In continuation of the “dirty dozen” tax schemes for 2014, keep a close eye on your tax preparer, and be honest with your reporting to avoid heavy repercussions! To read the first scams discussed, see “Dirty Dozen” Tax Scams for 2014, part 1.
False Promises of “Free Money” from Inflated Refunds
We’ve all seen the billboards, flyers, store fronts and other ads from time to time of tax preparers who claim they can get you the biggest refunds or find other refunds that you didn’t know to claim on your return. Don’t trust these claims. In fact, be very careful who you trust with your return—even an established franchise company can be guilty of fraud. Last year, a huge tax service company called Instant Tax Service was finally shut down by the feds after years of fraud and illegal practices (read more). This service was the fourth largest tax prep service in the nation, and made loud and bold claims of getting clients instant, easy money.
Many of these claims are made by scam artists. Although it may sound easy to allow someone else to finagle you a bigger refund check, YOU are still responsible for what goes on your tax return (and can therefore be penalized for filing false claims or receiving fraudulent refunds). Intentional mistakes of this kind can result in a $5,000 penalty.
In many cases, an unknowing victim will complain to the IRS after losing their federal benefits, such as Social Security benefits, certain veteran’s benefits or low-income housing benefits—only to find out that the loss of benefits was the result of previous false income amounts on false claims. Scams also occur when a taxpayer’s refund is deposited into the preparer’s bank account. A “fee” is then subtracted and pocketed before the scammer writes the victim a check.
Needless to say, great care should be taken when choosing a tax preparer. Although referrals are helpful for other sorts of services, scammers also target highly trusted associations or religious groups to lure people in using word of mouth. Continue reading for tips on choosing a legitimate tax preparer.
Return Preparer Fraud
According to the IRS, statistics show that over 60% of taxpayers’ returns will be prepared by tax professionals this year. Using a dishonest tax preparer puts you at risk for identity theft and a host of other scams. Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.
Honest return preparers generally have these four things in common. You should only use a preparer who:
- Asks you for proof of income and eligibility for credits and deductions
- Signs returns as the preparer
- Enters their IRS Preparer Tax Identification Number (PTIN)
- Provides the taxpayer a copy of the return.
For more tips and information on tax preparers, see IRS Fact Sheet 2014-5, IRS Offers Advice on How to Choose a Tax Preparer.
IRS.gov has general information on reporting tax fraud. More specifically, you report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes a return address.
Hiding Income Offshore
Offshore bank accounts, brokerage accounts, nominee entities and other assets all must be reported; noncompliance is unlawful and punishable by penalties, fines, and even criminal prosecution. This also applies to foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose of evading taxes. Both the suspected individuals and the banks responsible will be under scrutiny by both the IRS and the Dept of Justice. All in all, hiding your assets and funds from the IRS is illegal and can get you into trouble.
In recent years the IRS has provided special opportunities to comply with the U.S. tax system and resolve their tax obligations, rather than risking heavy fines and criminal prosecution, via the Offshore Voluntary Disclosure Program (OVDP).
