WASHINGTON — With tax season in full swing, the Justice Department is urging the public to avoid dishonest tax-return preparers who fleece their customers and illegally drain the U.S. Treasury.
Noting that taxpayers are ultimately responsible for the contents of their own returns, Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division also warned the public to be wary of anyone who guarantees a refund or who claims to sell a sure-fire way to reduce your taxes.
U.S. taxpayers filed approximately 150 million returns in 2014. According to statistics available from the Treasury Inspector General for Tax Administration, the Internal Revenue Service identified more than 2.1 million of those returns that claimed fraudulent refunds totaling more than $15.7 billion. As in past years, the IRS has designated return preparer fraud as one of 2016’s “Dirty Dozen” tax scams to avoid during return filing season. In 2015, the Tax Division permanently shut down more than 35 fraudulent tax-return preparers. The defendants in those cases spanned the spectrum from large-scale return preparation franchises to small, independent return preparers.
“Every year, thousands of federal income tax returns are prepared by people who care much more about making a quick buck than about preparing accurate returns,” Ciraolo said. “Most tax return preparers are honest. But some preparers who charge clients a percentage of their tax refund intentionally prepare false returns to increase their clients’ refund, and thus their own fees. Likewise, some preparers who charge by the form will intentionally prepare incorrect forms that their clients don’t need in order to increase their compensation. Taxpayers might think that they’re getting a good deal on their taxes, or that as long as someone else prepares the return, they’re not responsible. They’re wrong. Taxpayers who have their return prepared incorrectly are required to pay the tax they owe, or pay back the refund they weren’t entitled to get. These clients might also owe interest and penalties, which can be substantial. Fortunately, there are red flags that taxpayers can look for and avoid when choosing a return preparer.”
Refunds should never be deposited directly into a preparer’s bank account.
Never sign a blank return or a blank form, or sign a return or a form without reading it first.
By law, a return preparer must provide a client with a completed copy of the return no later than the time the customer is asked to sign the return.
Don’t use a preparer who mischaracterizes your expenses.
Do not use a preparer who fabricates business expenses or deductions, or who claims bogus credits to which you are not entitled, such as the Earned Income Tax Credit, the child care credit or the education credit.
One of the most common dishonest return-preparation practices is to prepare returns that include non-existent businesses, sometimes based on a client’s hobbies.
Some other fraudulent schemes and practices that have been stopped through injunction orders entered by federal courts throughout the country include:
- Fabricating fake Form W-2 (Wage and Tax Statement) information;
- Claiming bogus education and first-time homebuyer credits;
- Claiming phony child and dependent care credits or residential energy credits;
- Claiming fraudulent fuel tax credits;
- Falsely exempting foreign earned income;
- Inflating unreimbursed employee business expense deductions; and
- Fraudulently inflating or decreasing a client’s income or deductions to maximize the Earned Income Tax Credit.
The IRS advises taxpayers who ask a tax professional to prepare their return to be careful in the professional they select. The IRS offers some basic tips and guidelines to assist taxpayers in choosing a reputable tax professional and is also offering taxpayers YouTube videos to help them prepare their own taxes for the upcoming filing season. Several options, including free assistance with preparation and electronic filing for the elderly and individuals making $50,000 or less, are available to help taxpayers prepare for the current tax season and receive their refunds as easily as possible.
In addition to return preparers who deliberately falsify returns, the Tax Division targets those who peddle schemes that purportedly reduce taxes — but in fact rely on false statements or financial sleight-of-hand.
The IRS website has information about how to report a dishonest return preparer, as well as information about how to report other types of tax fraud. The Justice Department’s website has a list of tax-return preparers and tax-scheme promoters whom the courts have shut down.