The Top Five Ways to Cheat the Government -and How They Will Catch You Doing It
Introduction
The Top Five Ways to Cheat the Government -and How They Will Catch You Doing It
There is no such thing as a free lunch. There is a vein of gold in that old saying. And yet, that doesn't stop many from trying to get something for nothing. Whole generations have grown up now trained to depend on the government for withhold whether it be through food stamps, skewed tax reputation laws or welfare. The price they pay in dignity, respect and freedom is barely noticed by many of them. And yet, even with those who are truly in need or who truly deserve the help there are many more who look for ways to scam the government for funds.
Each one of them is convinced they have found the fool-proof way to task Uncle Sam and in many cases they get away with it temporarily. Though there are many variations on the wide themes, each will ordinarily fall within one of five categories.
1. Eic Fraud
2. "Under the Table" Payroll
3. Falsifying of W-2 or 1099 information
4. Clustered Nest
5. Multi-Level Marketing Tax Evasion Methods
Eic Fraud
Earned earnings reputation is a refundable tax reputation meant to help working particular parents. Normally, the way a tax reputation works (nonrefundable) is that if an private has paid 00 in taxes for the year and qualifies for the ,000 tax credit, they can only receive the 00 they paid in taxes. If the private paid in taxes, the tax reputation could be as much as ,000 or more and they would get . With the refundable tax credit, the private isn't required to have paid taxes to get the earned earnings reputation added to his or her repayment amount.
It works on a sliding scale where the Eic climbs up to it's maximum (usually around 000 in earned income) and as the earnings climbs above ,000 the Eic slides down. Maximum Eic is usually around 00. Ultimately at about ,000, the Eic has decreased to . As man who spent some years making ready taxes in the lower earnings bracket neighborhoods, let me tell you that there are those whose whole year is planned around receiving this huge check of taxes taken from those who pay them and given to those who won't. Eic is given only for your first two children from birth to age 17.
The 'married or unmarried' merge with four kids will go in to a tax prep office, separate ones if they are experienced at this. And though each lives in the same house, each one claims the Head of Household status, which increases the number they can deduct off of their chargeable earnings and with each of them claiming Eic they can receive a checks totaling up to ,000 for end of year tax filing season. The Head of Household is supposed to be for those who are receiving no other withhold from anywhere else. The Head of Household must be providing for that Household, so if there is a boyfriend, girlfriend, spouse, parent etc living there, they cannot claim that designation.
These cheats will do this for years before they are caught, but having been caught, they are not allowed to claim Eic for ten years following a fraud investigation. They will then have to pay back incorrectly paid Eic and pay penalties for fraudulent returns on top of that of up to 75% of the number that the Irs was defrauded.
How They Get Caught
Every time an private opens a bank account, purchases a car, or rents or buys a home there is a minuscule note made that identifies their communal security number with that transaction. Obviously man whose earned earnings doesn't reach over ,500 isn't going to go buy a ,000 vehicle, or a 0,000 home. These cheats do not realize that they are putting a huge target on their back that screams, "Audit Me!" to the trained Irs auditors. You can't have it both ways and claim to make sufficient earnings to pay off your buy on reputation and then on another form claim that you didn't make sufficient money to pay taxes.
There is a storage of this information, and the Irs does take note of logical errors. Example; A man came into my office and told us proudly that he was the father of nine children with seven distinct women and that his total earnings for the year was under 00 and he wanted to claim half of his kids before their mothers did so he could get the repayment first. There is no way on this earth that a man on his own can pay for food, rent and gas on 00 yearly income. And he wanted to claim that he supported these children too? He went to prison a year and a half later, but I hear his kids are doing just fine without him.
Under the Table Payroll
Whether it be because the employee is illegally living here in this country or because the owner doesn't want to bother with payroll taxes, a growing number of small businesses are paying in cash. And since their owner isn't reporting it, the private employee sees an occasion to cheat the government. (In some of these cases, these individuals are spicy in illegal activity through which they make all their cash. Drug dealing, prostitution, etc.)
The first caution here is that this arrangement is illegal. The second is that it is dangerous. Illegal because there are definite state requirements for employment that cannot be met or measured without records. And, risky because this is how most employers get around paying worker's payment insurance. An injury on a jobsite where all is done 'under the table' will usually receive sub-standard care for fear of reporting the injury to a hospital or qualified doctor.
How They Get Caught
In much the same way that those who are cheating Eic, every legal transaction they make puts one more flag on a case that would not have one otherwise. If they are making money they are not reporting, they will have a hard time explaining how they are making 0 a month in mortgage payments when they only claim to earn 0 and that they are the sole victualer of withhold for that household. As the Zen expert would say, 'all things are connected, and yet not all things are the same.'
