The Ways How To Combat Tax Fraud

The ways How To Combat Tax Fraud

You know tax scams are getting seriously out of hand when a criminal posing as an IRS agent calls one of the country's top tax-crime fighters, hoping to scare him into sending money.

Yet that's exactly what happened to Timothy Camus, the deputy inspector general for investigations at the agency that oversees the IRS.

"The criminals do not discriminate; they are calling people everywhere, of all income levels and backgrounds," he said.

His office, the Treasury Inspector General for Tax Administration (TIGTA), receives as many as 12,000 reports of these scam calls a week.

Since October 2013, when the agency started tracking complaints, more than 3,000 people have fallen victim to the scam, sending criminals $15.5 million, Camus said. The criminals typically call people unsolicited, claim to be from the IRS and assert that they owe taxes. The scammers tell the victims they will be criminally prosecuted if they don't make a payment immediately and threaten them with arrest, loss of their driver's license, deportation or some other seriously negative consequence.

Once victims load up a card with their money, they are instructed to read the numbers from the prepaid card to the scammers over the phone.

While these phone scams have hurt victims in almost every state, Camus said the top five states in terms of total dollar losses so far are: California ($3.84 million), New York ($1.35 million), Texas ($795,884), Florida ($760,000) and Virginia ($648,363).

Phone scams top the IRS's so-called Dirty Dozen list of tax scams this year and Camus called them "the largest, most pervasive impersonation scam in the history of our agency."

Camus said the scam was the subject of "an ongoing multi-agency investigation."

If you get what you suspect is a scam call, report it to TIGTA through its web site or call 800-366-4484. 

12 biggest tax scams to avoid

If someone calls claiming to be an IRS agent and tells you to send money, hang up.

It's a scam that tops the IRS's 2015 "Dirty Dozen" list of tax scams.

Here's how it works: Scammers change caller ID numbers to make it look like they're calling from the IRS. The scammers use common names and may say they are from the IRS Criminal Division. They may claim to know the last four digits of your Social Security number. If they're demanding payments, however, they may send follow-up emails appearing to be from the IRS, saying payments be made on prepaid debit cards.

The real IRS wouldn't call when first contacting you. And it never demands payment or asks for credit card or debit numbers over the phone. Nor does it ask for personal or financial information by email, text or social media.

If you get what you suspect is a scam call, report it to TIGTA through its web site or call 800-366-4484.

Tax scammers are sending out so-called "phishing" emails that appear to be from the IRS and claim that the recipient either owes money or is due a refund.

Their goal: to get you to give up your address, Social Security, credit card, or bank account number or any other valuable information that lets them steal your identity or your money.

"The IRS won't send you an email about a bill or refund out of the blue. Don't click on one claiming to be from the IRS that takes you by surprise," said IRS Commissioner John Koskinen in a statement.

Nor does it ask for personal or financial information by text, social media or email.

If you get an unsolicited email that seems to be from the IRS or a related agency, such as the Electronic Federal Tax Payment System (EFTPS), don't reply, don't open attachments and don't click on links. Doing so can enable scammers to collect your personal information or infect your computer with malicious code.

Instead, report the phishing email by sending it to phishing@irs.gov.

Stolen refunds

Identity thieves are stealing people's Social Security numbers and other personal information to file fraudulent tax returns and claim their refunds.

To help prevent identity theft, don't carry your Social Security card or documents displaying your Social Security number or Individual Taxpayer Identification Number (ITIN). Use firewalls and anti-virus software to protect your computer from being hacked, update security patches and frequently change your online passwords.

The IRS has more information here on how to protect yourself against identity theft and what steps to take if it has.

Shady tax preparers

Most tax preparers are honest, but some are engaging in refund fraud, identity theft or other illegal scams.

Have a Preparer Tax Identification Number (PTIN) for 2015. This certifies the person is authorized to prepare federal tax returns.

Don't base their fees on your refund. And always have your refund sent directly to you or your bank account.

Can e-file returns. Tax professionals who prepare more than 10 returns must be able to file returns electronically.

You may need to contact your preparer if questions about your return arise.

Sign your return. If you think you've been had, report it to the IRS using Form 14157 and Form 14157-A.

Hidden money offshore

U.S. tax filers who have offshore accounts and don't report them -- or who naively fall for scammers selling an offshore tax scheme -- may face large fines and penalties, the IRS warned.

"Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order," said IRS Commissioner John Koskinen.

To get people to fess up, the agency has an Offshore Voluntary Disclosure Program. Taxpayers who voluntarily report previously undisclosed offshore accounts may see penalties reduced and avoid criminal prosecution.

Plus, a new set of reporting rules are being phased in under the Foreign Account Tax Compliance Act that will require foreign financial institutions to report accounts held by U.S. citizens to the IRS. It's similar to the way your bank here might send a 1099-INT form to the agency, reporting the interest income you earned, or your employer sending the IRS your W-2 at tax time.

These scammers may ask you to sign a blank return or not give you a copy of the return he files for you. If you fall prey to this scam, you'll not only lose out on the refund you are legitimately owed. You may also have to pay penalties for filing a false claim and getting a fraudulent refund.

Fake charities

The IRS warned taxpayers not to be suckered into giving money to any group until confirming it's legitimate.

Fake charities often use names that sound like well-known ones, and make their websites look similar.

The IRS recommends using its Select Check tool, though it is not the most user-friendly. Never give your personal financial information, such as your Social Security number, to anyone asking for money, the IRS warned. To make a tax-deductible contribution, pay by check or credit card, so you have a record of the payment. Scammers claiming to represent a charity may phone or email you to ask for money or financial information, the IRS said.

Preparers that lie for you

If you let a tax preparer understate your income to lower your tax bill or get you a bigger refund, you could be in big trouble with the IRS.

