Common Schemes and What to Look Out For
We've heard about the huge scandals with celebrities who make bad choices with their money and end up in prison. We get scam calls and emails - even text messages all the time! It's amazing how common things like tax fraud and financial scams are. What do we need to be aware of in order to stay safe?
Recently, our CEO sat down with Brian Watson to discuss this topic! In this blog, Hollywood Branded learns about preventing tax fraud and financial scams with Brian Watson, a special agent with the IRS.
A Little More About Guest
Brian has been a special agent with IRS criminal investigation for 25 years, and currently serves as the public information officer for the IRS CI Phoenix field office, where his job is to publicize major financial crimes that they investigate and sentence. Subjects around tax evasion, corruption, the dark web, and scams are his specialty, and his job is to help people better understand the laws by showing by example where people have erred with their finances and taxes.
Interview Transcript Highlights
Question: Where are some of the things that pop up often? I know that you go out and you speak very much so on were major, major faces that were well known and recognized have made some errors along the way, made some poor decisions along the way, maybe not on purpose, but they stumbled upon and made decision after decision that led them to potential jail time. How does that involve your role? What are you involved with in all of those types of cases?
Answer: We get leads from a variety of sources, sometimes it'll be an audit that's going on across the hallway and they keep finding more and more things, like peeling an onion, and they keep finding hidden bank accounts and things like that, and they'll send it to us. We literally get people who walk in with a box of records or an anonymous letter. People provide information. Or, we work on certain projects, certain areas where we're looking for compliance. It's just amazing. The people that we try to investigate are not people who are just getting by and maybe fudged the little number here or there, we're looking for the most egregious stuff.
With our tax system, it's a progressive tax rate system, so the more you make you're actually paying up, not even more money, but you're paying a higher percentage of your money. Most of the people we investigate are wealthy already. Then, they start realizing they're paying the highest tax bracket, and a lot of them don't want to pay it. They intentionally don't provide their accountants with the true number, they'll lower the number, and they'll only report certain bank accounts. Those are the types of cases that we're looking for.
They always say we only get the dumb criminals because the really smart ones are so far ahead of us that we don't even know they're cheating at all. Some of the clues that we know someone is not reporting all their money is we look at the accumulation of assets and we can do a net worth analysis and realize how much someone's made, because if they're dealing in cash or they're not depositing their money into a bank account, it's hard to prove it from their bank deposits. In my 25 years, I've seen the use of the internet start. When I first started, we didn't have the internet, it was just a fledgling thing.
Then, in the years in between, we saw the offshore bank accounts in the Caribbean and Panama, and then the South Pacific, and then in the last four or five years, a huge uptick in the use of cryptocurrency. It is still easy to hide your money, but it takes time and it takes money and it takes someone who knows what they're doing. It's a constant cat and mouse game between us and the criminals that are committing either tax fraud or money laundering.
Question: What are some of the bigger cases? What are some of the bigger ones in the last couple of years that we've really heard about, or the last months even?
Answer: Operation Varsity Blues. That was the college admission scandal work between FBI and IRS, that made national news. The only reason it got so much attention is because there's celebrities involved. We work cases that get far more bigger prison sentences than some of those defendants in that case. We've worked these dark web cases, Silk Road a few years ago, which was sort of a clearing house for all the... We called that Craigslist for criminals. It's where all the really bad stuff was going on. There was something called Welcome To Video that we were involved in, I believe in 2019 or 2020, where a South Korean young man basically operated, it was one of the biggest porn sites in the world.
The scariest thing about it was, a huge percentage of the material on there was new materials, stuff that governments around the world had never seen before. It was obviously creating a huge demand for child pornography. IRS was involved in that. We're very proud to be involved in that to help take that down. Then, also, some of the older cases you mentioned, Wesley Snipes. He went to prison for not filing tax returns.
The people that helped him prepare those returns were based out of Florida, and they were very anti-tax, very anti-government people. I actually had a defendant who went to the same people. He got three misdemeanors and the judge stacked them one year at a time to be served consecutively. Richard Hatch, the first winner of Survivor, got that million dollar from CBS, but didn't report it, and that's why he went to jail as well.
