the IRS by inflating deductions and credits, and directing refunds to the preparers' bank accounts without the taxpayers' knowledge. There are also preparers who inflate taxpayers' tax liabilities and the amount of withholding in an effort to divert larger refunds into the preparers' bank accounts. There are many variations on the scenarios, and you will need to review the facts closely to determine the appropriate steps to take.

When I've gone out camping with the tax return preparer community, I've always wondered about those shady looking characters who don't seem to know the words to "Michael Row The Boat Ashore".  I always suspected that they were IRS CID agents just checking in on us.  Now I know better.  They are that "small segment".

At any rate taxpayers advocates are tasked with cleaning up the mess:

The following three examples demonstrate how to advocate for taxpayers who have been victims of refund thefts by tax preparers. The following examples are representative of only a portion of the cases in TAS's inventory.

The evil genius of the "small segment" comes through in the first example :

Sally provides a tax return preparer with her W-2 and relevant information. The preparer completes Form 1040, reflecting a zero tax liability, and indicating Sally is eligible for a $350.00 refund. After providing Sally with a copy of that return, the preparer electronically files a different return with the IRS. Sally is not aware that the preparer altered the return before he electronically filed it by inflating income and the credit for income tax withholding; the preparer reported a tax liability of $500.00 and withholding of $3850.00, thereby increasing the refund to $3,350.00. Unbeknownst to Sally, the return preparer designated two bank accounts into which the $3,350.00 refund is split: $350.00 is direct deposited into Sally's account and the balance of $3,000.00 is direct-deposited into the preparer's own account. Thus, Sally has received the refund to which she thought she was entitled, based on the copy of the return the preparer had provided to her.

Notice the subtle brilliance.  Sally is somebody not worth stealing from.  So he steals some money for her, which he then steals from her.  This can end up making life pretty miserable for Sally until the taxpayer advocate comes to the rescue.  They've got work to do:

1. Case Advocates build their case by securing a copy of the return given by the preparer to Sally, the administrative file, and Sally's bank statement reflecting that she only received a portion of the refund.

2. Secure a written statement from Sally signed under penalty of perjury, which reflects that a) the other bank account did not belong to Sally, and that Sally had no knowledge that the preparer was depositing a portion of the refund into that account, and b) Sally had no knowledge that the preparer had filed a different return with the IRS. The written statement should include the closing phrase, “This statement is true to the best of my knowledge and belief, under penalties of perjury” right above or below the signature.
3. Case Advocates will refer their cases on TAMIS to a Campus Technical Advisor (CTA) indicating “Preparer Refund Fraud.” 

4. The CTA will review the account and administrative file. When appropriate, the CTA will provide language for an Operations Assistance Request (OAR) recommending that a) the IRS reverse the $3,000.00 refund from Sally's account, and b) the IRS abate the $500.00 tax liability that was assessed when the IRS received the fraudulent return from the preparer. The CTA will return the case to the Case Advocate on TAMIS. 

5. The Case Advocate will issue the OAR to Examination. Should the IRS not comply with the OAR, the Case Advocate needs to evaluate the reason for the Exam's failure to grant relief. If the Case Advocate believes the reason is insufficient, the Case Advocate should elevate to his/her manager for consideration of a TAO.

The second example is a variation on the first, that is even messier for the taxpayer, named Robert:

A tax return preparer completes Robert's return, indicating a refund of $300.00. After providing Robert with a copy of that return, the preparer electronically files a different return with the IRS. Robert receives the $300.00 refund he was expecting. Several months later, Robert receives a notice of examination and contacts the IRS. Robert learns that a refund for $3,000.00 was issued from his account. The IRS advises Robert that his original return reported Schedule C income and one dependent. Robert is not self-employed and has no dependents. Thus, the preparer had altered the return before electronically filing to increase the amount of the refund and to split the refund into two accounts $ 300.00 direct-deposited into an account belonging to Robert, and $2,700.00 direct-deposited into an account belonging to the preparer. Robert is concerned that the IRS's examination of his return will result in him owing the IRS for the preparer's fraudulent refund. He immediately files an amended return with the IRS.

The final example involves Form 8888, which I must confess I was not familiar with:

A return preparer completes Judy's return, indicating a tax liability of $500.00, withholding of $1,500.00, and a refund of $1,000.00. The preparer provides Judy with a copy of that return and tells her he will electronically file the return for her. Before the preparer electronically files the return, however, he changes the tax to $100.00, but does not change the withholding, so that the amount of the refund is now $1 ,400.00. The preparer splits the refund on Form 8888, so that Judy gets the $1,000.00 that she was expecting, but the preparer has $400.00 direct deposited into his own bank account.

The taxpayer advocate has another convoluted five step process to straighten that one out.  I gave up on thinking about working for the IRS when I found out I was too old for any of the pistol packing jobs.  I think I might enjoy being a taxpayer advocate though.  Kind of like a tax nerd social worker.  It may be that I have gotten paid from time to time for doing what they will do for free, but I don't mind the competition.

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