Tag Archives: fraud

State Snags Fraudulent Tax Preparers

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In a recent news report, the state of Maryland identified 20 tax preparers believed by the state to be electronically filing fraudulent returns, and went so far as to publish the names of those preparing firms. Such returns typically claim deductions and credits that do not exist. While some taxpayers knowingly participate in the fraud, other taxpayers are not aware that it is being done.

We unfortunately live in a world where tax fraud and scams are becoming more brazen and aggressive. The vast majority who play by the rules are the ones who pick up the tab for the revenue lost by government agencies. We bear that cost. To help reduce fraud, we suggest the following:

  • Have your tax returns done by a qualified tax professional, preferably a Certified Public Accountant (CPA), and encourage your family, friends, and colleagues to do the same. While non-CPA preparers by and large do quality work, CPA’s are held to higher standards of ethical behavior and technical competence; acting in any manner not becoming of the profession results in severe disciplinary action. The peace of mind this provides is far and away in excess of any small difference in fees.
  • Review your tax return. You are ultimately responsible for what is on your return. If you don’t understand what an item is or why it is there, question it before signing the return.
  • Do not use any preparers who promise high refunds or base their fee on how much you get back.
  • Never consent to having tax refunds directly deposited into any account that you are not in control of.
  • Beware of telephone scams. The surest indication of a telephone scam is the call itself. The IRS and most states will never contact you by telephone. A series of mailed notices is the first form of contact, followed by a visit from a collection agent. If you receive a phone call, hang up and call the relevant government agency to see if there is a problem with your account.
  • Review any tax correspondence carefully. If an IRS notice is unexpectedly received, contact the IRS at 1.800.829.1040 to verify if there is a problem with your account or bring the notice to your tax professional. Do not call the number at the top of the notice, as it may be to a call center ready for its next scam victim.
  • Review your credit reports periodically to be sure that you recognize every entry on them. By federal law, each of the three credit reporting agencies Equifax, TransUnion, and Experian must provide you with one free credit report upon request each year. The Federal Trade Commission has only authorized annualcreditreport.com to provide these reports. While other sites may offer to provide them, they may also attempt to up-sell you on additional services.

For more information, contact Aronson’s Laurence C. Rubin, CPA, at 301.231.6200.

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Is Your IRS Notice Real?

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The latest incarnation of aggressive scammers impersonating IRS agents features fake IRS notices arriving by e-mail or snail mail.

According to the IRS, the fake notices labeled as “CP2000”, purport to be related to the Affordable Care Act and request information related to 2014. For further details, see the IRS announcement on this topic.

The CP2000 is a legitimate notice number that is mailed to taxpayers, which makes it even harder for you to realize it could be fraudulent. When in doubt, show the notice to your tax advisor, or call the IRS at 1.800.829.1040 to ask about the status of your account. Do not call the number shown on a notice you are uncertain about.

Any payments made to the IRS by check should be payable to United States Treasury. Such a check is far less likely for a recipient other than the IRS to cash. Better to be safe than sorry! Consider making all payments directly to the IRS online using DirectPay or setting up an EFTPS account. Online payments provide a confirmation number at the time payment is made, and enough information to your bank that in the event of a problem, the destination of the funds can be traced.

For further information or to discuss your circumstances, please contact Larry Rubin, CPA, at 301.231.6200 or lrubin@aronsonllc.com.

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Questionable Transactions, What Could It Be and Are They Deductible?

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What happens when your prized employee turns out not to be the person you thought they were? During the course of the year, especially when going thru your books in preparation for upcoming tax filings, you may discover questionable transactions. For example, after thorough investigation, you find that an employee had sticky fingers and was embezzling funds for several years. Is the loss deductible? When? How is the embezzlement reported to the perpetrator?

Embezzled funds are considered a theft loss, and are deducted in the year discovered, or year in which a reasonable person would have discovered the loss, if earlier. Thus, if the business owner was warned by their advisors of discrepancies but failed to take action; the year of discovery would be the year the owner had been so advised. Therefore, not taking action means that prior year returns would be amended, with the possibility of your business losing the theft loss deduction if the tax returns are out of statute.

In the case where the embezzlement was already deducted, no additional deduction is permitted and no returns need to be amended. An example of this is an employee writing fraudulent checks that were posted to an expense account.