The common thread on all these cases, like 95% of our cases, is just greed. People don't want to pay those high taxes, especially when you're in those upper tax brackets, because you see what it would be if you report all your money and what the difference is, and you could save all those taxes, and people, they just don't want to do it. On the expense side, I've personally worked a couple of cases where small business owners started running through personal expenses through their corporation, and my guess is they started small, figured, "It's okay. No one will know." And then it starts getting bigger and bigger to the point where you're deducting trips and vehicles, plastic surgery, some stuff that's not business related. To the point where it could send hundreds of thousands of dollars, it's no longer just that lunch here or there that maybe wasn't business.
Question: When we were talking before, you said that people will bring in boxes of information or just do little drop-ins of bits of gossip and information that helps you with leads when they're publicized.
Answer: It's true. I've worked a couple of cases that were just from a former employee. A person came in and said, "My former employer is cheating on his taxes. He's running all these personal expenses through the business." This person came in through her attorney. The attorney knew me from a prior case and said, "Would you be interested?" And I said, "Yes." I said, "How soon can we meet?" We met the following day and we started a criminal case. It took many years to get through, but we eventually got a conviction. If that person did not come forward, it's unlikely that we would have had that criminal case.
Question: For all of our listeners, if you're not an owner or someone who actually goes through your QuickBooks and your accounting and you understand your numbers, you can make one little tiny error and it can take hours to try to figure out that error. So the forensic accounting that Brian and his teams are doing, it is unbelievably mind boggling numbers and trying to see relationships and where one little thing might fall out in order to crumble the castle.
Answer: You mentioned small business owners and QuickBooks. One of the big things that we see constantly nationwide is these embezzlement cases, and the common theme in all of them is poor internal controls. Now, I don't want to get too much into accounting jargon, but internal controls is just a fancy way of saying, how many people are involved in the process and who's oversight. So many times with these small businesses, there's just one person who does the money and the owner is not involved.
The owner needs to look at the QuickBooks entries, the owner needs to look at checks, go online and look at the canceled checks because it's unbelievable how many of these embezzlement cases we work. If you don't have internal controls or you don't even know what that term is and you're a small business owner, you need to talk to your CPA and say, "I want to spend a little time, I want you to review my internal controls to see if I could be the victim of an embezzlement scheme."
Question: Moving on to cyber scams and financial thoughts because that's something that I know our listeners are concerned about, everyone out there listening has gotten spam emails asking for gift cards to be purchased or for a statement to be paid, or an invoice to be paid, or all sorts of different hats that are trying to infiltrate your business and your email system and your personal computers. How does the IRS get involved with that?
Answer: We do a lot of public relations in terms of warning people about these phishing schemes, and that's phishing with the PH. Every year we do an IRS dirty dozen, the 12 biggest tax and financial related scams that we're seeing across the country. Last four years, phishing has been number one, whether it's by email or text message, that's where we're seeing most of the problems. It's a crime that's 100% preventable because they can only get you if you click on that link and start providing your information. I would tell everybody, don't click on any link unless you know for certain that it's your bank or it's your friend or something like that.
Anything from the IRS, a text or an email is not from the IRS because we don't do that, IRS will send you a letter in the mail. I get these phishing emails all the time. My PayPal account was supposedly closed because of fraud or my Chase account was closed because of fraud. I always hover the mouse over that link, and you can see it's some crazy long email address or website that is not legit. Think about it this way, these criminals only have to be lucky once or twice a day to make it worth their time, and they're sending out thousands of these emails.
That's the problem with this, having all the information at our fingertips right now, it's great for us to get information instantaneously, but the criminals are using it to steal from us all the time.
Check Out The Podcast!
Brian has TONS of great information from his experience in preventing tax fraud and financial scams, check out the podcast below to learn more about how to drive your business from his advice and expertise!
Every week we have a marketing professional on our show to share their tips, tricks and lessons learned from their professional experience. Check out some of our other podcast blogs from earlier this year:
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