Pete's silly contention that a refund means it was audited

[Demosthenes]

I'm going to post a bunch of stories showing that phony refund requests go through the IRS all the time.

Inmate confesses to tax fraud
11/22/2008 05:56 PM
By: Web Staff

CLINTON COUNTY, N.Y. -- An inmate at the Clinton Correctional Facility is facing another 10 years in prison after pleading guilty to charges of tax fraud.

Police say Terry Reed, 35, filed 23 fake IRS forms and received more than $140,000 in returns. Reed says he didn't act alone. He told investigators he worked with other people inside and outside of the prison to get the forms filled out and mailed.

In addition to the prison time, he could be fined up to $250,000 for the crime.

[Demosthenes]

7 sentenced in phony tax-credit scheme
Associated Press
Sunday, November 23, 2008

Valdosta —- A federal judge in South Georgia has sentenced seven people in a tax-fraud scheme involving $5 million in phony credits for diesel fuel claimed for logging businesses that either were defunct or never existed.
The seven, who received sentences Thursday ranging from home confinement and probation to three years in prison, received a total of $3.2 million in fraudulent income tax refunds, the U.S. attorney’s office said.
They were among 11 accused of participating in the scheme from 1999 to 2004, including a pair of Valdosta tax preparers who await sentencing after pleading guilty to filing the phony returns.
Diesel fuel used for off-highway business equipment qualifies for a tax credit for excise taxes paid on the fuel.
“Abuse of the credit on federal excise taxes is not a new scheme,” said Nathan J. Hochman, assistant attorney general of the Justice Department’s Tax Division.
In a telephone interview from Washington, Hochman said that to falsify claims for the fuel-tax credit, tax cheats “have to use an off-highway business, and logging is one of the businesses that they use.”
Sentenced Thursday by U.S. District Judge W. Louis Sands were:
> Mason E. Coddington, two years in prison, three years’ probation and restitution of $414,440.
> Misty Kelly Linn, five months in prison, five months’ home confinement, three years of supervised release, and restitution of $118,356.
> Lonnie Cason, a year of home confinement, five years’ probation, $460,000 restitution.
> Linda Cason, six months home confinement, five years’ probation, $349,000 restitution.
> Dana K. Swain, three years in prison, three years’ probation, restitution of $1.6 million.
> Rachel K. Swain, five months in prison, five months’ home confinement, one year probation, restitution of $528,000.
> Marvin W. Swain, one year home confinement, five years’ probation, $310,000 restitution.

[Demosthenes]

Tax Fraud
Leader of Identity-Theft, Tax-Fraud
Scheme Sentenced to 14 Years in Prison
ST. LOUIS—The leader of a multimillion dollar tax fraud conspiracy was sentenced Nov. 13 to 14 years in prison, U.S. Attorney for the Western District of Missouri John F. Wood announced the same day (United States v. Alexander, W.D. Mo., No. 4:07-CR-002520-NKL, sentenced 11/13/08).
Loretta Wavinya had previously admitted that she was the leader of a conspiracy to steal the identities of hundreds of victims, primarily residents of nursing homes, and that the identity information was used to seek more than $15 million in fraudulent federal tax refunds.
In addition, Wavinya's sister, Lillian Nzongi, who also took part in the scheme, was sentenced the same day to five years and 10 months in prison without parole.
“These two defendants came to the United States on student visas, and instead of building a life here, they exploited our online tax refund system to the tune of millions of dollars,” Wood said in a statement. “Today's lengthy sentences send a clear message to others who may be considering cheating the taxpayers or using other people's identities.”
According to the statement, Wavinya pled guilty in June 2008 to her leadership role in the conspiracy, in which conspirators used stolen identity information to file more than 540 fraudulent federal tax returns, using the names of more than 500 identity-theft victims. Conspirators also filed up to six state tax returns with each federal return, causing a loss to at least 27 states.
Conspirators claimed more than $15 million in fraudulent tax refunds in the names of the victims, and received at least $2.3 million in refunds, the statement said.
Tax Preparer Gained Information.
Wavinya was in a position to organize the conspiracy because she worked as a tax preparer and as a certified radiology technician for a company that visited patients at nursing homes in the Kansas City, Mo., area, the statement said. In the course of her employment, she had access to the patient-identity information that was used in the conspiracy, and also was able to recruit employees of the health-care facilities to steal the identity information of patients. Investigators found the identity information of hundreds of nursing home patients, including both medical and financial information, in Wavinya's residence and in a storage locker she maintained, it said.
The statement said that Wavinya filed more fraudulent returns than any other member of the conspiracy, and received the largest share of the proceeds, much of which she invested overseas. In addition, Wavinya taught other conspirators how to file fraudulent tax returns.
As part of the scheme, Wavinya and other conspirators arranged for mail related to the returns to be sent to commercial mailboxes across Kansas City, and concealed their own identities by using runners to pick up the mail, the statement said. The runners also were used to withdraw money from bank accounts that had been set up by conspirators to receive the fraudulent tax refunds. Lillian Nzongi pled guilty in July 2008 to acting as a runner in the scheme, and also to using a stolen identity to transfer funds to Nairobi, Kenya.
Previously, three others pled guilty and were sentenced for their roles in the conspiracy. They were Vincent N. Ogega, who was sentenced to 121/2 months in prison and ordered to pay $69,300 in restitution; Aaron Mutavi, who was sentenced to time served and ordered to pay $36,650 in restitution; and Rashira Lewis, who was sentenced to five years of probation and ordered to pay $53,773 in restitution.
In addition, four others pled guilty and are awaiting sentencing. They are Moses Ndubai, Karingithi G. Kamau, Jeanette Alexander, and Michael Anderson.
The case is being prosecuted by Assistant U.S. Attorneys Daniel M. Nelson and Curt Bohling. Attorneys for the defendants could not be reached for comment.

