Preparer alert: Keep your clients from becoming victims of tax scams

By Nick Fiore

Tax return preparers need to alert their clients to tax scam artists who might mislead them or persuade them to file false claims for tax credits or rebates. According to the IRS, there has been an increase in tax return-related scams involving unsuspecting taxpayers who normally are not even required to file returns. These taxpayers are being encouraged to claim tax credits, refunds, or rebates for which they are not entitled. Those in the South and Midwest have been the targets of many recent scams.

Some scammers charge unsuspecting taxpayers for advice on how to file false claims, while others charge unreasonable amounts to prepare legitimate returns that could have been prepared for free by the IRS or other legitimate tax assistance programs. Identify theft can also take place. 

Preparers should warn their clients of:

  • Fictitious refund or rebate claims based on excess or withheld Social Security benefits.
  • Claims being made that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS, resulting in a payout from the IRS.
  • Unfamiliar for-profit tax services that are teamed up with local churches.
  • Homemade flyers and brochures stating that credits or refunds are available without proof of eligibility.
  • Offers of "free money" where no documentation is required.
  • Preparers who promise refunds for "low income--no documents tax returns."
  • Claims that they can file for the expired Economic Recovery Credit Program or Recovery Rebate Credit.
  • Advice to claim the Earned Income Tax Credit based on exaggerated reports of self-employment income.

Scammers sometimes use nonexistent Social Security refunds or rebates to lure people into their scams. In other situations, fraudulent returns result from unscrupulous promoters who use fictitious or inflated information on the returns of taxpayers who are entitled to receive tax credits.

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file with little or no documentation, have been appearing in community churches around the country. Promoters are targeting church congregations, exploiting their good intentions and credibility. These schemes often spread by word of mouth among unsuspecting and well-intentioned people who hear of such "opportunities" and tell others.

Scam artists often prey on low-income individuals and the elderly. Ultimately, taxpayers discover that their claims have been rejected, or that the refund they receive barely exceeds the amount they paid to the preparer. Meanwhile, both their money and the scammers are long gone.

In addition, your clients should be made wary about those who:

  • Claim they can hide income in offshore banks, brokerage accounts, or through the use of offshore debit or credit cards.
  • Trick them into revealing their personal or financial information by phone, fax, or online (phishing). Phishing can take place via e-mail, tweets, and phony Web sites. Note: The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues.
  • Tell them to falsify the amount they plan to deduct for charitable giving.
  • Encourage them to make unreasonable and outlandish claims to avoid paying the taxes they owe.
  • Advise them to shift appreciated assets at less than fair market value into IRAs, or companies owned by their IRAs, in order to circumvent annual contribution limits.
  • Urge them to improperly transfer assets into trusts to avoid income tax liability or to hide assets from creditors (including the IRS).
  • Come up with tax credit claims that are excessive or unreasonable.

Unsuspecting individuals are the most likely to get taken in by scams, so both taxpayers and those who help others prepare returns, should be wary of extraordinary claims being made to them.

Those who have questions about legitimate tax credits or programs should go to the IRS Web site, call the IRS toll free at 800-829-1040, or visit a local IRS Taxpayer Assistance Center. For questions and accurate information about rebates, credits, and benefits from other federal agencies, taxpayers and tax preparers should contact the relevant agency directly.

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