IRS, tax professionals watch for tax scams
A recent press release revealed this year’s list, including many of the usual suspects in tax fraud or evasion:
- Identity theft, or using someone else’s personal information to commit fraud or other crimes. Nationwide efforts against identity theft suspects led to 298 indictments, complaints and arrests in January.
- Phishing, or using unsolicited emails or fake websites to convince people to provide valuable personal information.
- Return preparer fraud, or posing as a legitimate tax professional to prey on unsuspecting taxpayers looking for help.
- Hiding income offshore, which the Department of Justice prosecutes with information from IRS investigations. A recent press release from the IRS suggests 138,000 people have come forward to voluntarily disclose their foreign financial accounts since 2009.
- “Free money” from the IRS and social security tax scams, which charge low income individuals money for advice based on promises of non-existent rebates or refunds.
- Impersonation of charitable organizations, which involves impersonating charities to get money or private information from well-meaning taxpayers.
- False or inflated income or expenses, which some taxpayers file to get larger refundable credits than they earn. This can sometimes lead to prosecution.
- False Form 1099 refund claims, which lure taxpayers into filing a fake information return such as a Form 1099 Original Issue Discount (IOD) to justify a false refund claim on a corresponding tax return.
- Frivolous arguments, which some taxpayers use to avoid paying taxes and are sometimes thrown out of court.
- Falsely claiming zero wages, which can result in a $5,000 penalty.
- Disguised corporate ownership, by which some taxpayers use third parties to request employer identification numbers and form corporations that obscure accurate financial information.
- Misuse of trusts, such as using them to reduce taxable income or get deductions for personal expenses.
To report tax fraud: Call the IRS hotline at 800-908-4490.
Tax season is back, and with it a heightened susceptibility to scams and fraud.
The Internal Revenue Service released its annual “Dirty Dozen” last month, a list of the 12 most common tax scams. Many of them involve people attempting to steal by soliciting private information under false pretenses or by being deliberately misleading on their tax returns, and none are victimless crimes.
But at the top of the list, and one many local tax professionals point to as a common concern in the area, is identity theft.
According to the press release, the IRS prevented the issuance of $20 billion of fraudulent refunds in 2012, up from $14 billion in 2011. In January 2013, it handled 298 indictments, information collections, complaints and arrests.
Thomas Brenner, manager of H&R Block in Auburn, said he hasn’t seen any particular trend in tax scams this year, but identity theft is a growing concern nationwide. He also mentioned new tax credits leading to new problems.
“If we find that a taxpayer’s social security number has already been used and filed on a tax return, we have them file a police report, and then there’s a phone number they can call the IRS for fraud,” he said. “Another one (the IRS) is looking at now is that education credit, which is refundable. You can file for that and not have any income and get up to $1,000 back, so there was a lot of fraud in that last year. They tightened that up a bunch this year.”
Citing identity theft as the biggest concern, Liberty Tax Service owner Iwan Tjahjadi said one of his clients was a victim just last week.
“A client came to me and said that he got a letter from the IRS saying that he already sent some tax documents that we filed with him last year. It turned out that someone else in southern California was using his wife’s ID and social (security number),” he said. “IRS normally doesn’t send you an email. When they send you something saying, ‘You need to respond to this,’ I probably wouldn’t do that. I probably would call the IRS and say, ‘I got an email from you.’”
Tjahjadi added that the best protection against scams is to tell your credit bureau to “block” your name, effectively freezing your account so no one can access any of your private information. The down side to this, he said, is that you have to unfreeze your account every time you apply for a loan, credit card or other service that requires disclosure of financial information.
But if there are rampant issues with identity theft or tax evasion, some area residents seem not to have noticed.
Filing at H&R Block on Monday, Auburn resident Jennifer Linarez said her only concerns are new taxes she hasn’t had to deal with before, like one associated with the Affordable Health Care Act.
“If you don’t sign up for health insurance, you’ll be fined off your taxes,” she said. “That’s the only concern that I have for this year.”
Filing her taxes on social security for the first time, Gail Mitchell of Auburn said a back injury changed her financial predicament last year, so she sought help with tax professionals so she wouldn’t break the law.
“This is my first time on it, so I’m not really sure, and they had to back pay me, so I don’t know – did it put me over a bracket, do they still tax it, do I have to pay more money this year?” she said.
Working with his go-to tax professionals, George Sessions of Foresthill didn’t notice any new issues or anomalies this year.
“It’s pretty simple. I don’t have many deductions,” he said. “I just come in, but there’s nothing special going on that I know about.”