[Dezcad]

Don't forget my favorite one:

UNITED STATES SUES NINE IN NATIONWIDE CRACKDOWN ON TAX-REFUND SCAM

WASHINGTON, D.C. - The Justice Department announced today that, in a nationwide crackdown against a tax-fraud scheme promoted by Peter Eric Hendrickson of Commerce Township, Mich., it has brought suit against nine people this week. According to the government complaints, filed in seven lawsuits across the country, the nine people including Hendrickson and his wife Doreen M. Hendrickson have received a total of nearly $150,000 in erroneous tax refunds by submitting false forms with their federal tax returns to replace W-2 and 1099 forms that correctly reported their income.

In seven suits filed in U.S. district courts in California, Nevada, Michigan, Alabama, Florida and Kansas, the Justice Department seeks to recover the erroneous refunds. In addition, the suit against Hendrickson, filed in the Eastern District of Michigan, asks the court to enjoin him from filing false tax forms and returns. A violation of the injunction would be punishable as contempt of court.

According to the complaint, Hendrickson claims that only government workers are subject to income taxes. Hendrickson tells people to not submit their W-2 and 1099 forms with their tax returns, and in their place submit substitute or corrected W-2 and 1099 forms that they create on which they change their reported income to zero. Under the scheme, people then submit the falsified forms with a tax return falsely reporting no income and request a refund of all taxes withheld from wages. This scheme is number one on the IRS s 2006 list of the Dirty Dozen tax scams, posted at http://www.irs.gov/newsroom/article/0,, ... 93,00.html.

Federal law provides serious penalties for filing false tax forms, said Eileen J. O'Connor, Assistant Attorney General for the Justice Department's Tax Division. People who engage in tax fraud schemes can expect to pay back taxes, plus interest and penalties, and may face criminal prosecution for evading taxes.

The suit against Hendrickson alleges that he was convicted in 1992 on federal criminal charges for failing to file a federal income tax return and for a conspiracy involving a firebomb placed in a bin at a U.S. Post Office in Royal Oak, Mich. on April 16, 1990, the last day on which tax returns could be postmarked that year. Hendrickson testified at a co-conspirator�s trial that he wrapped a tea bag around the bomb's tubing as a reference to the Boston Tea Party tax protest.

The seven people sued in addition to the Hendricksons are Sharon K. Artman of Largo, Fla.; Michael J. Dowling of San Diego; Joy M. Ferguson of Henderson, Nev.; Melvin L. Gerstenkorn of Topeka, Kan.; Larry B. Golson and Debra G. Golson of Montgomery, Ala.; and James A. Spitzer of Winter Park, Fla. Copies of all seven complaints will be posted with this press release today at http://www.usdoj.gov/tax/taxpress2006.htm.

This week's suits are part of the IRS's and Justice Department's efforts against tax-fraud schemes. More information about these efforts can be found at http://www.usdoj.gov/tax/taxpress2006.htm. Information about the Tax Division can be found at http://www.usdoj.gov/tax/index.html.

