While the IRS has spent years developing methods to find and prosecute people and businesses who commit tax fraud, they have recently begun ramping things up in order to make their efforts more effective. As a result, more people are being audited, and even more discrepancies are being found. In addition, the IRS has created a new fraud enforcement office, staffed with people who know the best ways to examine tax returns looking for monetary amounts, deductions, and credits that don’t quite add up.
Worried that you may be targeted by this new fraud enforcement office? Here’s what you need to know.
The Fraud Enforcement Division
In March of 2020, the IRS made an important announcement. They placed Damon Rowe, a veteran member of the IRS, in charge of their newly created fraud enforcement division. Rowe had worked for the IRS since 1998 as a special agent, working his way up the ladder. He began as an Assistant Special Agent in Charge for the New Orleans Field Office, and then worked as the Special Agent in Charge of the Los Angeles and Dallas Field offices. From there, he spent several years as the Executive Director of International Operations for Criminal Investigation, helping foreign governments and CI field (criminal investigation) offices get along in order to find international tax cheats who might be defrauding the IRS.
The announcement was more than just a promotion for Damon Rowe, who has a Bachelor of Accounting degree from the University of Houston, a J.D. from Texas Southern University, and a Master of Legal Letters in Taxation from Southern Methodist University School of Law, it was also a strategic move to point out that the IRS was no longer going to “look the other way” when it came to tax fraud. Yes, they caught a number of people each year, fining and prosecuting them as needed. However, with the announcement of the new division, it was made clear that the IRS was going to crack down harder than ever.
Do You Need to Worry?
If you do your taxes honestly, declare everything, and double-check your math before submitting your return, or use a professional tax preparation service whom you provide with all of your necessary forms and paperwork, then you are fine. Your tax returns are most likely correct, and you won’t get snared in the fraud enforcement divisions net. However, there are certain segments of the population whose returns are getting a second look from the IRS.
Areas Where the IRS’ Fraud Division are Focusing
Although the fraud division is looking for anyone, or any company, no matter the size, that may file an incorrect or fraudulent tax return, certain groups of filers are getting a closer look, as they tend to be the ones most likely to make a crucial mistake or purposefully file an incorrect return. These segments include:
- Small Business Owners – The IRS has found that people who own small businesses are likely to make mistakes or exaggerate things like expenses or office deductions. Often classified as companies that employ fewer than 100 (or in some cases, less than 50) people, these businesses need to be careful when filing their returns, because the fraud division is giving most of them a second look just to make sure that everything is correct. This means that it’s more crucial than ever to file a correct tax return if you run a small business.
- Self-Employed Individuals – When it comes to self-employed individuals, these people, who often work in freelance fields, such as writing, design, SEO, and more, are getting a second look as well. Some people who identify as self-employed may declare less earnings than they make in order to pay less in taxes. They also might deduct things that they shouldn’t, such as home office space or utilities, possibly adding or calculating these expenses incorrectly on their returns. Since the ability to commit fraud or simply make a large, potentially costly mistake on their returns is high, the IRS is using both automated and manual methods of examining the tax returns of self-employed workers.
- Taxpayers Who Don’t File a Return – Although people who didn’t file a tax return received something of a pass from the IRS in recent years, this is no longer the case. They are on the list of people that the fraud division is looking more seriously into. In particular, people who file a deadline extension for their tax return (meaning that they knew that they had to file one with the IRS), yet never followed through with the filing, are getting an even closer look. A study done by the IRS has shown that they are losing plenty of tax revenue this way, so they are cracking down on those who do not file.
- High-Wealth Taxpayers – Although the IRS has always taken a closer look at the returns from those who make quite a bit of money every year, their new fraud division is going over things in even more depth than usual. In addition, the tax returns of high-wealth taxpayers who own an S-corporation are getting an extra look on top of the standard scrutinization of their tax returns. The IRS is cracking down on these taxpayers in particular, because they tend to find loopholes that they shouldn’t use in order to pay less in taxes every year.
- International Taxpayers – People and companies that either live overseas part of the time, yet qualify for U.S. tax status (meaning that they need to file a return), those who live in the U.S. full-time, but have foreign bank accounts, or those that fall into both categories, need to ensure that their IRS tax returns are correct and contain the proper declarations of their domestic and foreign income and accounts. In the past, the IRS nicely asked people in these categories if they would submit that information. This is no longer the case, as these declarations are now required and fall into the fraud category if they are not made.
- Refunds That Appear Questionable – General fraud, in which people file false returns under the names and taxpayer identities of other people without their knowledge are just one of the schemes that fall into this category, as does Earned Income Tax Fraud. While the IRS was never lenient on this type of tax fraud in the past, they are hoping that their new fraud division is able to catch even more of these schemes in order to prevent them from occurring. In order to prevent this form of fraud, tax refunds that raise red flags will receive even more attention.
- Those Who Ask for an Offer in Compromise – The IRS has a “dirty dozen” list of probable tax schemes and the offer in compromise is on it. This option, which allows a taxpayer who owes money to the IRS to ask them to settle for a lump sum that’s less than the amount owed, contains plenty of potential for tax fraud. Some taxpayers make fraudulent declarations and file false income and account disclosures in order to force the IRS to accept an offer in compromise, when the taxpayer should be paying the entire amount owed instead. If you want to ask the IRS to accept an offer in compromise, expect to have to submit additional documents as proof.
- Employers Who Fail to Pay Employment Taxes – Businesses need to submit their employment taxes on a regular basis. There is not way around this. If the company takes employment taxes from their employees’ paychecks, yet fails to send that money to the IRS as they are supposed to, then the IRS will come after them. They have in the past, and now, thanks to their new fraud division, they are less likely to allow these companies a pass and the ability to pay back employment taxes without getting hit with plenty of fees and penalties.
Don’t Be Caught with a Noncompliant Return
People and businesses who are caught having filed a fraudulent or problematic return by the IRS fraud division are subject to penalties, fines, fees, interest charges, and worse. In order to avoid being caught having filed a noncompliant return, it’s important to see a tax professional to ensure that everything is legally compliant and in order. Those who admit fault and pay the IRS what is owed right away may be subjected to penalties that are less harsh than those who remain adamant that their returns are correct, even if they aren’t.
Contact Us Today
If you receive a notice that you may have committed tax fraud or knowingly falsified information on your taxes, it’s not too late to get help. Reach out to the tax advisors at Enterprise Consultants Group. We can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.
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