Category Archives: Tax Problem Prevention

IRS Terror Tale of the Month – Cheating IRS and Employees

Owner of S&S Drywall, Stephen Gregory Nagy thought he was being quite inventive when he came up with his scheme to not only cheat the IRS but also his employees back in 2010. After the IRS assessed his company, they determined that Nagy owed more than $480,000 in unpaid federal employment taxes, penalties, and interests, Nagy came up with a plan that he would hire several undocumented workers and pay them a small portion of the prevailing wage. He also demanded that those same workers pay him a large portion of cash in return—which went unreported.

From there the business owner forced his employees (via intimidation and threats) to file for unemployment benefits—even though they continued to work for him. He gave them cash to make up for the difference in salary, which was not reported—nor were the federal income taxes, social security, or Medicare taxes paid. In essence, the State of Oregon paid part of the employees’ salaries.

In order to hide the cash, Nagy created shell companies in his sister’s name—transferring business and personal assets. Considering the fact that Nagy was already known by the IRS, it’s mind boggling how he thought he wouldn’t get caught! Of course, he did, in September of 2014, when he was sentenced to 19 months in a federal prison and ordered to pay more than $480,000 in restitution.

His former employees now have no social security benefits or Medicare. Read more in my February eNewsletter and be sure to subscribe to receive “IRS Terror Tale of the Month” tales and tax resolution business and marketing tips!


Loose Lips Sink Couple in IRS Audit

I get a lot of calls from my academy members regarding IRS audits.  A common question is: “should I bring my clients to the audit?”  For 16 years, except for on the rarest of occasions, my answer has always been “no.”  If your client is asked a direct question by the IRS Revenue Agent during the exam your client is compelled to answer absent exercising their 5th amendment rights (which is probably worse).

Even idle chatter is considered fair game by an IRS auditor.

A recent case in point was featured in The March 14, 2014 Kiplinger Tax Letter, “Talking too much during an audit leads to tax woes.” A husband and wife were chatting with a revenue agent who had begun an examination of their return, when the husband inadvertently alerted the auditor to a home sale that occurred in the year prior to the one under exam.

The couple claimed the gain from that sale was tax free on account of the home sale exclusion, but the agent ended up expanding the audit to include the previous year.  He found out that the couple rented out the home to their son and his family and didn’t actually live in the in the house.  A district court agreed with the agent and they didn’t qualify to exclude ANY portion of their gain (Cohen, D.C., N.Y.).  Thus, the husband’s loose lips cost the couple over $150,000 in tax, penalties and interest.

Don’t let your client’s loose lips sink the IRS audit ship.

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IRS 2014 Dirty Dozen Tax Scam List

Every spring, the IRS releases its annual “Dirty Dozen” list of tax scams. The goal of the list is to make taxpayers aware of pervasive tax scams and schemes and to use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues.  Educate your clients about these tips below and be prepared that you might have clients who fall victim to these scams.  These are things you can support them in solving.  Share these scams on on your website, blog, in emails, on social media – however you are communicating and connecting with your target market.  As a tax resolution professional, I cannot tell you enough:

education is EVERYTHING!

This year’s scams run the gamut from identity theft and “phishing” to abusive tax structures. In the announcement, the IRS also wants taxpayers to know that they are taking illegal scams very seriously. Knowingly participating in these activities can lead to significant penalties and interest and possible criminal prosecution.

The following are the IRS “Dirty Dozen” tax scams for 2014:

1) Identity Theft

Topping the list is identity theft; a major issue for the IRS. Criminals use taxpayer’s personal information such as their name, Social Security number (SSN) to commit tax fraud like using a taxpayer’s identity to fraudulently file a tax return and claim a refund.

The IRS wants consumers to know it has created a special identity theft section on IMPORTANT NOTE: Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately to have their tax account secured. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490 or get additional information online:

2) Pervasive Phone Scams

The IRS has seen a recent increase in phone scams across the country as a means of stealing money or identities from victims. Callers intimidate taxpayers by pretending to be from the IRS stating that the victims owe money or are entitled to a huge refund. Some callers threaten taxpayers with arrest or driver’s license revocation often with follow-up calls from people claiming they are from the local police department or state motor vehicle department. In many cases, the caller becomes hostile and insulting. DO NOT give personal information to anyone over the phone. The IRS instead suggests taxpayers who receive these calls to go to the website immediately to get contact information.

3) Phishing

Phishing is a scam generally an unsolicited email or a fake website that appears to be legitimate that first lures in potential victims then prompts them into divulging their personal and financial information. Criminals then use this information to commit crimes. Be advised: The IRS will NEVER ask for personal or financial information via email.

4) False Promises of Free Money

Scam artists use flyers, advertisements, phony store fronts and even word of mouth to lure victims by promising large federal tax refunds or refunds. These scams often prey on people low-income individuals or the elderly. They also prey on non-English speakers, who may or may not have a filing requirement.

5) Return Preparer Fraud

Some unscrupulous tax preparers prey on unsuspecting taxpayers, engaging in refund fraud or identity theft. Be careful whom you choose to prepare your taxes. The IRS reminds taxpayers to choose carefully when hiring an individual or firm to prepare your tax return. Also to make sure the preparer has an IRS Preparer Tax Identification Numbers (PTINs).

6) Hiding Income Offshore

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain offshore accounts are required by law to report this income or risk significant penalties and fines, and the possibility of criminal prosecution.

7) Impersonation of Charitable Organizations

Sadly, natural disasters bring out scam artists who impersonate charities to get money or private information from well-intentioned taxpayers or disaster victims either claiming they work for bogus charities or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. The scammers then solicit money or financial information from unwitting victims.

8) False or Inflated Income Expenses

Providing false income information on your tax return to gain a larger refund or receive a tax credit will cause more harm than good. The IRS has honed in on this abuse and will require full repayment of the erroneous refunds plus interest and penalties, and possible prosecution.

9) Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make wild and outlandish claims to avoid paying the taxes they owe. These promoters often find themselves in court or in jail. Those who support these promoters may also face criminal prosecution for attempting to evade or defeat tax.

10) Falsely Claiming Zero Wages or Using False Form 1099

Chances are the IRS will examine a return claiming zero wages. Also, fraudulently using Form 1099 to claim a refund, can result in financial penalties or even criminal prosecution.

11) Abusive Tax Structures

The IRS Criminal Investigation (CI) has developed a nationally coordinated program that is cracking down on business entities or corporations whose purpose is to take advantage of some financial secrecy laws and the availability of credit/debit cards issued from offshore financial institutions to evade taxes.

12) Misuse of Trusts

Unscrupulous tax scam promoters urge taxpayers to transfer large amounts of assets into trusts as a way to avoid estate transfer taxes. While these transactions rarely deliver the promised benefits promised, the IRS reminds taxpayers that participating in this type of scam could bring on serious legal issues.

The bottom line:

If it seems too good to be true, it probably is. Taxpayers need to stay alert and do their best to prevent scams and schemes at all costs. Remember: the IRS holds the taxpayer responsible for the information provided on a return and will come after the taxpayer for payment. No matter what.

Know your tax topics – these may end up being cases you can help them solve.  If you are not on the newsletter, sign up for their IRS tax tips immediately.

The more you know AND SHARE with your target customers, the better your awareness, connection, service and SALES will be.

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