Thomas M. Geier, CPA, CFP®, PFS
The Internal Revenue Service has issued an alert for a new scam to unwary taxpayers. After stealing client data from tax professionals and filing fraudulent tax returns, these criminals use the taxpayers’ real bank accounts for the deposit. Thieves are then using various tactics to reclaim the refund from the taxpayers, and their versions of the scam may continue to evolve.
In one version of the scam, criminals pose as debt collection agency officials acting on behalf of the IRS, contact the taxpayers to say a refund was deposited in error, and then ask the taxpayers to forward the money to their collection agency.
In a different version, the taxpayer who received the erroneous refund gets an automated call with a recorded voice saying he is from the IRS and threatens the taxpayer with criminal fraud charges, an arrest warrant, and a “blacklisting” of their Social Security Number. The recorded voice will give the taxpayer a case number and a telephone number to call to return the refund.
The IRS Criminal Investigation works closely with the Department of Justice to find and shut down scams, and then prosecute the criminals involved.
Here is a list of some of the most common scams thieves try to pull. Be aware of the way criminals may try to do harm to you through scams that try to take advantage of your good nature. If you have any doubts about a tax related situation, please contact a knowledgeable and trusted friend or adviser.
- Identity Theft: There are criminals out there who file fraudulent returns using someone else’s Social Security number. This problem has become so prevalent that the IRA partnered with states this year as part of the Security Summit Initiative to create a more secure system for filing for taxpayers.
- Phone Scams: If you receive a phone call from someone who says they are from the IRS who threatens you with police arrest, deportation, license revocation or other things, hang up. Contact a trusted friend or adviser and explain the call and they will help you determine if there is any real merit in it. The IRS will not call you out of the blue. Most likely, the caller was a scammer.
- Return Preparer Fraud: The IRS says that about 60 percent of people pay someone else to prepare their tax return. Most of these preparers are honest and trustworthy. However, there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft, and other scams on this list. Make sure you check out the qualifications of your tax preparer. For example, at GAM, all of our preparers are licensed as Certified Public Accountants. You do not necessarily need a CPA to do a simple tax return, but your preparer should be enrolled with the IRS to prepare returns, and possess the necessary training and experience to be competent.
- Inflated Refund Claims: Taxpayers need to be wary of anyone promising inflated or surprising tax refunds. Never sign a blank return. Do not use a preparer who promises you a big refund before even looking at your records or charges fees based on a percentage of the refund. The IRS says that scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims.
- Fake Charities: Be on guard against any groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Make sure your contributions go to legitimate and currently eligible charities. The IRS.gov website has the tools taxpayers need to check out the status of charitable organizations.
- Hiding Income with Fake Documents: Filing false Form 1099’s or other fake documents is a scam that taxpayers should always be on the lookout for and definitely avoid. If a preparer suggests falsifying documents to reduce tax bills or inflate tax refunds, run away. You are legally responsible for what is on your returns regardless of who prepares the returns and what they instructed you to do.
- Abusive Tax Shelters: Taxpayers should avoid using complicated tax structures with the aim to avoid paying taxes. Watch out for people peddling tax shelters that sound too good to be true. Always get another opinion from a trustworthy tax professional.
- Falsifying Income to Claim Credits: Taxpayers should never make up income in order to erroneously claim tax credits as some scam artists try to suggest. Taxpayers are best served by filing completely accurate returns, as they are legally responsible for what is on their return.
- Falsely Padding Deductions on Returns: Taxpayers should never falsely inflate deductions or expenses on their returns to pay less than what they owe or potentially receive larger refunds. Don’t overstate deductions such as charitable contributions and business expenses or improperly claim credits such as the Earned Income Tax Credit or Child Tax Credit.
- Frivolous Tax Arguments: Promoters of frivolous schemes that encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe are on the rise. Taxpayers have the right to contest their tax liabilities in court, but no one has the right to disobey the law or disregard their responsibility to pay taxes. The current penalty for filing a frivolous tax return is $5,000.
- Offshore Tax Avoidance: A recent number of successful enforcement actions against offshore tax cheats and the financial organizations that enable them show that it’s a bad idea to hide money and income offshore. The IRS offers the Offshore Voluntary Disclosure Program to help people to comply with their filing and tax obligations.
Taxes are not a popular topic for most people. But having a basic understanding and some knowledge of tax issues is important. Filing an accurate, timely tax return is vital to making sure you paid only the correct tax that is due. It is to your benefit to know all of the legal and proper deductions and credits that you are entitled to.
If you’re looking for tax preparation or tax planning services in Howard County or Carroll County, Maryland please reach out to us to find about more about our services.
© Geier Asset Management, Inc. February 2018. Thomas M. Geier is a Vice President of Geier Asset Management, Inc., a Registered Investment Advisor. The above blog reflects the opinions of Mr. Geier and not necessarily the firm. Any advice given is general in nature and investors must consider their own individual circumstances. Past performance is no indicator of future performance.