"The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a tax preparer," IRS Commissioner John Koskinen said in a statement.

One common way this scam is perpetrated is when a shady preparer creates a "corrected" 1099 or W-2 form that claims your taxable income is actually zero, the IRS said.

Or the preparer may ask you to sign a statement that rebuts the income and tax information reported to the IRS by your employer or another third-party.

Bottom line: Never let anyone talk you into claiming deductions or credits to which you're not entitled. And never let others file a false return on your behalf.

The act of filing a false return can lead to a $5,000 penalty, the IRS said. And your participation in a scam of this kind may also lead to interest and penalties on any back taxes you might owe -- and possibly criminal prosecution.

Promoters of abusive tax shelter

When someone tries to sell you a complicated scheme that promises to slash or eliminate your tax bill, think twice.

Scam promoters set up abusive tax shelters in which they move your income-producing assets -- including businesses you own -- into a trust, limited liability company (LLC), limited liability partnership (LLP), international business company (IBC), or foreign financial account.

Sometimes taxpayers themselves perpetrate this scam. If you get caught, it could mean large penalties, interest and even criminal prosecution.

Big tax credits you don't qualify for

Cheating on your taxes usually means understating your income. But sometimes an unscrupulous tax preparer will try to inflate clients' income, the IRS said.

Here's why: Some people make too little to owe federal income taxes, but may still qualify for a refund by claiming certain refundable credits, like the Earned Income Tax Credit (EITC).

To make sure their clients get the maximum - and they get a bigger fee - shady preparers will report that clients earned more than they did.

The Child Tax Credit may also be abused in this way. The refundable portion of CTC is tied to earned income and is meant to help offset the cost of children for low-income families.

If caught, however, tax filers will have to repay the erroneous refund, plus interest and penalties.

A pumped up fuel tax credit

For all the gas you buy, chances are good you can't claim a credit on your 1040 for the federal fuel taxes you paid.

Eligibility rules for the fuel tax credit are pretty limited: Do you run a commercial fishing boat? A school bus company?

If not, you probably don't qualify.

And yet, shady tax preparers push the idea.

"The IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds," the agency said.

Identity thieves, too, have been known to file a fraudulent return for a business or farm to claim the credit.

The only way that lack of evidence would be discovered is if the IRS decides to audit you, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting US.

If the IRS sniffs out a fraudulent or inflated fuel tax credit claim, the penalty is $5,000.

A 'frivolous' tax return

Wild notions of what's legal can be amusing, but when it comes to taxes, they're a problem.

Plenty of scam artists try to convince fee-paying tax filers that they don't owe any income tax at all by making what the IRS calls "frivolous tax arguments."

Among them: Filing and paying your taxes is voluntary. You may refuse to pay taxes on religious or moral grounds by invoking the First Amendment. Only federal government workers owe income tax.

Then there's this doozy: You don't owe federal income taxes if you file a return saying that you have no income and no tax liability. Taxpayers may contest their tax liabilities. "But no one has the right to disobey the law or disregard their responsibility to pay taxes," the IRS noted.

If you file a frivolous return -- or let someone else do so for you - you'll pay a $5,000 penalty for the privilege. You could also face accuracy-related penalties, a civil fraud penalty, and an erroneous refund claim penalty among others.

As seen with the massive TurboTax refund scam earlier this year, refund fraud and other tax-related identity theft has really taken off.

Fending off these fraudsters isn't easy. Make prepaid debit cards easier to identify: Prepaid debit cards have become the currency of tax fraudsters, since they're hard to trace and the money is easily transferable.

In many instances, identity thieves used the cards to collect tax refunds after filing false state tax returns through TurboTax earlier this year. John Valentine, chairman of the Utah State Tax Commission, told lawmakers that the direct deposit information on the suspicious returns found in Utah had been changed from the prior year's return.

Related: Scammer tries to swindle top tax-crime fighter

"We couldn't tell whether we were refunding to a prepaid debit card or ... to a legitimate bank account," he said.

State tax agencies and the IRS could more easily flag a suspicious return if lawmakers required the financial industry to have an identifier in the routing and account numbers that indicated it's a prepaid debit card, Valentine said. "We already do it with checking and savings accounts but not prepaid debit accounts."

Require employers to file W-2s with tax agencies earlier: Currently, employers are required to send employees their W-2 forms by the end of January. But they don't have to send a copy to the IRS and Social Security Administration until March 31, after many people have already filed their returns and claimed their refunds.

That makes it very hard for the IRS and state tax agencies to confirm that the person claiming the refund is using the correct information, said Timothy Camus, the Deputy Inspector General for Investigations at the Treasury Inspector General for Tax Administration.

One distinguishing factor in the scam that affected TurboTax users was that the criminals appeared to use information from victims' 2013 state tax returns. If the state tax agencies had the victims' current W-2s in hand to cross-check the information that might have raised a red flag on the scam even sooner.

Camus, Valentine and the IRS itself have recommended that lawmakers require employers to send W-2s to the IRS closer to the time they send them to filers.

Don't let third-party filing fees be deducted from a refund: Another common problem with the fraudulent state tax returns filed through TurboTax were so-called "refund transfers."

Basically, the fraudsters opted to have third-party filing fees, like the one TurboTax or other tax software vendors might charge, deducted from the refund. So the criminals had nothing at risk in the transaction, the third-party filers got paid and the states were out the refund.

Valentine's recommendation: "Prohibit the practice of applying refunds to payment of fees for filing services."

Do more to educate the public: Phone scams involving fraudsters posing as IRS agents is the No. 1 tax scam this year. "Let people know this is a notoriously awful scam and it's not rude to hang up the phone.

Source : CNN.COM