Intuit’s TurboTax–the leading do-it-yourself tax preparation software used by million of taxpayers–abruptly turned off the ability to file 2014 state tax returns citing “an increase in suspicious activity”. This comes on heals of claims of “price gouging” by its customers which caused a major public relations uproar forcing the CEO of TurboTax to pen an apology.
[Intuit] has found an increase in criminal activity where stolen personal data is used to file fake state returns with state authorities. This illegal act allows fraudsters to claim tax refunds from state governments.
An internal TurboTax investigation has found the breaches are not due to a problem with its own systems, but criminals digging up the personal information elsewhere. The company said the investigation is ongoing. Intuit says it’s working with state tax officials to get the e-filing security back to where it needs to be to turn it back on…
TurboTax stopped allowing state tax returns to be filed when the state of Minnesota alerted them that they would no longer accept returns filed thought their product. This was discovered when two Minnesota taxpayers logged onto TurboTax to file their returns and were surprised to find out that their returns where already filed. The state is now reviewing thousands of returns as part of its investigation which at best is sure to delay refunds. No word yet on when TurboTax or affected states will resume e-filling tax returns.
The issues with fraud surounding TurboTax may not be limited to State tax returns. The FBI is now investigating claims that the fraud has extended to returns filed with the IRS, putting federal tax returns in jeopardy.
Imagine getting a congratulatory email from TurboTax that your federal return is on file when you haven’t yet filed! Given that virtually everything is electronic these days, that has become a massive issue…
But is anyone completely safe? The IRS estimates that it paid out $5.2 billion in fraudulent tax refunds related to identify theft just in the tax return filing seas (sic) last year. That seems like a bad number until you add the amount of bogus refunds last year the IRS says it was able to stop: $24.2 billion. Still, straightening it out if you are the one hit can be challenging…
If you have been affected by tax return fraud–either using TurboTax or by other means–please tell us about in the comments section.
With the clock about to strike midnight on the 2013 Tax Year Filing season, the following is a quick list of tax tips for all you last minute filers out there:
April 15th Deadline
Yes, we all know the saying “Death & Taxes…”. And nothing drums up the cold sweats and association with taxes like the April 15th deadline. However, here is something that many taxpayers do not know: This deadline is only if you OWE taxes to the IRS. If you are due a refund from the IRS, you actually have 3 full years from the April 15th deadline to claim and receive your refund before it becomes the property of the U.S. Government. So, as long as you file your 2013 tax return by April 15th, 2017 you will get your refund. There are of course, many reasons to file your 2013 tax return before the deadline. It’s your money! So don’t let the government hold on to it especially when they do not have to pay interest on it. If you owe, and you do not have all of your tax documents ready, you can always file an extension. Extensions must also be filed before the April 15th deadline. REMEMBER: An extension is only an extension to file your final tax return, NOT to pay the taxes you owe. Therefore, expect to send payment for the estimated amount of taxes you owe along with any extension.
Beware of IRS Scams
IRS & Tax related Scams have been steadily increasing over the last few years. The most common scam going around is IRS impersonators contacting unsuspecting taxpayers and getting them to divulge their confidential personal information which can be used to open up credit cards in the victims name and/or to a file a fraudulent tax return in their name in order to steal refunds. NOTE: The IRS will NEVER initiate contact with your via email, phone, fax or text. They will always send you a written notification with instructions. Even if you receive written communication, double check that the contact information on the letter matches the IRS contact information from the IRS website. If you think that you are the target of a tax related scam, report it to email@example.com.
Sign Your Return & Mail To Correct Address
While this may sound trivial, many taxpayers forget to sign their tax returns! Your tax return is technically not considered filed if it is not signed. While the majority of tax returns are filed electronically, there are still many reasons why a return would be filed as paper. Furthermore, if you had your return prepared by a professional, be sure that they signed the return as well. While the taxpayer is ultimately responsible for what is listed on their return, a common scam that many “professionals” use to avoid any liability is to file a tax return as “self-prepared”. In other words, the IRS thinks that the taxpayer prepared and filed the tax return themselves when in reality it was filed by a paid income tax preparer. So be sure to check for all appropriate signatures! Furthermore, be sure you are mailing your tax return to the right IRS processing center. The IRS tends to change their mailing addresses annually and some have separate mailing addresses for refunds and taxes due. Here is a list of all the IRS tax processing centers.
Keep Your Tax Records
So you just sent in your taxes and now you can throw all of your W2s, 1099s, receipts & other tax related documentation into the fireplace, right? WRONG! Depending on your situation, the IRS says to keep all of your tax records between 3 & 6 years. So, just to be on the safe side, keep all of your tax records for at least 6 years. Sometimes it could take years before the IRS notifies you with an issue and/or adjustment on your tax return. If you plan on contesting changes in the IRS’ favor, you’ll need your backup documentation. Recent budget cuts to the IRS will probably delay the notification process even more.