[Demosthenes]

IRS wrongly paid out $1 billion in 2007 refunds
Agency says it doesn’t have resources to deal with all fraud cases
The Associated Press
updated 4:25 p.m. ET, Thurs., Oct. 30, 2008

WASHINGTON - The government sent out more than $1 billion in fraudulent refunds last year and offered this explanation Thursday for the bad checks in the mail: The Internal Revenue Service has too few resources to pursue every tax fraud case.

IRS investigators never even looked at an estimated $742 million in fraudulent refunds, according to a report by the Treasury Department office that monitors the agency. When they did identify an additional $264 million in bad refunds, it was too late to stop them from being issued.

The report noted that the IRS must divide its limited resources among numerous areas of compliance. "However, this is a significant revenue loss to the federal government and that must be addressed," said J. Russell George, the Treasury's inspector general for tax administration.

The number of improper refunds filed appears to be growing rapidly, the report said. "The problem is becoming unmanageable, and the IRS cannot afford to continue handling it in the same manner as in the past," according to the report. It urged the tax agency to make the refund screening program — known as the Questionable Refund Program — a priority.

The IRS has estimated that the tax gap — the difference between taxes owed and taxes actually paid — at about $290 billion a year. Of that, about 57 percent comes from individuals understating incomes or overstating deductions and exemptions.

IRS spokesman Terry Lemons said the agency has made significant improvements over the past two years. "We stop the vast majority of fraudulent refunds and we prosecute people who try to cheat the system," Lemons said.

George's report recommended the IRS divert resources to go after such fraud cases. But Lemons said that could hurt other operations and mean fewer dollars from enforcement activities.

Lemons said the agency issued more than $470 billion in refunds in 2006 and 2007.

The report said the IRS fraud detection centers stopped more than $1.2 billion in fraudulent refunds in 2007, compared with $412 million in 2005, the last year the detection system fully functioned.

Because the system picks up only those refunds with higher dollar values, about 500,000 potentially fraudulent refunds did not enter the centers' screening process. Had those refunds been included, the centers would have identified an additional $742 million in fraud, the report estimated.

In 2006, because of a technical problem in the fraud detection system, the IRS succeeded in identifying and stopping only $189 million in fraudulent refunds while paying out an estimated $894 million, the report said.

The Treasury's inspector general, in a separate report Thursday, lauded the IRS for what it said was a "generally successful" 2008 filing season during which returns and refunds were processed in a timely fashion.

This report said the IRS did a good job in overcoming several obstacles, including changes involving the alternative minimum tax. The agency was also responsible for sending out checks to more than 130 million people as part of the economic aid plan signed into law in February.

[Demosthenes]

Feds: Aurora company involved in tax fraud scheme


By BRANDON JOHANSSON
The Aurora Sentinel
Published: Thursday, November 6, 2008 10:10 PM MST
AURORA | Federal authorities said Thursday, Nov. 6, that an Aurora financial services company was at the heart of an elaborate tax-fraud scheme that tried to bilk the federal government for more than $2 million.

Earlier this week a Denver grand jury indicted eight people in connection with the company, Olympia Financial and Tax Services, and charged them with multiple crimes related to preparing and filing false tax returns.

“They created false deductions to generate fraudulent refunds and we are determined to stop these tax refund schemes,” Christopher M. Sigerson, special agent in charge of the IRS-Criminal Investigation, Denver field office, said in a statement.

Three of the eight suspects were arrested Thursday, according to a press release from the U.S. Attorney for Colorado Troy Eid.

Federal authorities said Jeffrey Harris, 49, of Aurora; Louann Savala, 39, of Denver; Manikhone Saignaphone 39, of Centennial; Manivone Saignapone, 42, of Aurora; Annalisa Whitaker, 34, of Centennial; and Phonsavath Senethong, 42, of Aurora, filed or helped file more than 700 amended returns with the IRS, containing falsified information. The claims asked for refunds in excess of $2 million to taxpayers for tax years 2001 through 2004. Another 400 amended returns with the Colorado Department of Revenue containing falsified information asked for refunds in excess of $300,000 to taxpayers for tax years 2001 through 2004. Some of those claims were paid, authorities said.
A second group connected with the case — Louann Savala, 39, of Denver; Manikhone Saignaphone and Jessica Arambula, 27, of Denver — filed or helped file more than 50 amended returns with the IRS containing falsified information. Those claims asked for refunds in excess of $200,000 to taxpayers for tax years 2002 through 2005.

Authorities said that as part of the scheme, Harris owned Olympia Financial and Tax Services, Inc., which operated in Aurora. Savala, Saignaphone and Jessica Arambula operated a tax return preparation service using various names, including: MLM Financial, LJ Financial, GP Financial & Tax Services, and Second Option Tax Services, which operated from the groups’ homes around the metro area.