From the perpetrator’s standpoint, embezzlement constitutes income in the year received. All income, whether derived legally or otherwise, is required to be reported on a tax return. Intentionally failing to report income is tax fraud, which comes with potentially severe repercussions to the perpetrator. If there is subsequent restitution, the perpetrator would receive a deduction for that in the year repaid. However, it does not alleviate the initial reporting of the funds as income in the years received.

It may be tempting to file a 1099-MISC or amend the W-2 to report the embezzled funds for each involved year. Nonetheless, these forms are used to report compensation for labor, which certainly is not the case here. The best method of reporting such information is submitting form 3949A. Form 3949A is an Information Referral form that reports to the IRS suspected violations of tax law. Unreported income is one such violation.

The IRS will then pull the involved returns and ascertain whether such income was included. If the IRS suspects that income was not reported, an investigation begins. In this case, the business benefits if the total assessment against the perpetrator is greater than $2 million, as you are now eligible for a Whistleblower award of 15% to 30% of collections. Remember, it was not the FBI that took down Al Capone. It was the IRS.

Prior to filing any forms with the IRS, your business attorney should be consulted to ensure that such filings are consistent with the legal position the business is taking with respect to the employee.

For questions on this matter or other issues that may affect your tax situation, please contact Aronson’s Tax Controversy Practice Lead Larry Rubin, CPA, at 301-222-8212.

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The 2015 IRS Dirty Dozen Tax Scams

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For some, the term “dirty dozen” may bring to mind the World War II action movie, or the Environmental Working Group’s list of the fruits with the highest pesticide concentration, but it means something very different to the Internal Revenue Service (IRS).  Each year, the IRS releases a list of their “dirty dozen” – the twelve most prevalent tax scams affecting the nation’s taxpayers.

The IRS creates this list to raise awareness of the various types of schemes that may affect taxpayers’ returns, and to offer guidance on steps that can be taken to help prevent falling victim.  Many of these scams involve criminals preying on Americans’ fear of both the IRS and of making an error on their tax return, or their desire for a greater refund or smaller tax bill.

Whether you have already filed your 2014 tax returns or not, you should be on the lookout for these scams so that you do not fall victim.  Ultimately, as the taxpayer, you are responsible for what is on your return regardless of who prepares it.

  1. Phone Scams: Criminals impersonating IRS agents make aggressive and threatening phone calls to taxpayers.  Typically, scam artists threaten arrest, deportation, license revocation or other punishment to scare taxpayers into providing identifying information or sending money.  Remember: The IRS will never initiate contact with a taxpayer over the phone.  If you owe money to the IRS, you will receive a written notice first.
  2. Phishing: Common avenues for scam artists are fake emails or websites that steal personal information.  Be wary of clicking on strange emails and websites that appear to be from the IRS. The IRS will not initiate contact by email about a bill, refund, or any other matter.
  3. Identity Theft: Tax season is a peak time for identity theft.  Criminals and scam artists use other taxpayers’ Social Security numbers to file fraudulent returns to obtain refunds.  Carefully guard your personal information to not fall victim to identify theft.  If you have reason to believe that you have been the victim of identity theft, contact your Aronson tax advisor immediately.
  4. Return Preparer Fraud: Taxpayers need to be careful of dishonest or corrupt tax return preparers.  While most tax preparers provide quality service, some set out to commit identity theft, refund fraud, and other scams.  Be careful to choose a preparer that is legitimate.
  5. Offshore Tax Avoidance: The IRS is cracking down on Americans hiding money offshore, and is becoming more successful in its enforcement of this method of tax cheating.  It is highly recommended that taxpayers voluntarily get their international filing requirements in order.  The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help taxpayers do so.
  6. Inflated Refund Claims: If anyone promises you an extravagant refund, asks you to sign a blank return, or charges fees based on a percentage of the refund, you should be wary about handing over the preparation of your return.
  7. Fake Charities: Taxpayers must be cautious of the charitable organizations to which they choose to contribute. There are numerous groups that fraudulently appear to be a charitable organization to obtain donations from unsuspecting individuals.  Take some time to ensure you are donating to a legitimate and eligible charity and watch out for charities that have similar names to well-known organizations.
  8. Hiding Income with Fake Documents: This type of fraud involves the use of doctored or fake documents in an attempt to hide or reduce taxable income.  Most sources of income are independently reported to the IRS, so this scam may slow down the matching process, but the IRS will eventually come after the taxpayer for the tax due, plus penalties and interest.
  9. Abusive Tax Shelters: Taxpayers should be wary of complex tax avoidance schemes, and steer clear of the use of abusive tax structures in an attempt to avoid taxes.  If you are questioning a method to reduce your tax liability or avoid paying tax in any form, you should seek an independent opinion regarding its legality.
  10. Falsifying Income to Claim Credits: While most scams involve hiding or shifting income to reduce a tax bill, many taxpayers inflate their income to meet certain thresholds for refundable tax credits.  This scam can create a refund for a taxpayer who owes little or no tax.  Again, most sources of income are reported to the IRS, so eventually the Service will come knocking.
  11. Excessive Claims for Fuel Tax Credits: This tax credit is not available to the majority of taxpayers, but is routinely used as a way to claim a credit and inflate refunds.  This credit is only available for fuel purchased for non-highway business use, such as farming.  The IRS has instituted measures to carefully scrutinize returns claiming this credit, as it is a frequent vehicle for tax scammers.
  12. Frivolous Tax Arguments: Every year, taxpayers raise numerous arguments as to why they, or their wages, are not subject to taxation, and every year these arguments are struck down as frivolous claims.  Taxpayers have the right to contest their tax liabilities in court; however, their claims must have a sound legal basis. The IRS can assess a $5,000 penalty for filing a frivolous tax return.

