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Articles Tagged with criminal tax fraud

Most, if not all, Payroll Protection Program (PPP) borrowers are focused on the question of whether they will be able to have their PPP loan forgiven.  Many questions have arisen, and some but not all, have been answered by the Loan Forgiveness Application and instructions   released by the SBA on Friday, May 15, 2020.  Here are some of the highlights.

  • Annual “cash” payroll costs are capped at $100,000 per employee. While this is not news, the SBA calculates that this amount on a pro-rata basis for the 8 week “Covered Period” is $15,385. If you do the math, that is equal to 8 weeks per year divided by 52 weeks multiplied by $100,000. Some were hoping that those on a semi-monthly pay schedule could use a larger amount based upon 24 pay periods per year. Apparently not.
  • Alternative Payroll Covered Period. The Covered Period is generally eight weeks (actually 56 days) beginning on the date the loan is first funded. The Alternative Payroll Covered Period is only for employers with bi-weekly or more frequent payroll schedules. Therefore, it doesn’t appear to apply to employers who pay semi-monthly. It begins on the on the first day of the first payroll period following the PPP Loan Disbursement Date and ends 56 days later.  The following example is provided:  Alternative Payroll Covered Period: “… if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the  Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.”  This suggests that one cannot include payments for a payroll period that begins before the PPP Loan Disbursement Date but is paid after that date. However, that is inconsistent with the Press Release issued concurrently by the SBA which states that the form and instructions provide “Flexibility to include eligible payroll and non-payroll expenses paid OR incurred during the eight-week period after receiving their PPP loan.” (emphasis supplied).  See more below.

How the IRS Initiates Criminal Tax Investigations
What seemed like a minor transgression when filing your tax return could end up being a tax crime punishable by years in prison. The IRS Criminal Investigation Division (CI) pursues about 3,000 criminal prosecutions per year to provide a deterrent effect to all taxpayers. If you have been chosen as one of the taxpayers to be “made an example of”, you could face severe fines or time in jail in the name of increasing tax compliance by other taxpayers.

The criminal investigation process often begins when an auditor or collection agent detects possible tax fraud. The IRS can also be “tipped off” by the public—anyone can submit a 3949-A Information Referral form to the IRS that reports suspected tax law violations. Other law enforcement agencies can also reported suspicious activity to the IRS.

Special agents may then begin a preliminary investigation. A supervisor will evaluate the information to determine if further investigation is warranted. At least two layers of CI management must review the information before a criminal investigation can proceed.

Do I Have to File an FBAR If I'm Not a U.S. Citizen?
The Bank Secrecy Act may require you to file a FinCEN 114, Report of Foreign Bank and Financial Accounts (FBAR), even if you are not a U.S. Citizen. The FBAR must be filed annually by all “United States Persons”, which includes U.S. citizens, U.S. residents, and certain entities. The FBAR must be filed if your total interest in foreign accounts exceeds $10,000 at any point during the calendar year.

FBAR Filing Requirements for Non-Citizens

The IRS has its own rules for determining if you are a resident for tax purposes. If you meet either the green card test or the substantial presence test, the IRS considers you a resident, and you must comply with all tax filing requirements, including filing an FBAR.

What Is an Abusive Tax Shelter
An abusive tax shelter is an investment scheme that attempts to reduce income tax without serving any other economic purpose. The value of income or assets is not changed, so the sole purpose of an abusive tax shelter is to avoid tax.

The IRS attempts to deter participations in abusive tax shelters through tax audits, summons enforcement, litigation and other methods. There is also an abusive tax shelter hotline, where anyone can anonymously provide information about abusive tax shelter transactions.

Analyzing an Abusive Tax Shelter

What Are the Potential Penalties for IRS Tax Fraud
The idea of being sent to prison for making a mistake on your tax return may seem ridiculous — and also scary — to the average taxpayer. With so many regulations to follow that even IRS employees can become confused, how can a lay person with no tax expertise be charged criminally for messing up their taxes?

Actually, they cannot be charged criminally if an honest mistake was made. While tax fraud can results in both civil and criminal penalties, there is a higher standard of proof for criminal charges. The IRS must prove criminal tax fraud “beyond a reasonable doubt”, whereas a civl tax fraud penalty can be imposed if there is “clear and convincing evidence”.

The IRS Must Prove You Intended to Commit Tax Fraud

The Most Common Criminal Tax Violations
The IRS reported 2,672 convictions for criminal tax violations in the 2016 fiscal year. While criminal tax charges are not common, the penalties —which can include jail time — are severe enough to cause any taxpayer to be concerned.

Most criminal tax penalties can result in a five-year prison sentence and $100,000 fine. You can also be charged with civil penalties for the same violations, and you may have any professional licenses revoked.

Common Criminal Tax Violations

Do I Need a Tax Lawyer If I’m Being Audited
Whether you should consult with a tax lawyer depends on the specific facts relating to your tax audit. However, there are some circumstances where it is vital that you retain the services of a tax lawyer to make strategic decisions and negotiate with the IRS or state tax authority.

Types of Tax Audits

There are many different types of tax audits. You may be facing any of the following types of tax audits:

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