The businesses sought tax refunds for taxpayers by preparing and filing amended tax returns with the IRS and CDR on behalf of their customers.

The three people arrested Thursday were Manikhone Saignaphone, Manivone Saignapone and Phonsavath Senethong. The other five remain at large.

The indictments against the group allege mail fraud, conspiracy to defraud the government, and false claims

“If someone suggests you file a bogus amended tax return to get more money, think twice,” United States Attorney Troy A. Eid said in a statement.

[Demosthenes]

Pleasant Hill man pleads in tax refund case
By Sam Richards
Contra Costa Times
Article Launched: 11/03/2008 02:54:07 PM PST

SACRAMENTO — A 74-year-old Pleasant Hill man pleaded guilty this morning in U.S. District Court to one count of filing a false claim for a tax refund with the Internal Revenue Service, and admitted stealing more than $90,000 from the IRS, U.S. Attorney's officials said.
Theodore Belvin, who also used the name Theodore Ware, admitted to filing a false claim on his personal tax return filed in 2005, seeking a refund of $10,450, said Assistant United States Attorney Sean C. Flynn.
Belvin also admitted in court Monday that between 1998 and 2005, he filed 14 false refund claims, under two different names and Social Security numbers, seeking payments from the Internal Revenue Service. Each of the 14 returns included fabricated W-2 forms that reported fictitious tax withholdings from a company called All Pro Services, a company that never existed, Flynn said. Belvin fraudulently received more than $90,000 in tax refunds over that seven-year period, Flynn added.Blevin, who is not in custody, could get a maximum sentence of five years in prison — or a three-year term of supervised release — and a maximum fine of $250,000. His sentencing hearing is scheduled for Jan. 20.

[Demosthenes]

Friday, October 31, 2008 - 1:00 PM EDT
Tax fraud lands Atlanta man in federal prison

Antonio Millige Adams, 37, of Atlanta, was sentenced Friday to four years and three months in federal prison for helping others file false income tax refund claims with the Internal Revenue Service.
Adams also must pay $117,368 in restitution. He pleaded guilty to the charges on Aug. 6.
From January 2002 through August 2004, Adams conspired with co-defendant Marla Nicole Wells and others to electronically file tax returns for dozens of people, claiming refunds to which they were not entitled.
Adams and Wells paid recruiters to find people willing to file fraudulent tax returns. Wells, often accompanied by Adams, provided the “filer” with a false W-2 she created listing employers for whom the individuals filing the fraudulent tax returns had never worked.
To ensure they received their fee plus a portion of the fraudulent return (as much as half the refund), Adams and Wells directed the filers to seek refund anticipation loans. Adams and Wells occasionally accompanied the filers to the bank to get the money or held their identification until they returned with the money.
Adams acted as Wells’ enforcer, using threats and intimidation to ensure the filers paid them for their fraudulent tax services. Several filers witnessed Adams carrying a firearm when accompanying them to get paid. The filers were often unemployed or had very low income.
The total losses from the conspiracy exceeded $222,597. A dozen or more fraudulent returns claiming a total of $60,504 in refunds were filed but not paid, as the investigation had uncovered the scheme and the IRS was able to stop the refund payments.
After Adams learned about the charges against him in November 2006, he fled Georgia to avoid arrest. He traveled to Las Vegas and Jacksonville, Fla., before returning to Georgia, where he was arrested on March 6, 2008, by the U.S. Marshals Service.
Wells was convicted of the same conspiracy charges as Adams on June 27, 2007, and was sentenced to 30 months in federal prison on Sept. 26, 2007.

[Demosthenes]

Kenai dentist facing four charges of tax evasion: DEDUCTIONS: Expenses at a brothel, massage parlors on list.
Thu. October 23, 2008; Posted: 02:32 PM

A Kenai dentist is on trial this week on charges he improperly deducted from his income expenses for a brothel, massage parlors, clothes, gas and an RV, in order to dodge hundreds of thousands of dollars in taxes.

Glenn Lockwood, owner of the Kenai Dental Clinic, faces four counts of tax evasion for the years 2000 to 2003.

