Wacky Scheme Ended by IRS

published April, 2013

From the IRS: On July 20, 2010, in San Diego, California, David Canales was sentenced to 41 months in prison and ordered to pay $1,021,063 in restitution. On March 24, 2010, Canales pleaded guilty to one count of mail fraud and one count of tax evasion. According to the plea agreement, between 2001 and 2008, Canales operated a tax preparation and bookkeeping business in Chula Vista, California. Canales admitted that he controlled two bank accounts in the fictitious business names International Recovery Systems (“IRS”) and Freight Transport Brokers (“FTB”). Canales further admitted that he falsely represented to his clients that they owed substantial amounts of tax to the Internal Revenue Service and California Franchise Tax Board and directed his clients to write checks to “IRS” and “FTB.” Canales admitted that instead of forwarding these checks and the tax returns to the IRS and FTB, Canales deposited the checks into his own “IRS” and “FTB” bank accounts and either did not submit the clients’ returns to the relevant taxing authority or submitted different returns showing little or no tax due and owing. Canales admitted that he caused losses in excess of $1,000,000 and willfully evaded payment of income taxes on $457,653 in income he earned for the years 2003–2007.

“IRS.com” or “AICPA.com”

published March, 2012

‘Tis the Season to receive fake phishing emails from scammers.

My email spam catcher has received hundreds of “Your tax appeal is rejected,” “Rejection of your tax appeal,” “Termination of your accountant license,” or “Fraudulent tax return assistance accusations” from some combination of these email addresses.

First off—its irs.GOV and aicpa.ORG, not .COM

Second—I’m not a CPA, never was, don’t particularly want to be. I’m an Enrolled Agent, and I do have a federal license to prepare tax returns granted by the IRS (.gov), not a CPA. I’m ‘all qualified up’ having finished my continuing education requirements, and none of my tax appeals are ever rejected—at least not by email!

Third—The IRS DOES NOT EMAIL. They think it is an insecure method of communication. These are phishing scams—nefarious people trying to get me to disclose confidential personal information.

If you’re getting these too and you’d like to “turn the scammers in” do not “reply,” do not open any attachments, and do not click on any links. Forward the email as-is to phishing@irs.GOV then delete the email.

“ACH Payment Canceled” or “Rejected Federal Tax transfer”

published October, 2011

These are both scams. If you get an email from “The IRS,” it is someone phishing for your account info. I’ve got them in my spam filter from admin, info, donotreply and rules dot nacha. All Scams. The IRS does not send emails; they don’t think they’re secure enough to send personal data. They mail you a letter if something is wrong, and you usually have 30 days to reply. Do make sure they have your correct mailing address, and if you need to update your address, you can call them at 800-829-1040 or complete and send Form 8822 at www.irs.gov/pub/irs-pdf/f8822.pdf If you’re annoyed with the emails, you can forward them (don’t reply, don’t open attachments, don’t click on any links!) to phishing@irs.gov then delete the original email.

IRS Doesn’t send email/BOE sends letters

If you get an email from the “IRS,” it is probably “phishing” for your personal information. The IRS won’t even receive an email from me after I’ve made contact with a Revenue Officer or Revenue Agent—they don’t consider email to be secure enough to communicate about a taxpayer’s information.

The California State Board of Equalization DOES send letters out asking for people who don’t think they have a sales tax issue to file online and report any “use tax” for things purchased out of state that you are the “end user” of. It’s like if you purchase books from Amazon.com, you don’t pay sales tax because they ALWAYS ship from out of state—I know, because when someone orders my physical book from Amazon in San Leandro, I ship a book to Kentucky, and they ship it back to San Leandro from “out of state” so they don’t have to deal with sales tax. Admittedly, California sales tax is quite messy—rates changing mid-year and different rates apply depending on the CITY of the recipient—hard to program into a website.

The BOE has been sending delinquent filing letters to companies who need to file a Use Tax return. If you get one of these, it’s probably legitimate—if you have questions, fax me a copy and I can confirm “it’s real” for you. If you need help filling out the filings, I can help with that too. You’ll need to assemble the information about any out-of-state purchases—like things bought from Amazon, or if you’re “retailing,” we’ll have to talk.

