Tax News & Views Floors ERC Fraud Roundup

August 3, 2023

New Jersey Tax Preparer Arrested for Fraudulently Seeking over $124 Million in COVID-19 Employment Tax Credits - US Department of Justice (Defendant name omitted; my emphasis):

Defendant, 49, of Teaneck, New Jersey, is charged by complaint with eight counts of aiding and assisting the filing of false tax returns and one count of mail fraud. He is scheduled to have his initial appearances this afternoon before U.S. Magistrate Judge Leda Dunn Wettre in Newark federal court.


From November 2020 to May 2023, Defendant, acting as a tax preparer, repeatedly exploited these programs by preparing and submitting 1,387 false forms to the IRS claiming COVID-related tax credits on behalf of himself and clients. Defendant falsely told his clients that the government was giving out COVID-relief money for businesses and that they were eligible for the money simply because they had a business. Without consulting with his clients, Defendant then submitted forms to the IRS on behalf of their businesses that grossly overstated the number of employees and amount of paid wages. Defendant submitted similarly false forms for three of his own companies. Based on these and other misrepresentations, Defendant fraudulently sought $124.8 million in tax refunds on behalf of his companies and numerous other businesses in his clients’ names.

Based on Defendant’ false claims about his own companies, the U.S. Treasury mailed him multiple tax refund checks totaling more than $1 million. The U.S. Treasury also disbursed at least $31.6 million in tax refunds to Defendant’ clients based on the false tax forms that Defendant submitted. Defendant charged each client up to a 15 percent fee based on the tax refunds the client received from the U.S. Treasury. At Defendant’ request, many clients paid him those fees in cash.

The clients don't get to keep that cash. At least some of them likely have spent it long ago and will struggle.


IRS Announces Ambitious ‘Paperless Processing’ Initiative - Alexander Rifaat, Tax Notes ($):

In what Treasury and the IRS are calling the “paperless processing” initiative, the agency has set a target of digitally processing every return by 2025 and said taxpayers will be able to submit all correspondence and nontax forms and respond to notices online by next year.

During a visit to an IRS digital processing facility in McLean, Virginia, to coincide with the announcement August 2, Treasury Secretary Janet Yellen said the plan is part of a larger goal of streamlining the overall taxpayer experience.

The Treasury Secretary and the IRS Commissioner are trying to maintain the increased IRS funding authorized by the inflation reduction act, as the following story outlines:

IRS To Launch Paperless Processing For Tax Returns In 2024 - Asha Glover, Law360 Tax Authority ($):

The effort to move toward a more technologically savvy IRS comes nearly a year after President Joe Biden signed the Inflation Reduction Act, which provided the agency with $45.6 billion in enforcement funding, $25.3 billion for operations support, $3.18 billion for taxpayer services and $4.75 billion for business systems modernization.

IRS Commissioner Daniel Werfel, speaking at the same event Wednesday, said the law's funding has made a huge difference at the agency in terms of reducing paper, adding efficiency, improving service and stepping up enforcement efforts.

"The bottom line is [that] an IRS after the Inflation Reduction Act is very different than an IRS before," he said. "This is good for taxpayers and good for the nation."

The coming filing season will test that proposition.


Proposed Regs Would Make Monetized Installment Sale Transactions Listed Transactions - Tax Notes ($). "The IRS has issued proposed regulations (REG-109348-22) that identify monetized installment sale transactions and substantially similar transactions as listed transactions, which would subject material advisers and participants to penalties for failure to report the transactions."

A "monetized installment sale" is an attempt to get installment sale treatment - deferring tax on gains - while getting the cash up front. Rather than directly selling an asset to a buyer, it is sold to an intermediate third party on an installment note. The intermediary than sells the asset to the real buyer for cash. An accommodation party working with the intermediary "loans" to the seller almost all of the amount of the sale on a non-recourse note. The cash paid by the real buyer makes sure the "loan" gets paid.


SALT Deduction Cap Vexes GOP After Vexing Democrats After Vexing GOP - Richard Rubin, Wall Street Journal:

The latest dispute over what is colloquially known as the SALT cap pits a group of suburban Republicans against the rest of their party. The lawmakers, who largely hail from competitive districts in high-tax states, say they will block a GOP tax bill unless the top tax writer, Rep. Jason Smith (R., Mo.), agrees to raise or scrap the $10,000 limit.