Federal prosecutors say Lockwood hid his money offshore, funneling it through Ireland, then Nevis and the Bahamas, channeling money through dubious tax shelters. He deducted practically every expense in his life from the relatively little income he did report, they say.
Lockwood has pleaded not guilty. The 61-year-old dentist, who took notes and flipped through a large binder while listening to testimony against him this week in the Anchorage courtroom, says he didn't do anything wrong.
His Colorado-based lawyer, Anthony Gasaway, told jurors in his opening statement Monday that Lockwood was preparing for retirement and fell into bad advice by lawyers and his accountant. He thought he was setting himself up for his life after the Kenai Dental Clinic, he said.
Prosecutor Tom Bradley said Lockwood far under-reported his true income. In 2002, for example, Lockwood reported his taxable income at about $40,000 when his business was grossing about $1 million, Bradley said.
"He was motivated by one of the oldest motivators in the world: greed," Bradley said.
His clothes, groceries, gas, his vacation home's utilities, even a $1,504 charge to Mabel's House of Prostitution in Nevada, Lockwood called business expenses and claimed them as tax deductible.
He claimed shopping trips to Dress Barn, David's Big and Tall Store, and Big Dog Sportswear as "uniforms" for the dental practice.
Lockwood claimed "advertising" expenses to companies called Latin Magic, Introductions, Our Best Friends and Friend Finder. He claimed "continuing education" expenses to massage parlors.
And an RV that the defense says was a mobile dental clinic to expand the Kenai business to nearby villages was really for personal use, according to the prosecution.
Defense attorney Gasaway argued in his opening statement that his client was a dentist without accounting, tax or financial training. He followed the advice of a bad attorney in Nevada who is now dead, and an investment adviser now serving time in prison. Lockwood understood the multicountry financial arrangements to be a deferred-compensation plan, similar to a 401(k). He always intended to pay taxes, he said.
"Dr. Lockwood concealed this from nobody," Gasaway said. "Dr. Lockwood let professionals decide the proper tax treatment."
As for the personal deductions on the business account, Gasaway said they were just a few errors in thousands of pages of documents federal investigators combed through.
"When you have a bookkeeper, an accountant and an accountant's assistant and a tax attorney. ...When you have four people looking at thousands of transactions, there probably is a mistake or two. That's human nature."
According to the charges, Lockwood created a corporation for his dental practice in 2000. This corporation then "leased" the business to an Ireland company that paid Lockwood a relatively small salary while funneling the dental practice's income into accounts that the dentist could tap later. He also hid income through other tax shelters and a "sham" trust. Lockwood then claimed so many deductions on this smaller income that his tax bill all but disappeared.
For example, in 2001, the dental practice tax return reported $1.3 million in gross income, but Lockwood claimed a taxable income of $51,000. His taxes were $5,000 that year, and he got a refund, prosecutors said.

[Demosthenes]

October 9, 2008
Tax preparer charged in fraud scheme

By Vic Ryckaert
vic.ryckaert@indystar.com
An H & R Block supervisor was charged Wednesday with trying to steal more than $200,000 by filing phony tax refunds.
Lori A. Crisp, 44, Fishers, was charged with filing false claims against the government for allegedly filing 47 false tax refund claims totaling $218,379 in 2005, according to a statement from U.S. Attorney Timothy M. Morrison.
Crisp worked as an income tax preparer and a supervisor at H & R Block from 2001 to 2006, authorities said. In 2005 and 2006, Crisp was working for an H & R Block office in Indianapolis.
Authorities say Crisp identified herself as the tax preparer in three false claims and used the identities of subordinates in 44 other bogus returns.
The government paid eight claims worth $34,157 before detecting the scheme, authorities said.
"After preparing and filing the returns, Crisp shredded the H&R Block files for these returns, in order to further conceal her offense," Morrison's spokeswoman, Mary E. Bippus, said in a statement. "When the IRS attempted to obtain the files from H&R Block during the investigation, none of those files were available."
If convicted, Crisp could face up to five years in prison and a fine of up to $250,000.

[Demosthenes]

Salinas man pleads guilty in tax fraud scheme
BY BAY CITY NEWS SERVICE • OCTOBER 1, 2008

The U.S. Attorney's office announced Tuesday that a 51-year-old Salinas man pled guilty to four counts of making and presenting false claims in connection with the filing of false tax returns.

Rafael Manzo pled guilty Monday to the charges, which also included the fraudulent receipt of the resulting tax refund checks from the Internal Revenue Service.

According to the U.S. Attorney's office, Manzo admitted that during the period from January 2002 to December 2003 he submitted false income tax returns to the IRS, using names, social security numbers and dates of birth for deceased people and claiming fraudulent wages and withholdings.

Manzo then used post office boxes and residence addresses to which he had access to receive the refund checks, and deposited the tax refund checks into his bank account or cashed them.

Manzo is scheduled to be sentenced on Dec. 19, according to the U.S. Attorney's office.

