The Journal of Accountancy today posted the top 12 tax scams.
I am writing about them because we are receiving numerous phone calls from our clients who have told us the IRS called threatening about past due balances etc.
The number one scam the article says is identity theft which we discussed previously. Someone steals your social security number with the intent of filing a tax return claiming a huge refund. The IRS says this is a major problem for them.
Most popular in our office are phone scams. Criminals call impersonating the IRS and threaten arrest, deportation, levies or license revocation.
Some scammers have fake titles and badge numbers to appear legitimate. Not included in the article, I have been told that there are phone caller devices that can cause IRS or Tax Dept [or anything the caller wants] to appear on your phone. Last week we got a call and my own name was on my phone from a scammer. So certainly they can say IRS, NYS, Tax office etc. Keep in mind the IRS would always write first several times before calling, and in my opinion, are more likely to visit you in person rather than call.
Phishing is unsolicited emails seeking financial or personal information from taxpayers. This also includes computer malware and ransom emails that literally take hold of your computer or server. It renames files and you are locked out of your own machine until you pay. We actually have insurance for this.
Preparer fraud involves dishonest preparer’s creating fictitious deductions to increase your refund. I have heard of preparer’s stealing the taxpayer’s info to the false returns paid to them. One time in 2003 a client came to me because his tax preparer was indicted on tax fraud and he wanted to amend the past 2 years of returns. We did this and had a very interesting interview down at the court houses in Manhattan with taxpayer after correcting his returns. We were in a NYS office where criminal investigations ripped the dishonest preparer and each dishonest participant a new orifice.
Hiding money or income offshore – if any really wealthy people still aren’t aware the IRS has had this as a major focus for years. Not only have they changed the reporting requirements this year and made them part of your tax return, but the penalty for failing to report could exceed the monies in foreign countries.
Falsely padding deductions is a crime. Actually it may even be a felony. Everyone signing a tax return signs under penalties of perjury that the return is accurate and complete to the best of their knowledge. Don’t perjure yourself. The IRS and NYS [and other states] consider this form of stealing. And the taxing authorities like to make examples publicly to discourage others.
The remaining items this year on the list include:
- Excessive claims for business credits – which pertains to all of us but big business which seem to get these huge credits legally through political means Falsifying income to claim tax credits – referring to earned income credit. The refundable credit for poor people living near or below the poverty line.
- Abusive tax shelters – any scheme that is set up as business but in reality is there only for tax purposes falls into this category. Beware of limited partnerships that don’t own anything. Don’t open a captive insurance company unless you have real insurance needs to support it. What out for international partnerships, foreign financial accounts and offshore credit cards.
- Frivolous tax arguments – this particular scam is done by unscrupulous promoters of false tax advice.
These reasons should be enough motivation for taxpayers to find a licensed reputable preparer.