I originally wrote about this issue of the BOE in November 2009 when they first announced they would be sending these out. For a more extensive discussion, please go to www.taxbuddha.com/newsletter/newsletter_2009_11.html

The Corporate Information Scams – Minutes, Statements, and Posters 2

published October, 2009

This turned out to be way more popular a topic in September than I expected, many people reported receiving scam letters that appeared to be “official” from the Secretary of State. Take a look in the archives to see what I said last month, coming soon!

Also the IRS doesn’t tell you about amounts due or “refunds” via e-mail, a phishing scam.

The Corporate Information Scams – Minutes, Statements, and Posters

published August, 2009

If you have a business, you’ve probably seen scary official-looking letters soliciting you to send in some information, along with a check. I’ve just got another one in the mail for a corporation we just formed from the “Compliance Recorder.” It does actually have the words “This is not a government document” on the outside of the envelope, so I’ll give them credit for that at least. They also say in small print that you’re not under obligation to make a payment unless you “accept this offer.”

I am most impressed by the “Control Number” 101825 printed to look just like the stamp from the real Secretary of State’s office. I’m hoping to get another one soon, so I can see if it’s the same number!

This offer is for generating minutes. They ask for “verification” of the address and officers and shareholders, which isn’t quite enough to create minutes, in my mind.

There’s also an outfit that offers to file your Statement of Information for around $125.

There really is a requirement to prepare at least annual minutes for corporate meetings, and you really are required to file a Statement of Information with the Secretary of State’s office once a year (not just in California).

The minutes are a document you can probably make yourself—follow the form of your first minutes for both a Shareholder Meeting and a Board of Directors Meeting. If you’re the only person, you meet with yourself and write it down. Stick a copy of the minutes into your Corporate Notebook. Minutes should include any actions on the corporate level, like lending an officer or member money (which also needs a note, interest rate and payments!). If new officers are appointed, or if new directors are elected, it also needs to go into the minutes.

The annual Statement by Domestic Stock Corporation form informs the Secretary of State where to find you-all, and who the officers and directors are. There’s a filing fee of $25 for corporations, $20 for non-profit or LLC’s. You can do it on-line at https://businessfilings.sos.ca.gov/.

You’re required to do both these things once a year—the exact date is determined by when your corporation started.

If you need some help with these, don’t hesitate to call. We’ll help you prepare and file this year, but you’re welcome to do this yourself going forward.

Here’s what the Secretary of State of CA says about these scams:

Please note that submitting the fees and filings required by the Corporations Code to a third party for filing with the Secretary of State, does not meet the business entity’s statutory obligation to file a Statement of Information with the Secretary of State. Also, please note that each business entity is required to keep records, books and minutes of its proceedings, however, these items are not filed with the Secretary of State.

Neither the SOS nor I am saying these services don’t do the filing for you, even if it is quite pricey, but if you pay some “third party” and they don’t actually do the work, your corporation/LLC is still on the hook for the “real” filing.

We’re considering adding a service for 2010 where we would file the required report with the Secretary of State and assist with annual minutes. Would you be interested in this service? Let me know!

There are posting requirements for employers as well, with the same kind of associated scam. Try either Costco or the Cal Chamber of Commerce to get a reasonably priced set if this applies to you:

Prevent Fraud in your Business

published January, 2009

Don’t let someone sign your name, use your credit card or represent themselves as you to your bank or credit card company—in the event of fraud, it muddies the water between what you allowed them to do and what they did. If you authorize someone sign your name some of the time, how can a jury decide when you didn’t authorize it?

I’m afraid you can’t abdicate bookkeeping responsibility entirely to one person. There’s a rule I think of as “separation of church and state” – have one person reconcile and another person write checks. 

Open your bank and credit card statements and review the checks and statements. If someone is stealing from you, better to catch it sooner. I don’t mean review the stack of checks the bookkeeper lays out for you after reconciling, I mean open the envelope yourself. If you’re a bookkeeper, make the owner open the statements and initial them, if you can.

Reconcile your accounts monthly. The one time I personally discovered fraud, an exiting employee had written themselves a few ‘extra’ checks, presumably because the soon-to-be-ex-employee felt the employer owed them. As I recall, this ultimately cost the employer $50, which was much better than the thousand or so spread across several checks, also presumably to make it look like a few ‘normal’ checks.

Back up your data off site in a secure way. If you’re using CD’s use the read-only variety. The last action of a fraudster before leaving is to delete all the QuickBooks files and backups, and/or change all the passwords. It may be possible to recover deleted files from a hard drive, but it’s very expensive.