[Demosthenes]

September 26, 2008
Blotter: Ex-tax preparer gets fine, probation in fraud case

A former tax preparer must pay a $10,000 fine and spend five years on supervised probation after pleading guilty to a federal charge of aiding the preparation of false tax returns.
Karen B. Cartagena, 47, of Bossier City, pleaded guilty to the charge June 30. She was sentenced in Thursday in U.S. District Court in Shreveport.
Cartagena admitted to claiming inflated or nonexistent business losses and making up businesses on clients' tax returns while working as a seasonal tax preparer for Jackson-Hewitt in Shreveport from 1997 to 2006. The Internal Revenue Service identified about 60 taxpayers who received refunds based on false returns Cartagena prepared. The tax loss was about $107,933.

[Famspear]

Ah, Peter Eric Hendrickson, the world's foremost authority on IRS audits! Speaking of Pete's knowledge about tax refunds, and IRS audits, etc., etc. .......

At losthorizons dot com, Pete Hendrickson writes:

Q. What is an audit?

A. An audit is an exercise of the "examination" authority, addressing on the accuracy and propriety of deductions, allowances, etc. that have been claimed on a return. When and if such options have been exercised, one can reasonably be required to defend them with related documents, receipts, and so forth; this is the essence of the audit procedure.

http://www.losthorizons.com/tax/faq.htm#Audit

Well, an audit is more than that. An IRS audit may also be an examination where the person being examined has not yet filed a tax return (and even where that person has no intention of filing a return, and strongly believes that no return is required).

An audit might also properly contemplate a claimed exclusion of "income" (which means the removal of some amount of otherwise acknowledged "income" from further calculations on a return, per the application of a provision of law). However, it is important to understand that merely declining to treat as "income" something which does not qualify as such is not "excluding income", any more than declining to count one's oranges, when asked to declare the number of apples in one's possession, could be described as "excluding apples".

It is also worth noting that the "books and records, etc." that a tax agent typically demands be produced in connection with an audit can only be those books and records which actually relate to paid taxable activities engaged in during the period in question ("income" received), and/or deductions, allowances, credits, etc. claimed on a relevant return. Such "books and records" demands AREN'T demands to see material relating to earnings, receipts or anything else which DIDN'T involve taxable activities, or anything that WASN'T relied upon to claim a deduction, allowance, credit, etc. on a relevant return.

(bolding added).

This is either fantasy or deliberate deception on the part of Pete. There is no requirement of an "activity" -- taxable or otherwise -- in order for the IRS to be able to legally audit or examine a person or his or her records, etc. And there is no requirement that there be an "activity" (federally-connected or otherwise) in order for a person to have realized gross income that is required to be reported as income on a federal income tax return.

Also, in certain circumstances an audit may involve an inquiry into any offense connected with the administration or enforcement of the internal revenue laws -- regardless of whether a tax return has been filed or not, and regardless of whether the person whose records are being examined is or has been engaged in an "activity." In these circumstances, an administrative summons may properly be issued by the IRS -- and enforced by court order -- under 26 USC 7602. (If, however, a Justice Department referral has already been made, then a section 7602 summons generally may not be issued.)

Misunderstanding the point above-- that the context of the "request" for records dictates the scope of its legitimate interest and authority-- has probably led many folks to inadvertently substantiate adverse presumptions. Many folks have doubtless responded to an audit by carting in records relating to all of their economic activity.

IRS examiners or agents generally do not demand information on "all of their economic activity," so this is a bit overstated. The context of a request does indeed determine the scope of its legitimacy, but the scope of the legitimacy of a request (and, ultimately, of a section 7602 summons, if it comes to that) is fairly broad. For example, the IRS is not limited to data that would be admissible in court under the Federal Rules of Evidence; the summons power is broader than that.

Because of the context involved, everything brought in will be taken as being declared by the presenter to be "taxable activity"-related. Otherwise, why bring it in for an examination (or in response to a summons) that can only concern such activities, and no others?

No, that is incorrect. First, the IRS is looking for data to determine tax liability and, by extension, the amount of gross income required to be reported, the amount of deductions allowable, the amount of taxable income, the amount of credits allowable, and so on. Much of the gross income realized by a taxpayer often represents income realized in an "activity," but there is no requirement that the taxpayer be engaged in an activity (public, private, privileged, non-privileged, federal, non-federal, or otherwise). The term "taxable activity" is misleading. It's not the "activity" that is taxed -- it's the income.