Now the issue is complicating legislation that Smith and House GOP leaders want to pass that would reverse business-tax increases that Republicans baked into the 2017 law and that took effect in recent years. Without quick action by Congress, many small research-intensive companies face enormous tax bills because of a provision that changed how they deduct research costs.

Business Tax Break Renewal Hinges on Child Tax Credit ‘Fulcrum’ - Chris Cioffi, Bloomberg ($):

Some Democrats have softened the ask for full restoration of the pandemic aid bill’s version. The White House indicated last year it may be flexible on work requirements, and Democrats like Rep. Don Beyer(Va.) said they’d be willing to support the right compromise.

“What seems most sensible is a bipartisan bill that reinstates some limited part of the child tax credit, it doesn’t have to be as big,” he said. “As a tradeoff for a lot of the things that they’d like to get done, and I’d vote for it. Policy is the art of the possible”


Fitch Downgrade Won’t Break Washington’s Tax, Spending Habits - Andrew Duehren, Wall Street Journal:

Fitch Ratings chastised Washington policy makers this week for fighting too much, spending too much and cutting taxes too much. 

Republicans and Democrats are likely to keep doing all three. 


IRS sets paperless tax goals for 2024, 2025 - Kay Bell, Don't Mess With Taxes. "Digitizing paper returns will eliminate the errors that result from manually inputting data from paper returns. That will in turn, says the IRS, will speed up return processing (and refund issuance), reduce storage costs, and allow agency staff to focus more resources on customer service."

Hunter Biden Plea Agreement Documents Made Public - Kelly Phillips Erb, Forbes. "Biden did have an accountant during those years who prepared his tax returns. However, despite pushes from his accountant, Biden did not pay or file on time. He did not pay until 2021, when a third party helped him pay approximately $1 million for each year."

Proposed Regs Clarify Taxability of Insurance Not Paid for Actual Medical Expenses - Parker Tax Pro Library. "The IRS issued proposed regulations that modify the definition of short-term, limited duration insurance in Reg. Sec. 54-9801-2 to reduce the maximum length of such coverage from 12 months to 3 months."


The Short Form: What You Need to Know about the Global Tax Deal - Noah Peterson, Tax Policy Blog. "Shifting income from one jurisdiction to another to reduce tax burdens is a real concern—one the U.S. acknowledged in 2017 by dramatically changing its tax rules for multinationals. The U.S. now has three minimum taxes all aimed at similar issues the OECD rules are attempting to address. However, none of the U.S. rules seem to qualify under the OECD standards."

Avoiding GILTI Tax on CCPCs for US Expats - Olivier Wagner, 1040 Abroad. "As a US expat living in Canada, you may find yourself navigating the complex landscape of international taxation. One of the key areas of concern is the Global Intangible Low-Taxed Income (GILTI) tax on Canadian-Controlled Private Corporations (CCPCs)."

Related: Eide Bailly Global Mobility Services.


To build an egalitarian society you need taxes - Matthew Yglesias, Slow Boring. "In an egalitarian society you have relatively high taxes and lots of services and benefits, so the gaps between those with the highest and lowest material living standards are relatively modest. That’s the name of the game, not the procedural fairness by which people come to obtain relative positions in the social hierarchy."


Florida Attorney Charged in Fraudulent Charitable Contribution Tax Scheme - US Department of Justice (Defendant name omitted, my emphasis):

According to the indictment, Defendant, of Davie, Florida, organized and sold an illegal tax shelter called the Ultimate Tax Plan to assist high-income individuals in reducing their taxes. Defendant allegedly marketed the scheme as a way for clients to claim charitable contribution tax deductions without giving up control over the assets they purportedly donated to charity and advised that clients could still access their donated assets for their own personal use through tax-free loans and execute an “exit strategy” to buy back their donations at a significantly discounted rate. The indictment further alleges that, to execute the scheme, Defendant prepared the boilerplate transaction documents, prepared appraisals of the purported donations, assisted clients in filing false tax returns, and controlled the charities that received the purported donations. For several clients, Defendant and his co-conspirators allegedly created backdated transaction documents to make it appear that a client had made a charitable contribution in a prior year and, in turn, assisted clients to falsely claim charitable tax deductions for the prior year.

Two red flags here. The first is relying on the person promoting the scheme to do the appraisals. The IRS never goes for that. The second is the "too good to be true" nature of the thing. If you are donating something, don't expect to keep using it, or to get it back.


We live in festive times. Today is Clean Your Floors Day!

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