Kenney & McCafferty, PC A law firm providing help, information and protection to Tax Fraud Whistleblowers in all 50 states.
Call Now 1(888)482-6825 We take calls 24/7, including nights, weekends and holidays. Call our 24 Hour Fraud Hotline by Dialing Toll Free 1 (888) 482-6825 Outside the USA Dial (610) 400-7560 - Ask for Investigator Sweeney
Kenney & McCafferty, PC works exclusively with individuals who would like to obtain a monetary reward from the IRS for blowing the whistle on individuals and/or corporations that have committed tax fraud in monetary amounts of $2 Million Dollars or more.
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Report IRS Tax Fraud at www.irsrewards.com
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Report IRS Tax Fraud at www.irsrewards.com
General Tax Fraud Information and Penalties
The term voluntary compliance in regards to paying income tax in America means that each of us is responsible for filing a tax return when required, and for determining and paying the correct amount of tax. Fortunately, the vast majority of Americans recognizes their legal responsibility, and properly report and pay over their tax obligations. Types of Fraudulent Activities:
A. Common Tax Fraud Schemes
Listed below are some of the most popular criminal activities in violations of the United States tax law:
1.) Deliberately omitting income earned in any foreign stock exchange.
2.) Deliberately omitting income earned in any foreign country.
3.) Hiding or transferring assets or income in a foreign country.
4.) Hiding or transferring assets or income to another party.
5.) Deliberately underreporting or omitting income.
6.) Overstating the amount of deductions.
7.) Keeping two sets of books.
8.) Making false entries in books and records.
9.) Claiming personal expenses as business expenses.
10.) Claiming false deductions.
11.) Hiding or transferring assets or income.
B. Emerging Tax Fraud Schemes
1.Fictitious or Overstated Invoicing (“Transfer Pricing”) Some U.S. taxpayers have entered into schemes in which the taxpayer's U.S. business is billed by a purportedly unrelated offshore entity for goods or services (e.g., "consulting services") that are either nonexistent or overvalued. 2.Offshore Deferred Compensation Arrangements. Many highly compensated professional persons and business owners in the U.S. are being solicited to participate in "offshore deferred compensation plans". The U.S. taxpayer is encouraged to sever an existing employment relationship and substitute an arrangement in which the nominal employer is a foreign "employee leasing" company. The supposed result of this abusive arrangement is that the taxation of a large portion of the professional's or business owner's salary is deferred while he/she gains immediate access to the funds through loans or offshore-based credit cards. An improper deduction for employee leasing expenses is also created on the corporate tax return. 3.Factoring of Accounts Receivable. A U.S. taxpayer's business may discount or "factor" its receivables to a purportedly unrelated foreign business entity. The discount or factoring fee significantly reduces U.S. tax liability, and is moved to an offshore entity where it can either be invested free of U.S. tax or repatriated for the taxpayer's use and enjoyment. 4.Abusive Insurance Arrangements. Some promoters have devised arrangements that are characterized as insurance arrangements, giving rise to a deduction for the U.S. taxpayer for "premiums" paid to a purportedly unrelated offshore insurance company. Often these arrangements are merely self-insurance, lacking in real transfer of risk. 5.Shifting of Income Using Offshore Private Annuities. Some promoters suggest that U.S. taxpayers may avoid or substantially defer tax on income streams or capital gains by exchanging property for an unsecured private annuity.In another abusive scheme an offshore private annuity is used in conjunction with an offshore variable life insurance policy as a devise to "decontrol" a foreign corporation or other entity used in an abusive sequence of transactions.As a result the promoter claims that the foreign corporation or entity is owned by the insurance policy and is not a, controlled foreign corporation, foreign personal holding company, passive foreign investment company, or any entity controlled by a U.S. person whose income could be taxed in the United States to its owner. C. Common Abusive Domestic Trust Schemes 1.Business Trust. This involves the transfer of an ongoing business to a trust. Also called an unincorporated business organization, a pure trust or a constitutional trust, it gives the appearance that the taxpayer has given up control of his or her business. In reality, through trustees or other entities controlled by the taxpayer, he or she still runs the day-to-day activities and controls the business's income stream. Such arrangements provide no tax relief. The courts have held that the business income is taxable to the taxpayer under a variety of legal concepts, including lack of economic substance (sham theory), assignment of income, or that the arrangement is a grantor trust. In some circumstances, the trust could be taxed as a corporation. 2.Equipment or service trust. This trust is formed to hold equipment that is rented or leased to the business trust, often at inflated rates. The business trust reduces its income by claiming deductions for payments to the equipment trust. This type of arrangement has the same pitfalls as the business trust, and it will result in no tax reduction. 