Second, the IRS probably is not going to simply declare that everything you receive is includible in gross income (and that's the issue -- not whether you were engaged in an "activity"). For example, it is unlikely that the IRS revenue agent would just go willy nilly and declare that life insurance proceeds received by reason of the death of the insured are taxable (see 26 USC 101) or that most gifts are taxable (section 102). Many a tax protester will rant and rave as though his hair is on fire about the evil IRS, but in most cases IRS revenue agents are neither idiots nor tyrants. They know the basic rules of tax law, and they try to follow them to a large degree. I know; I have probably dealt with far more IRS employees (including IRS revenue agents) than most regulars at losthorizons.

This leaves unaddressed the more basic issue of who is obliged to attend to the unwarranted command of some bureaucrat in the first place, of course. Anyone being told that they must submit to a summons or audit might be interested in the material at 'Responding To The Assault' as well, which discusses the very clearly and narrowly defined classes of filers who can be lawfully subjected to such examinations.

No, any persons being told by Peter that they "might be interested" in the material at 'Responding To The Assault' may properly conclude that Peter is a blowhard and that The BlowhardMeister either has little clue about what he is talking about or is engaging in deliberate fantasy.

When push comes to shove in an IRS examination (or "audit", if you will), what ultimately counts is 26 USC 7602, etc. Under the Powell doctrine, the burden that must be overcome by the IRS to obtain court-ordered enforcement of a section 7602 summons is relatively minimal.

[Demosthenes]

Westchester churchgoer arrested on tax fraud charges

A former parishioner of St. Brendan's Catholic Church in Westchester was arrested Tuesday on tax-fraud charges, federal authorities said.
Pablo Gehr, 31, of Miami, was charged with preparing 2008 tax returns at no cost for numerous parishioners, using false deductions and credit amounts to obtain refunds, according to an indictment.
Prosecutors said Gehr submitted 24 fraudulent refund claims totaling more than $84,000 and that he diverted some of the refunds to his personal bank account without the parishioners' knowledge. If convicted, Gehr faces a maximum prison term of five years for each of the 24 fraudulent-claim counts.

[Demosthenes]

Smithville man charged with tax fraud
By MARK MORRIS
The Kansas City Star
A Smithville man illegally obtained nearly $3 million in tax refunds between 2000 and 2005, federal prosecutors alleged Thursday.
A grand jury charged Gary R. Doss, 52, with four counts of filing a false tax return and two counts of interfering with the administration of federal tax laws in an indictment unsealed Thursday after his first court appearance.
Court records alleged that Doss improperly inflated his income and withholding on tax forms issued by two companies he owns, Global Air Logistics and Global Purchasing Corp. As a result, he purportedly received $2,985,214 in fraudulent tax returns during that period, prosecutors alleged.
Prosecutors also alleged that during the investigation of his taxes, Doss gave IRS employees two fraudulent letters purporting to show that federal officials had instructed him to inflate his salary and withholdings.
Doss’ lawyer, Philip Willoughby, said on Thursday, “Gary is extremely disappointed in the charges, and we’ll be visiting about them tomorrow.”
In December, the Missouri secretary of state’s office issued Doss a cease-and-desist order for allegedly selling securities without registering with the state.

[Famspear]

Referring to the title of this thread: I was in a federal bankruptcy court one day, as it happened, as a standby witness in a matter that was coming up later in the morning. As we were sitting there, waiting for our case to come up, we were listening to the judge ask questions of the attorneys in another case. They began talking about federal income taxes, and filing of returns, and the judge made a comment (I don't remember his exact words) to the effect that he apparently believed that if an accountant prepared a tax return for a client, this somehow meant that the return had been "audited."

Of course, the process of preparing a federal income tax return, even by a certified public accountant or other tax professional, in no way approaches anything close to what would be considered a full examination of a tax return by an IRS revenue agent or a full-blown audit of financial statements by a certified public accountant.

I guess if a federal judge could be confused about what's involved in preparing a federal income tax return then, to some extent, Pete Hendrickson might be forgiven for his misconception about the nature and extent of the processing of tax returns (including tax refund claims) by the Internal Revenue Service.

The problem is that I think Pete's confusion goes beyond the simple misconceptions of a layman. Pete "believes" what he wants to believe, and constructs his theories to fit his pre-conceived notions about where he wants to go.

[LPC]

Some etymological trivia: The word "audit" comes from the Latin word meaning "to hear."

From what I have read, the use of the "audit" to mean the examination of accounts and returns goes back to early English practice. The lord of the manor was usually illiterate, so the reports of the stewards who actually conducted the business of the estate would be read aloud to the lord so that he would have a chance to ask questions and discover any errors.

