by Jim Marasco, The Daily Record, February 2015 It wasn’t too long ago that government agencies would mail income tax forms through the U.S. mail with pre-affixed labels on the outside of the package. These labels included the taxpayers’ social security numbers, along with their name and address. Times have changed – just think what identify thieves would do with that! Protecting against tax fraud has become a major priority of the IRS and state governments. You can help in this effort as well.

TurboTax’s Issues

Intuit’s TurboTax made headlines again recently. The state of Minnesota, along with Alabama and Utah, stopped accepting tax returns filed from their software because of “potential fraudulent activity.” Minnesota had similar issues in 2013. The CEO of Intuit was quoted in CNN Money as saying, “we identified specific patterns of behavior where fraud is more likely to occur.” Within a few days, the issues were apparently resolved and returns started to be filed again. So what prompted all the concern and what did his statement really mean? It seems concerns arose that criminals were using social security numbers stolen from somewhere else to file fake returns via TurboTax and claim fake refunds. When taxpayers were filing their “real” returns, they were being notified a return had already been filed. Based on an assessment by a security firm, the company is reporting that “these instances of fraud did not result from a security breach of its systems.”

IRS Impersonations

Another issue confronting the government is organized criminal rings posing as the IRS and using the Internet and direct telephone solicitation to defraud innocent people. Emails with official looking IRS logos are sent to recipients luring people to either click on a link infecting their computer or tempting them to enter personal information such as social security numbers or credit card data. These thieves are also calling taxpayers directly and posing as the IRS. They use strong arm tactics to scare the people into thinking they owe taxes and will face immediate arrest if payment isn’t made over the telephone. They have even become sophisticated in that they leave callback numbers where people answer as the IRS and offer false badge numbers sounding professional.

Preparer Fraud 

The government is also at risk from preparers filing fraudulent tax returns for clients. In response, the IRS has been trying approaches to register and regulate who can commercially prepare tax returns. In 2014, the American Institute of Certified Public Accountants (AICPA) filed a lawsuit against the IRS challenging the Annual Filing Season program two weeks after it was announced. The voluntary program was intended to regulate tax preparers, yet the AICPA challenged the IRS’ statutory authority over this area. This issue continues to challenge the IRS. Every year, headlines expose fraudulent tax preparers who are caught, usually after filing hundreds of false returns claiming thousands, and sometimes millions of dollars, in fake refunds for clients and themselves. In some cases, clients are a party to this fraud, while other times, they unknowingly were deceived. The IRS has issued some helpful hints at www.irs.gov when choosing a tax preparer.

• Check to be sure the preparer has an IRS Preparer Tax Identification Number (PTIN). Anyone with a valid 2015 PTIN is authorized to prepare federal tax returns. Tax return preparers, however, have differing levels of skills, education and expertise. An important difference in the types of practitioners is “representation rights”. You can learn more about the several different types of return preparers on IRS.gov/chooseataxpro.
• Ask the tax preparer if they have a professional credential (enrolled agent, certified public accountant, or attorney), belong to a professional organization or attend continuing education classes. A number of tax law changes, including the Affordable Care Act provisions, can be complex. A competent tax professional needs to be up-to-date in these matters. Tax return preparers aren’t required to have a professional credential, but make sure you understand the qualifications of the preparer you select.
• Check on the service fees upfront. Avoid preparers who base their fee on a percentage of your refund or those who say they can get larger refunds than others can.
• Always make sure any refund due is sent to you or deposited into your bank account. Taxpayers should not deposit their refund into a preparer’s bank account.
• Make sure your preparer offers IRS e-file and ask that your return be submitted to the IRS electronically. Any tax professional who gets paid to prepare and file more than 10 returns generally must file the returns electronically. It’s the safest and most accurate way to file a return, whether you do it alone or pay someone to prepare and file for you.
• Make sure the preparer will be available. Make sure you’ll be able to contact the tax preparer after you file your return – even after the April 15 due date. This may be helpful in the event questions come up about your tax return.
• Provide records and receipts. Good preparers will ask to see your records and receipts. They’ll ask you questions to determine your total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.
• Never sign a blank return. Don’t use a tax preparer that asks you to sign an incomplete or blank tax form.
• Review your return before signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it.
• Ensure the preparer signs and includes their PTIN. Paid preparers must sign returns and include their PTIN as required by law. The preparer must also give you a copy of the return.
• Report abusive tax preparers to the IRS. You can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on IRS.gov.

Stay Alert

Remember, the IRS won’t call or email you if they have an issue with your income tax filings. Notices of adjustments or deficiencies are sent via the U.S. mail to both you and your spouse separately at the address listed on your most recently filed return. Ignore any telephone calls or emails from people posing as the IRS. Electronic filing of your returns using a reputable service shouldn’t increase your risk of fraud. In fact, you will know sooner if someone has already filed a return using your identity. According to the Treasury Department’s Inspector General, 1.6 million people were affected by identity theft involving their income tax returns in the first half of 2014. Take precautions with your personal information and monitor your credit reports closely to avoid adding to their total. James Marasco, CPA, CIA, CFE, is a partner at EFPR Group, Certified Public Accountants and Business Consultants.