Day: February 8, 2017

Signs A “Tax Preparer” May Be Phony or Unscrupulous

Falsely Inflating Refund Claims on the IRS “Dirty Dozen” List of Tax Scams for 2017

The Internal Revenue Service warns taxpayers to be alert to unscrupulous tax return preparers touting inflated tax refunds. This scam remains on the annual list of tax scams known as the “Dirty Dozen” for 2017.

“Exercise caution when a return preparer promises an extremely large refund or one based on credits or benefits you’ve never been able to claim before,” said IRS Commissioner John Koskinen. “If it sounds too good to be true, it probably is.”

The “Dirty Dozen,” an annual list compiled by the IRS, outlines common scams that taxpayers may encounter. These schemes peak during filing season as people prepare their returns or hire others to help with their taxes.

Scams can lead to significant penalties and interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.

Scam artists pose as tax preparers during tax time, luring victims by promising large federal tax refunds. They use flyers, advertisements, phony storefronts or word of mouth to attract victims. They may make presentations through community groups or churches.

Scammers frequently prey on people who do not have a filing requirement, such as those with low-income or the elderly. They also prey on non-English speakers, who may or may not have a filing requirement.

Con artists dupe people into making claims for fictitious rebates, benefits or tax credits. Or they file a false return in their client’s name, and the client never knows that a refund was paid.

Scam artists may also victimize those with a filing requirement and due a refund. They do this by promising larger refunds based on fake Social Security benefits and false claims for education credits or the Earned Income Tax Credit (EITC), among others.

Falsely Claiming Zero Wages

Filing a phony information return, such as a Form 1099 or W-2, is an illegal way to lower the amount of taxes owed. The use of self-prepared, “corrected” or otherwise bogus forms that improperly report taxable income as zero is illegal. So is an attempt to submit a statement rebutting wages and taxes reported by a third-party payer to the IRS.

Some people also attempt fraud using false Form 1099 refund claims. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.

Taxpayers should resist the temptation to participate in any variations of this scheme. The IRS is aware of this scam and the courts have consistently rejected attempts to use this tax dodge. Perpetrators receive significant penalties, imprisonment or both. Simply filing this type of return may result in a $5,000 penalty.

The IRS sometimes hears about scams from victims complaining about losing their federal benefits, such as Social Security, veterans or low-income housing benefits. The loss of benefits comes as a result of false claims being filed with the IRS that provided incorrect income amounts.

Choose Tax Preparers Wisely

Honest tax preparers provide their customers a copy of the tax return they’ve prepared. Scam victims frequently are not given a copy of what was filed. Victims also report that the fraudulent refund is deposited into the scammer’s bank account. The scammers deduct a large “fee” before paying victims, a practice not used by legitimate tax preparers.

The IRS reminds taxpayers that they are legally responsible for what’s on their return even if it was prepared by someone else. Taxpayers who buy into such schemes can end up being penalized for filing false claims or receiving fraudulent refunds.

Taxpayers can help protect themselves by doing a little homework before choosing a tax preparer. Check the preparer’s history.  For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to IRS.gov and search for “verify enrolled agent status” or check the Directory.

Five Things to Know About the Child Tax Credit

Five Things to Know About the Child Tax Credit

Five Things to Know About the Child Tax CreditBelow, the IRS provides guidance when determining whether or not you are entitled to receive a child tax credit on your return.

The Child Tax Credit is a tax credit that may save taxpayers up to $1,000 for each eligible qualifying child. Taxpayers should make sure they qualify before they claim it. Here are five facts from the IRS on the Child Tax Credit:

  1. Qualifications. For the Child Tax Credit, a qualifying child must pass several tests:
  • Age. The child must have been under age 17 on Dec. 31, 2016.
  • Relationship. The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother or half-sister. The child may be a descendant of any of these individuals. A qualifying child could also include grandchildren, nieces or nephews. Taxpayers would always treat an adopted child as their own child. An adopted child includes a child lawfully placed with them for legal adoption.
  • Support. The child must have not provided more than half of their own support for the year.
  • Dependent. The child must be a dependent that a taxpayer claims on their federal tax return.
  • Joint return. The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
  • Citizenship. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
  • Residence. In most cases, the child must have lived with the taxpayer for more than half of 2016.

The IRS Interactive Tax Assistant tool – Is My Child a Qualifying Child for the Child Tax Credit? – helps taxpayers determine if a child is a qualifying child for the Child Tax Credit.

  1. Limitations. The Child Tax Credit is subject to income limitations. The limits may reduce or eliminate a taxpayer’s credit depending on their filing status and income.
  2. Additional Child Tax Credit.  If a taxpayer qualifies and gets less than the full Child Tax Credit, they could receive a refund, even if they owe no tax, with the Additional Child Tax Credit.

Because of a new tax-law change, the IRS cannot issue refunds before Feb. 15 for tax returns that claim the Earned Income Tax Credit (EITC) or the ACTC. This applies to the entire refund, even the portion not associated with these credits. The IRS will begin to release EITC/ACTC refunds starting Feb. 15. However, the IRS expects these refunds to be available in bank accounts or debit cards at the earliest, during the week of Feb. 27. This will happen as long as there are no processing issues with the tax return and the taxpayer chose direct deposit. Read more about refund timing for early EITC/ACTC filers.

  1. Schedule 8812. If a taxpayer qualifies to claim the Child Tax Credit, they need to check to see if they must complete and attach Schedule 8812, Child Tax Credit, with their tax return. Taxpayers can visit IRS.gov to view, download or print IRS tax forms anytime.
  2. IRS E-file. The easiest way to claim the Child Tax Credit is with IRS E-file. This system is safe, accurate and easy to use. Taxpayers can also use IRS Free File to prepare and e-file their taxes for free. Go to IRS.gov/filing to learn more.

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.