A San Mateo man has been indicted by a federal grand jury on charges that he fraudulently obtained a $5 million tax refund from the Internal Revenue Service, court records show.

Seth Sundberg, 34, the branch manager of a mortgage and financial business, was charged with mail fraud, falsifying a tax return and false claims in an indictment handed down Wednesday in U.S. District Court in San Jose.

On his return for tax year 2008, Sundberg allegedly claimed to have paid $5.7 million in taxes as a result of receiving “original issue discount” interest income, a form of taxable interest that is reported as it accrues, whether or not a taxpayer receives interest payments from the issuer.

Sundberg, who is also a principal for a San Carlos investment company, claimed he was owed a refund of just over $5 million, and the IRS issued a check in that amount to him in May, the indictment said.

Sundberg, who is representing himself, was booked at Santa Clara County Jail on Sept. 9. He remained in custody Thursday and could not be reached for comment.

The prosecution is an outgrowth of a larger IRS investigation into fraudulent tax returns filed on behalf of taxpayers, including jail inmates, Special Agent Quyen Madrigal of the IRS criminal investigation division wrote in an affidavit filed in support of a criminal complaint.

Authorities learned of Sundberg’s alleged scheme after staffers at a federal prison in Lassen County overheard an inmate urging an acquaintance to contact Sundberg because he “had had success,” Madrigal wrote.

The inmate wrote Sundberg a letter saying, “It was quite a surprise hearing from you. My father had been keeping me informed of your dealings in his bragging upon you. I am glad things are going well for you,” the affidavit said.

Federal prosecutors are seeking forfeiture of $322,000 in cashier’s checks, $117,473 in cash and $75,729 in silver and gold coins.

@IRSTax

We are installing new vinyl replacement windows, which qualify for an energy tax credit. Since we have not had any tax liability for several years and do not expect any when we file our 2009 federal taxes, would we be entitled to any credit? A sales rep for a window company said we would need to complete a form and a check would be mailed to us.

Unfortunately, the salesman is incorrect.

That’s too bad because the government is offering up to $1,500 in tax credits to people who make certain energy-saving improvements to their homes – from efficient windows to insulation, central air-conditioning, and furnaces.

According to an IRS spokesman, the energy credit is available only to people who pay taxes because it lowers taxes they would have to pay.

They have to fill out Form 5695 when they complete their tax return.

The credit covers 30 percent of energy-saving improvements, though there is a cap of $1,500 on the total amount for 2009 and 2010. So, for example, if a homeowner does a low-cost project this year and another in 2010, he could claim $500 this year and $1,000 next.

If you put $10,000 into windows this year, that would use the entire $1,500. After 2010, the credit is no longer available.

People who are not paying taxes this year may be able to participate by delaying the project until 2010 if they think they will be paying taxes then. The credit must be claimed for the year in which the project is done. The exception is costly projects such as solar water heaters, geothermal heat pumps, and wind turbines; costs can be carried over into the next tax year.

For people who might be subject to the alternative minimum tax, or AMT, timing the project can be important. This year, the AMT will not interfere with the credit, but 2010 might not work unless the law is changed, said John Roth, a senior tax strategist with CCH Inc.

Roth considers the tax credit particularly useful for people who must sell stocks, bonds, mutual funds, or other investments to pay for an energy improvement. The energy credit can offset the capital gains tax.

Keep all receipts and paperwork, including the Manufacturer’s Certification Statement. Roth said the IRS could be a stickler on making sure the individual actually pays for the energy-saving item. He suggests writing a check to the supplier of the energy-saving material, rather than a contractor. The tax credit does not cover installation.

@IRSTax

Lured by the prospect of free demolition, home owners around the country sometimes offer their houses to the local fire department for training purposes. The department burns down the house, clearing the way for the owner to build a bigger and better one.

But in court cases in Ohio and Wisconsin, the Internal Revenue Service is arguing that because such houses are already slated for demolition, donating them for fire training isn’t an act of charity and can’t be claimed as an income-tax deduction.

Churches, corporations and cities with vacant properties also donate buildings for fire training. Sometimes it is a dilapidated old barn, other times a sprawling suburban house.

Nobody tracks the number of live burns nationally, but in the Columbus suburb of Upper Arlington, the fire department has burned down at least 32 such homes since 1988. One of them, burned in 2004, was owned by ESPN commentator Kirk Herbstreit, whose claim of a $330,000 tax deduction was rejected.

@IRSTax

The IRS says an online scam is preying on victims’ fears of tax collectors and draining their bank accounts.

Here’s what happens: A e-mail message pops up with a subject line that says something like “Notice of under-reported income.”

The message encourages the user to install an attachment to view their tax statement.

But when the user clicks on it, it downloads the zeus trojan virus, which hacks into the victim’s bank account.

Researchers say the scam is emptying more than $1 million a day out of victims’ accounts.

The IRS says not to open any attachments or click on any links that claim to be from the agency.