Similarly, before the invention of photocopiers (or even carbon paper), the accounts of an executor or trustee would be read aloud in court so that the beneficiaries could gather and listen and make objections if they heard anything they didn't like. In Pennsylvania where I practice trust and estate law (and I presume in other states as well), the accounts of an executor or trustee are still described has having been "audited" in court even though they were never read aloud.

This might or might not be historically interesting, but the origins of the word confirm that a person cannot "audit" something that he himself prepared, so a CPA could never "audit" a return that he prepared. Otherwise, you'd be reading to yourself something that you had written.

[Judge Roy Bean]

....
I guess if a federal judge could be confused about what's involved in preparing a federal income tax return then, to some extent, Pete Hendrickson might be forgiven for his misconception about the nature and extent of the processing of tax returns (including tax refund claims) by the Internal Revenue Service.
.....

Believe me, both local and federal judges have been more than just confused about what constitutes an audit in financial matters. In the last decade, whatever a mortgage servicer submitted as evidence was given an inordinate weight simply because their financial statements had been audited by a known firm. In one case, the spreadsheet data submitted by the servicer was "verified" by phone without any substantive on-site visit. Nothing the court-appointed accounting firm looked at came from anyone other than the mortgage servicer. Only the servicer's submitted records were even looked at. Talk about a self-fulfilling prophecy.

If and when counsel challenged the court-appointed CPA's submissions with expert testimony about their examinations of the defense's records to the contrary, the obvious dictum was to discredit the expert and try to divert the court's attention in the direction of a business simply trying to do the best it could with no possible motive for bad behavior.

I have seen judges not only confused, but doggedly determined to prevent accepting the theory that employees, supervisors, managers, senior managers and even C-level executives would act willfully or maliciously against an individual or an entire group of people. It's the golden "get out of jail free card" and guess what - our entire financial marketplace has been operating using those for far too long.

The unspoken message the bench seems to covey is, "Hey, guys, you wouldn't really do this on purpose."

It's not really a probative question, is it?

[Famspear]

[ . . . . ]the origins of the word confirm that a person cannot "audit" something that he himself prepared, so a CPA could never "audit" a return that he prepared. Otherwise, you'd be reading to yourself something that you had written.

This is off-topic, but I would note that this concept has been modified to some extent. By the time I began working in public accounting (late 1970s), it was common practice (and perfectly OK) for CPAs (especially those auditing small companies or other small entities) to physically prepare the actual financial statements they audited. However, the auditing procedures are the same and are just as detailed regardless of whether the actual, physical documents are prepared by the CPA or, alternatively, by the audited company. Also the AICPA standards (and the state board standards, which were generally based on the AICPA standards) required that the CPA be independent of the entity being audited -- and that meant not only independent in fact but also independent in appearance. Indeed, the AICPA rules on independence have typically focused on hard and fast, non-waivable rules prohibiting the CPA from rendering an audit opinion where the rules themselves deemed the CPA to lack the APPEARANCE of independence. The AICPA standards (and state board standards) focus in part on whether the CPA has assumed the role of management of the entity being audited. If the CPA is functioning as a component of management, then the CPA simply is not allowed to render an audit opinion. Period. The requirement is non-waivable.

To digress further: Regarding tax returns, I have been licensed as a CPA for -- well, let's say, well over 25 years. I worked for one of what used to be called the "Big Eight" firms, and for a medium-sized regional firm, and I have never, ever once seen (or heard of) an actual example of an audit by a CPA of a tax return. I'm not saying it's never happened, though.

There are of course some things that any federal income tax return preparer should do when preparing tax returns. But the analyses and inquiries required in tax return preparation don't come close to approaching the procedures required for an audit.

[Demosthenes]

Man Pleads Guilty To $300K Tax Fraud
POSTED: Wednesday, March 18, 2009
Mickey Karnes

JACKSONVILLE, Fla. -- A man pleaded guilty Wednesday to stealing hundreds of thousands of dollars from the federal government by filing fake tax returns.
Mickey Karnes pleaded guilty to defrauding the Internal Revenue Service.
Court documents show Mickey Karnes and two co-defendants filed 93 false returns between 2004 to 2005.
The IRS said Karnes collected nearly $300,000 in fraudulent returns.
A spokesman from the IRS told Channel 4 that fraud cases like this one are not uncommon.
"The IRS is interested in making sure that the public is not harmed and that their returns are prepared correctly," said Joseph Thomas with the IRS.
Karnes is being held in federal prison in Folkston, Ga.