Recent headlines regarding the submission of fraudulent tax returns underscores the need for vigilance when filing any tax return. Most news accounts indicate that it is the “online” filing that is most at risk. This means that the fraudulent returns have primarily arisen from the use of return preparation software which is not downloaded onto a computer. Rather, the software is made available for use directly through the internet and the identities of the users, including their passwords and other crucial filing data, is compromised. That filing technique is different from using software on a computer to prepare a return which is then sent electronically to the IRS and state tax authorities, as is now widely mandated by governmental authorities.
In IR-2014-16, Feb. 19, 2014, the IRS released its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud. Unfortunately, the list has not changed much from 2013:
- Identity Theft is the number one problem with fraudulent tax returns. “Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.”
- Telephone scams in which callers pretend to be connected to the IRS (and even to local tax authorities) are pervasive. They often threaten some sort of action against the recipient of the call if information is not provided or action not taken. “If you get a phone call from someone claiming to be from the IRS, here’s what you should do: If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue. If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484. If you’ve been targeted by these scams, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.”
- 3. Phishing. Phishing is the result of a taxpayer responding to a fake email or website that appears legitimate. “If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to email@example.com.” And PK Law reminds you to remember that the IRS states: “It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.”
- False Promises of “Free Money” from Inflated Refunds is used to gain information for identity theft and filing of fraudulent returns. If the promise is too good to be true, seek out another return preparer. Most legitimate return preparers will make no such promises.
- Return Preparer Fraud due to someone who does not routinely prepare returns or does so without regard to applicable laws and regulations. Choose a trustworthy preparer to complete your return(s).
- Hiding Income Offshore may not be legitimate. While there may be good investment and estate planning reasons for the use of “offshore” investments it is important that be done for legitimate reasons in accordance with applicable tax law.
- Impersonation of Charitable Organizations, particularly after a natural disaster, to obtain contributions from taxpayers which are not deductible. Also, help may be offered to file “casualty loss” claims for bogus tax refunds by unauthorized persons in an attempt to garner personal information from the taxpayer.
- False Income, Expenses or Exemptions may be claimed to avoid tax or obtain a refund of tax. This may lead to the imposition of significant penalties against the taxpayer.
- Frivolous Arguments may be counseled by promoters of schemes designed to avoid tax or claim large refunds. While contesting taxes legitimately is quite acceptable, the use of arguments that have been rejected repeatedly by the courts is unacceptable.
- Falsely Claiming Zero Wages or Using False Form 1099 which results in the wrongful lowering of taxes or inflated refund claims could result in a serious penalty.
- Abusive Tax Structures which claim to “eliminate” or “substantially reduce” tax liability may be the product of a scam. These are frequently identified when multiple entities are used in the process of creating the structure.
- Misuse of Trusts which promise reduced income, inflated deductions and reduced taxes. PK Law is familiar with tax and estate planning trusts which may be legitimately used to foster legitimate tax planning and estate planning goals, including legitimate tax savings.
This information is provided for general information only. None of the information provided herein should be construed as providing legal advice or a separate attorney client relationship. Applicability of the legal principles discussed may differ substantially in individual situations. You should not act upon the information presented herein without consulting an attorney of your choice about your particular situation. While PK Law has taken reasonable efforts to insure the accuracy of this material, the accuracy cannot be guaranteed and PK Law makes no warranties or representations as to its accuracy.