3.Family residence trust. Taxpayers transfer family residences and furnishings to a trust, which sometimes rents the residence back to the taxpayer. The trust deducts depreciation and the expenses of maintaining and operating the residence including gardening, pool service and utilities. The courts have consistently collapsed these types of trusts, taxing income to the taxpayer and disallowing personal expenses. 4.Charitable trust. Taxpayers transfer assets or income to a trust claiming to be a charitable organization. The trust or organization pays for personal, education or recreation expenses on behalf of the taxpayer or family members. The trust then claims the payments as charitable deductions on its tax returns. These alleged charitable organizations often are not qualified and have no IRS exemption letter; hence, contributions are not deductible. Charitable deductions are not allowed when the donor receives personal benefit from the alleged gift. 5. Asset protection trust These trusts are promoted as a means of avoiding liability for judgments against an individual or business. However, beware of any asset protection trust marketed as part of a package to reduce federal income or employment taxes. The courts can ignore such trusts and order the taxpayer's property sold to satisfy the outstanding liabilities. D. Common Foreign Schemes 1.False Billing Schemes. A taxpayer sets up an International Business Corporation (IBC) in a tax haven country with a nominee as the owner (usually the promoter).A bank account is then opened under the IBC.On the bank's records the taxpayer would be listed as a signatory on the account.The promoter then issues invoices to the taxpayer's business for goods allegedly purchased by the taxpayer.The taxpayer then sends payment to the IBC that gets deposited into the joint account held by the IBC and taxpayer.The taxpayer takes a business deduction for the payment to the IBC thereby reducing his/her taxable income and has safely placed the unreported income into the foreign bank account. 2.Abusive Foreign Trust Schemes. The foreign trust schemes usually start off as a series the taxpayer has turned his/her business and assets over to a trust and is no longer in control of the business or its assets.Once transferred to the domestic trust, the income and expenses are passed to one or more foreign trusts, typically in tax haven countries. As an example, a taxpayer's business is split into two trusts. One trust would be the business trust that is in charge of the daily operations.The other trust is an equipment trust formed to hold the business's equipment that is leased back to the business trust at inflated rates to nullify any income reported on the business trust tax return (Form 1041).Next the income from the equipment trust is distributed to foreign trust-one, again, which nullifies any tax due on the equipment trust tax return.Foreign trust-one then distributes all or most of its income to foreign trust-two.Since all of foreign trust-two's income is foreign based there is no filing requirement. Once the assets are in foreign trust-two, a bank account is opened either under the trust name or an International Business Corporation (IBC).The trust documentation and business records of this scheme all make it appear that the taxpayer is no longer in control of his/her business or its assets.The reality is that nothing ever changed.The taxpayer still exercises full control over his/her business and assets.There can be many different variations to the scheme. 3. International Business Corporations (IBC). The taxpayer establishes an IBC with the exact name as that of his/her business.The IBC also has a bank account in the foreign country.As the taxpayer receives checks from customers, he sends them to the bank in the foreign country.The foreign bank then uses its correspondent account in the to process the checks so that it never would appear to the customer, upon reviewing the canceled check that the payment was sent offshore.Once the checks clear, the taxpayer's IBC account is credited for the check payments.Here the taxpayer has, again, transferred the unreported income offshore to a tax haven jurisdiction. E. Other Emerging Foreign Tax Fraud Schemes 1.Offshore Internet Business. For businesses conducted primarily through the internet, promoters offer "kits" which give the appearance that the business is foreign owned and operated. Transactions may be routed through offshore servers, and business receipts may be collected through offshore bank accounts or credit card merchant accounts. These schemes particularly target businesses that offer delivery of computer software and other digital products such as music, pictures, or video. They may also provide a means of operating offshore gaming activities. 2.Offshore Wagering. Over the last few years, gambling websites have proliferated on the Internet. Many of these virtual casinos are organized and operated from offshore locations, where the operators feel free from State and Federal interference. The operators of these activities may suggest that players in the U.S. are not subject to tax on their winnings, and may handle collections and disbursements in ways designed to facilitate avoidance of U.S. taxes. 3.Repatriation of Offshore Funds Using Credit Cards. Credit cards (such as MasterCard and VISA) issued by tax haven domiciled banks are a preferred method used by U.S. taxpayers to anonymously and covertly repatriate offshore funds that may or may not have been previously taxed. American Express cards are used in the same way but differ in that these cards are issued directly by American Express rather than by member banks. F. Other Common Schemes 1. Employment Tax Evasion. The IRS has seen a number of illegal schemes that instruct employers not to withhold federal income tax or other employment taxes from wages paid to their employees. Such advice is based on an incorrect interpretation of Section 861 and other parts of the tax law and has been refuted in court. Lately, the IRS has seen an increase in activity in the area of “double-dip” parking and medical reimbursement issues. In recent years, the courts have issued injunctions against more than a dozen persons ordering them to stop promoting the scheme. During fiscal 2005, more than 50 individuals were sentenced to an average of 30 months in prison for employment tax evasion. Employer participants can also be held responsible for back payments of employment taxes, plus penalties and interest. It is worth noting that employees who have nothing withheld from their wages are still responsible for payment of their personal taxes. 