In the next few months, Aronson’s tax advocacy experts will be releasing more in-depth blogs regarding some of these tax scams.  However, if you are concerned you have fallen victim to one of these scams or want further information on the dirty dozen, please contact Patrick M. Deane, JD, MBA, LLM or Laurence C. Rubin, CPA at 301.231.6200.

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How to Protect Yourself from Taxpayer Identity Theft

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In the most recent Fact Sheets published by the Internal Revenue Service (IRS) in January 2015, the IRS highlights its continuous efforts to combat taxpayer identity theft. Tax-related identity theft occurs when someone uses a stolen Social Security Number (SSN) to file a false return and claim a fraudulent refund.

The IRS advises taxpayers to heed the following warning signs and take steps to help mitigate risk.

Warning Signs (usually communicated via IRS notice or letter) of tax-related identity theft:

  • More than one return filed under your SSN.
  • You owe additional tax, have a refund offset, or have had collection actions taken against you for a year you did not file a tax return.
  • IRS records indicate you received more wages than you actually earned or wages from an employer unknown to you.
  • Your state or federal benefits were reduced or cancelled because the agency received information reporting a change in income.

Steps to take for victims of tax-related identity theft:

  • File a report with local police.
  • File a complaint with the Federal Trade Commission at identitytheft.govor the FTC Identity Theft Hotline at 1-877-438-4338.
  • Contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records:
  • Close any accounts opened without your permission or tampered with.
  • Respond immediately to any IRS notice; call the number provided.
  • Complete IRS Form 14039, Identity Theft Affidavit. Use a fillable form at IRS.gov, print, then mail or fax according to instructions.
  • Continue to pay your taxes and file your tax return, even if you must do so by paper.

Ways to reduce the risk of becoming a victim of tax-related identity theft:

  • Don’t routinely carry your Social Security card or any document with your SSN on it.
  • Don’t give a business your SSN just because someone asks – only when absolutely necessary.
  • Protect your personal financial information at home and on your computer.
  • Check your credit report annually.
  • Check your Social Security Administration earnings statement annually.
  • Protect your personal computers by using firewalls, anti-spam/virus software, update security patches and change passwords for Internet accounts.
  • Don’t give personal information over the phone, through the mail or over the Internet unless you have initiated contact or are sure you know who is asking.

Finally, please be aware that the IRS does not contact taxpayers via email, phone, tax messages or any other social media channels; rather all communication is done through written correspondence.

For more information on identity theft or your individual tax situation, please contact your Aronson advisor or Anatoli Pilchtchikov of Aronson’s Personal Financial Services Group at 301.231.6200.

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