Falsifying of W2 or 1099 Information
It is relatively easy to buy a pack of blank W-2's or 1099's and 'create' your own income. usually the cheaters use a legitimate Ein number of a legitimate firm that they have worked at temporarily or that a friend or relative has worked at and they create a W-2 that gives them just sufficient earned earnings to get the Eic credit. By the time the ruse is discovered, the cheaters have cashed their super fast repayment checks and left town. Electronic filing prevents some fraud, but it makes others so easy.
The legitimate firm owner then is left to explicate why he or she didn't pay employment tax on these individuals who faked these forms. The Irs seems to move much slower when you are the one who has been wronged. It could mean paying penalties on payroll taxes that were never supposed to be filed anyway.
A lot of those citizen using this particular scam are illegal aliens and do not have a legitimate communal security number anyway, those that are legal citizens, and yet, cheaters anyway, finally move and forget the crime they have committed.
How They are Caught
Once this particular fraud is forgotten, one day they will have to use their communal security number for a job, a loan, or college application. At that point, they are nailed even though it may be five or more years later. Offenses of this type earn prison time.
If it is an illegal that is cashing this check, it makes it more of a challenge. Typically, an illegal does not have a checking inventory to use to cash this check, so they must go to a check cashing store. It is there that they must furnish Id, addresses of references and some employment information. What a lot of citizen don't realize is that all the checks you receive and cash have clearly identifiable stamps showing where and when the check was cashed, deposited and processed. If the illegal is still in the same area when the Irs does get up and start investigating, it doesn't take too much to find them.
The Clustered Nest
Using the same principle in the first Eic fraud of a merge living together in the same place and each claiming Head of Household and Eic for each of their four children, the clustered nest describes what happens when that is taken to extremes. Where there are four or more families within the same house each claiming Hoh and Eic for their group of kids. This is common in heavily Hispanic areas where the families are in effect able to get along with each other in close quarters. Often the children are swapped back and forth surrounded by the relatives to get the maximum advantage of the tax refund.
How They are Caught
In doing background checks there are areas and addresses that are automated 'red flags' of fraud. They are called 'high risk' areas, high turnover, a transient population, hotels, apartment complexes, etc. When an address has ever been used as a 'clustered nest' where more than one house is claiming house at the same time, that location is flagged. finally the addresses are matched together with dates and times citizen are claiming house and sole rights of the Head of Household title. As long as the Whole house moves every three years, they could keep this up for many years. But once an area has been 'flagged' so too are any communal security numbers using that address.
Multi-Level Marketing Tax Evasion Fraud
Lately there has been a group promoting an old idea they tout as being "new". This group stems from a Mlm that sells legal assurance plans and a big part of their firm is in recruiting other representatives. As the steam has gone out of their engine in the past seven years, it is getting more and more difficult to recruit smart citizen into these pyramid schemes. So their advent has changed to deemphasize the Mlm aspect and sell them on the benefits of being able to deduct expenses they already have by occasion their own business.
Most W-2 earners as they call them, don't have time to work 40-60 hours a week and put in another 10 - 20 on an Mlm. So the advent is this, let me show you how to deduct those expenses you have now anyway and save you money on your taxes. When you own your own firm you do get to deduct losses, home office expenses and a percentage of your utility bills depending on the size of the home office.
So now they have otherwise smart citizen joining this pyramid Mlm group, not to expand within the Mlm, but to deduct all the losses they will have pushing these pre-paid legal assurance plans on their friends and family. There are some things wrong with this; First, your firm needs to be in execution for the purpose of making a profit, Not for writing off day to day personal expenses. Second, there are rules and regulations for home office and vacation deductions that these 'fake tax experts' don't bother explaining to their new recruit, which in effect lead to the deductions being disallowed and the penalties and fees start rolling in. And third, these so called tax experts are the furthest from being experts that one could be. A weekend training class does not a tax expert make.
How They Get Caught
The chief inspiration behind this devious task deftly avoids investigations and prosecutions. The pre paid legal assurance firm however, seems to attract investigations constantly. Experts in corporate fraud have cited some red flags that show a firm is ripe for fraud to be committed on the corporate level and this particular firm is at that point. Since it is difficult to hold the corporation liable for the outlandish claims of its' sales force, there will continue to be citizen sucked into this 'incorporate yourself' task that has been around for over 30 years. The good news is that the eyes of the corporate fraud experts are on them and soon there will be a slip up. Gee, I hope they know a good lawyer.
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