Tax time is prime time for scammers, fraudsters

As much as you may loathe tax season, there are people who rejoice during this time of year.

They see it as prime time for picking people to victimize. Unscrupulous folks know taxpayers are eager for ways to get a large refund. They love the complexity of the tax code, which provides them the opportunity to trick people into letting down their guard.

Every year, the Internal Revenue Service highlights the low-down and dirty by putting out its list of top 12 tax scams.

“Scams can be sophisticated and take many different forms,” said IRS Commissioner John Koskinen. “We urge people to protect themselves and use caution when viewing emails, receiving telephone calls or getting advice on tax issues.”

Topping the IRS’ list of fraudulent practices is identity theft, which should be taken seriously given the recent major data breaches, including one at the University of Maryland that compromised the personal information of more than 300,000 students, staff and faculty who received identification cards. Crooks use stolen Social Security numbers to file fake returns to claim refunds. Typically, they do it early in the tax season before victims have a chance to file their own returns.

This year, the IRS says it has expanded efforts to protect taxpayers and help victims. The agency has created a Web page devoted to identity theft. On irs.gov, search for “Identity Protection.” If you suspect you’ve been a victim of identity theft, call the agency’s special unit created to handle such cases at 800-908-4490.

Also on the list are telephone scams in which people pretend to be from the IRS, email phishing scams and schemes that promise you can get a big refund or avoid paying any taxes.

Returning to the list this year is return preparer fraud. Unfortunately, many people are unaware they have been victimized until they hear from the IRS. Here’s what an unscrupulous preparer might do in preparing your return, with or without your knowledge:

Claim inflated personal or business expenses.

Claim false deductions or inflate deductions.

Advise clients to take unallowable credits. A tax credit is valuable because it directly reduces a person’s tax liability by reducing taxes dollar for dollar. So a $1,000 tax credit saves you $1,000 in taxes. You can see why someone would fudge the truth to qualify for a credit.

Manipulate income figures so that people qualify for legitimate tax credits, such as the Earned Income Tax Credit. The EITC is a refundable credit — meaning you can get money back even if you owe no tax or the credit is more than the amount of tax owed.

How do the preparers profit off their scams?

A preparer may get a taxpayer to agree to give him or her a percentage of a refund. Some preparers have altered people’s returns after they’ve reviewed them to boost refunds that are then directed into their own bank accounts. That’s what one Michigan preparer did. The preparer filed a form to have the IRS split refunds and make direct deposits into the bank accounts of the taxpayers and himself. Law enforcement officials said he filed the returns electronically and usually without the knowledge of clients, filed returns claiming false W-2 withholdings, itemized deductions, first-time homebuyer and residential energy credits, business Income, unreimbursed employee business expenses and nondeductible IRA and education credits. The preparer was sentenced to 30 months in prison and ordered to pay $462,798 in restitution.

In another case, a Phoenix couple filed forms with the IRS to show false income and tax withholding for some clients. The couple filed tax returns that claimed false refunds ranging from $12,405 to $368,102 per return. You would think the clients would be skeptical, right? But when you want a refund, you may be tempted to believe anything. The couple told the clients that their refunds were based on tax loopholes the general population didn’t know about. If you hear a preparer tell you this, leave at once and hire someone else.

Check out tips from the IRS on how to choose a preparer. There are the obvious people to avoid such as preparers who encourage you to exaggerate deductions, credits or income, or ask you to sign a blank return. The IRS says you should use only preparers who sign the returns they prepare and enter their Preparer Tax Identification Numbers.

And keep this in mind: You are ultimately responsible for what’s on your tax return, even when it’s prepared by someone else.

Michelle Singletary: michelle.singletary@washpost.com.

Washington Post Writers Group

IRS’ Dirty Dozen

Check out the IRS’ list of top 12 tax scams at http://tinyurl.com/IRSDirtyDozen.

More in Herald Business Journal

Camano artist mixes flask, paintings for successful cocktail

Art flasks prove popular as bachelorette gifts, birthday presents and wedding favors.

Small retailers aim for emotional ties big chains may lack

“Put yourself into the community more and the money will come back to you.”

A look at what some stores have planned for Black Friday

With unemployment low, stores are hoping customers are in a mood to shop.

Boeing bolsters team for potential 797 with leading engineer

Terry Beezhold has been chief project engineer for the 777X program.

Uber paid off their hackers — they’re far from the only ones

“More and more companies have their own Bitcoin wallets for such cases.”

Airline defendants to pay $95 million in 9/11 settlement

The litigation claimed that security lapses led the planes to be hijacked in the Sept. 11 attacks.

Trump SoHo to shed ‘Trump’ amid reports of sagging business

The president’s company said it would have no comment beyond its news release announcing the move.

Uber reveals cover-up of hack affecting 57M riders, drivers

Uber acknowledges paying the hackers $100,000 to destroy the stolen information a year ago.

Mountlake Terrace-based 1st Security Bank wasn’t traded publicly during the recession, but it has seen a steady growth since the recession. (Jim Davis / HBJ)
How stocks in local banks fared since the recession

Every bank was hit hard during the recession, but most have bounced back in a big way.

Most Read