2. Offshore Transactions. Despite a crackdown by the IRS and state tax agencies, individuals continue to try to avoid U.S. taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance to do so. The IRS and the tax agencies of U.S. states and possessions continue to aggressively pursue taxpayers and promoters involved in such abusive transactions. During fiscal 2005, 68 individuals were convicted on charges of promotion and use of abusive tax schemes designed to evade taxes. 3. Trust Misuse. For years unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits, and the IRS is actively examining these arrangements. There are currently more than 200 active investigations underway and three dozen injunctions have been obtained against promoters since 2001. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust. 4. Abuse of Charitable Organizations and Deductions. The IRS has observed increased use of tax-exempt organizations to improperly shield income or assets from taxation. This can occur, for example, when a taxpayer moves assets or income to a tax-exempt supporting organization or donor-advised fund but maintains control over the assets or income, thereby obtaining a tax deduction without transferring a commensurate benefit to charity. A “contribution” of a historic facade easement to a tax-exempt conservation organization is another example. In many cases, local historic preservation laws already prohibit alteration of the home’s facade, making the contributed easement superfluous. Even if the facade could be altered, the deduction claimed for the easement contribution may far exceed the easement’s impact on the value of the property. Statute of Limitations for Income Tax Matters
There is a statute of limitations for certain federal tax fraud matters, however if a tax cheater failed to file a return, or if a tax return filed was false, fraudulent or a willful attempt to evade tax, then there's no limitation period at all for the Internal Revenue Service to conduct an investigation an/or prosecute and penalize a tax cheater.
Penalties - Title and Section Definition
Title 26 USC § 7201
Attempt to evade or defeat tax. Any person who willfully attempts to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof:
Penalty - Shall be imprisoned not more than 5 years or fined not more than $250,000 for individuals ($500,000 for corporations), or both, together with the costs of prosecution.
Title 26 USC § 7202
Willful failure to collect or pay over tax. Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to penalties provide by the law, be guilty of a felony.
Penalty - Shall be imprisoned not more than 5 years, Or fined not more than $250,000 for individuals ($500,000 for corporations), or both, together with the costs of prosecution.
Title 26 USC § 7203
Willful failure to file return, supply information, or pay tax. Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof:
Penalty - Shall be imprisoned not more than 1 years, or fined not more than $100,000 for individuals ($200,000 for corporations), or both, together with cost of prosecution.
Title 26 USC § 7206(1)
Fraud and false statements. Any Person who… (1) Declaration under penalties of perjury -Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; shall be guilty of a felony and, upon conviction thereof:
Penalty - Shall be imprisoned not more than 3 years, or fined not more than $250,000 for individuals ($500,000 for corporations), or both, together with cost of prosecution.
Title 26 USC § 7206(2)
Fraud and false statements. Any person who…(2) Aid or assistance - Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the Internal Revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; shall be guilty of a felony and, upon conviction thereof:
Penalty - Shall be imprisoned not more than 3 years, or fined not more than $250,000 for individuals ($500,000 for corporations), or both, together with cost of prosecution.
Title 26 USC § 7212(A)
Attempts to interfere with administration of Internal Revenue laws. Whoever corruptly or by force endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title, or in any other way corruptly or by force obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, upon conviction:
Penalty - Shall be imprisoned not more than 3 years, or fined not more than $250,000 for individuals ($500,000 for corporations), or both.
Title 18 USC § 371
Conspiracy to commit offense or to defraud the United States. If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each”
Penalty - Shall be imprisoned not more than 5 years, or fined not more than $250,000 for individuals ($500,000 for corporations), or both.
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Kenney & McCafferty, PC 3031C Walton Road, Plymouth Meeting, PA 19462
We take calls 24/7, including nights, weekends and holidays. Call our 24 Hour Fraud Hotline by Dialing Toll Free 1 (888) 482-6825 Outside the USA Dial (610) 400-7560 - Ask for Investigator Sweeney
FAX Toll Free 1 (888) 609-5755 Outside the USA Dial Fax (610) 471-0544
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