@IRSTax

IRS Form 4506 T is entitled Request for Transcript of Tax Return. This form is a may be used to evaluate a borrowers creditworthiness to obtain any type of loan but it is used mainly for any kind of mortgage loan. It is used to a transcript summary of an individual’s tax information to verify the income stated on the loan application made to qualify for the loan.

Lenders use the form for “Quality Control”, to verify income of the “self-employed” and to detect fraud. Many lenders do a quality control check on the mortgage files they receive every day–mostly it is decided that a certain number of files a day (like every 4th file received)or any file from a “new” broker/loan officer will be thoroughly checked by the mortgage company/bank. After the file is underwritten, the file will be given to another person who will verify everything in the file. Every person who has signed any kind of verification forms will be called again to verify that he/she did write and sign that paper. Every checking or savings or asset letter will be re-verified and so will the income. If your 1040’s & w2s or 1099s were included in the file, the 4506T is used to request a quick print-out which summarizes your tax returns looked like for the year/s you have provided. This summary transcript verifies the paperwork given to the lender.

This quality control and 4506T should stop any fraudulent loans from happening. If the IRS transcript shows less income than the the income represented on the loan application, then the lender can either stop the mortgage process and deny the loan or if the loan is already in place, the applicant can be asked to payoff the mortgage/loan immediately due to apparent fraud. “Legal action” can be taken, it depends on the lender and/or the state (if they become involved)as to what action will be taken against the customer, the broker/loan officer and/or both if involved.

@IRSTax

The head of household filing status is for taxpayers who are either unmarried and not an RDP or meet the requirements to be considered unmarried or considered not in a registered domestic partnership and maintain a home for a relative who lived with them for more than half the year.

Registered Domestic Partners (RDPs)

Effective for taxable years beginning on or after January 1, 2007, RDPs under California law must file their California income tax returns using either the married/RDP filing jointly or married/RDP filing separately filing status. RDPs will have the same legal benefits, protections, and responsibilities as married couples unless otherwise specified. For more information on RDPs, see FTB Pub. 737, Tax Information for Registered Domestic Partners.

If you are an RDP, you may qualify to use the head of household filing status if both of the following apply:

• You are in the process of ending your relationship.
• You meet the requirements to be considered not in a registered domestic partnership.

General Rules

Do I qualify for head of household?

You are entitled to the head of household filing status only if all of the following apply:

• You were unmarried and not an RDP or met the requirements to be considered unmarried or considered not in a registered domestic partnership as of the last day of the year.
• You paid more than one-half the costs of keeping up your home for the year.
• Your home was the main home for you and a qualifying person who lived with you for more than half the year.
• The qualifying person was related to you and met the requirements to be a qualifying child or qualifying relative.
• You were entitled to a dependent exemption credit for your qualifying person.  However, you do not have to be entitled to a dependent exemption credit for your qualifying child if you were unmarried and not an RDP and your qualifying child was also unmarried and not an RDP.
• You were not a nonresident alien at any time during the year.

@IRSTax

To encourage their employees to purchase environmentally friendly hybrid cars, several companies reportedly are offering “rebates” or cash incentives to their employees in select areas to offset the purchase price of these vehicles. Just like other forms of compensation, these cash incentives are taxable compensation.

Employers should include the cash incentive amounts in employees’ compensation reported on year-end Form W-2 earnings statements. The cash incentives also are subject to income tax withholding and employment tax. The tax code provides for an exclusion from income for employee discounts only if the employer produces the product and certain other requirements are met.

The tax code already includes incentives for the purchase of hybrid cars. The Alternative Motor Vehicle Credit for hybrid vehicles applies to vehicles purchased on or after Jan. 1, 2006, and it may be as much as $3,400 for those who purchase the most fuel-efficient vehicles.

@IRSTax

Points for the mortgage. They should be on the 1098 you received from the lender, though, so don’t add them if they were.

Property taxes credited to the seller are considered as paid by you and should be added to any other property taxes you paid in the year of closing. Property taxes credited to you are considered paid by the seller and should be subtracted from any property taxes you pay in the year of closing.

Prepaids (other than mortgage interest, which will show up on the 1098) have no tax consequences, they are just deposits towards future bills.

All other closing costs on your side of the HUD-1 can be added to your basis for the home. This will reduce your gain on sale when you eventually do sell.

@IRSTax

In certain circumstances, you do not need to claim the child as a dependent to qualify for head of household filing status, such as when the qualifying child is unmarried and is your child, grandchild, stepchild, or adopted child.

@IRSTax

If you are an unmarried dependent, you must file a tax return if your earned and/or unearned income exceeds certain limits.

• To find these limits refer to Filing Requirements for Dependents in Publication 501, Exemptions, Standard Deduction and Filing Information.
• Even if you do not have to file, you should file a federal income tax return to get money back if any of the following apply:

Refer to Publication 501, Exemptions, Standard Deduction and Filing Information for an explanation of the five exemption tests and filing requirement rules.