File With A Tax Professional
While millions of taxpayers are electing to forego using a tax professional in favor of filing themselves, the numbers don’t add up. A couple of years ago R&G Brenner investigated The True Cost Of Preparing Your Own Tax Return and found that taxpayers who filed themselves were losing an average of $594 in refunds as opposed to using a Tax Professional. Similarly, H&R Block is running ads this year that found 1 in 5 taxpayers who prepares their own taxes are not claiming all the deductions they are entitled to and are losing $490 in refunds. Now there are many taxpayers who have very simple returns (standard deductions, no house, no kids, etc) and can easily file themselves. However, the moment your tax return gets even a little bit complicated, you should seek professional help. If you are going to Itemize Deductions (Schedule A), claim mortgage interest, have children (Earned Income Tax Credit), deduct business expenses (Schedule C), have rental income (Schedule E), or other complex tax positions, it is almost never a good idea to prepare your own tax return.
If you would like information about R&G Brenner, our services or if you need any tax assistance before or after the April 15th deadline, please feel free to contact us here, or call us toll free at (888) APRIL-15.
Each year, the Internal Revenue Service (IRS) puts out a list of common tax scams—dubbed the “Dirty Dozen”—to warn taxpayers. Ranging from identity theft to return preparer fraud, the list is intended to remind tax payers to use caution preparing, filing and discussing their annual taxes. Personal and other sensitive information can get into the wrong hands if the proper precautions aren’t taken. It’s wise to periodically review the IRS’ Dirty Dozen to keep apprised of scams.
It’s more common than you may think, and it’s on the rise. About 8.6 million households in 2010 were the victims of identity theft, according to the Bureau of Justice Statistics, up from 6.4 million households in 2005. Identity theft involves the unauthorized use of credit cards and checking accounts, as well as the misuse of personal information to open new accounts and loans or commit related crimes. The IRS lists tax fraud as a result of identity theft as a top concern in 2013. This can result when someone uses your personal info, such as social security number and name without obtaining your permission, and uses it to file a fraudulent tax return, thus getting a refund illegally. The IRS attempts to combat this type of identity theft through a comprehensive strategy involving three components: prevention of fraud, early detection and assistance for victims, preventing $20 billion in fraudulent refunds from being issued in 2012.
False 1099 Refunds
The IRS lists False Form 1099 refund claims as another of its top scams. Many people believe that the federal government manages top-secret accounts for citizens of the United States and that taxpayers can tap into those accounts through filing a 1099-OID (Original Issue Discount). This is an illegal scam, and can net perpetrators penalties and jail time.
This scam takes the form of unsolicited email or a fake website claiming to be legitimate but that lures unsuspecting people in and encourages them to give up personal information about their finances. The thieves can then turn around and commit identity theft. One common way this occurs is through emails claiming to come from the IRS. The IRS NEVER contacts taxpayers via email to obtain personal info. Recipients of such emails should be aware it’s a scam and forward the email to firstname.lastname@example.org to protect themselves and alert the authorities.
Offshore Income Fraud
Hiding income in offshore accounts remains one of the top scams reported by the IRS. Many individuals attempt to evade paying U.S. taxes by keeping their money in offshore banks, using wire transfers as well as debit and credit to get at the funds. Of course, there are legitimate needs for many people to have offshore accounts; however, taxpayers in these situations must comply with certain reporting and disclosure laws in order to operate within the law and avoid penalties, fines and jail time.
Return Preparer Scams
According to the IRS, approximately 60 percent of taxpayers will consult with tax professionals and companies in 2013 to assist in preparing their returns. Although most of these professionals are honest, many are not. This often can result in refund fraud or identity theft, so the IRS cautions taxpayers to be especially diligent in researching the firm they hire to do their taxes. Keep in mind that your tax return is your legal responsibility no matter who prepared it. Taxpayers should check that their tax pro enters his IRS Preparer Tax Identification Number (PTIN) and signs the return. A common scam is for a tax preparer to file a tax return they prepare for a taxpayer as “Self-Prepared”. This is illegal and any paid tax preparer who attempts this should not be used, and be reported to the IRS asap.
If you have encountered any other scams in regards to your tax return, please let us know in the comments section below.
Stephen J. Dunn a contributor for Forbes magazine offers some key tips for taxpayers who are accused of filing fraudulent tax returns. Interestingly, according to Dunn, the best evidence the IRS obtains in support of a fraud case comes from the taxpayer themselves, disgruntled employees and even family members.
In the case of the taxpayer implicating him/herself, the IRS usually sends field agents to visit the taxpayer. It is at that meeting the IRS will ask pressing and pointed questions concerning the alleged fraud. The taxpayer is NOT required to answer any of their questions at this initial meeting, nor should they unless in the presence of appropriate counsel. Furthermore, many former employees who perceive they were slighted are all too happy to provide the IRS with evidence of their employer’s fraud. Estranged spouses going through a divorce may also use the threat of reporting their counterpart to the IRS in the hopes of extracting a more favorable settlement.
When one considers legal fees, repayment of back taxes, penalties, the prospect of jail time–and not to mention the copious amount of personal time expended–the risk simply is not worth the reward as the capital expended defending oneself will almost always exceed the capital that was not reported. The following is a list of Dunn’s tips:
Retain competent counsel. I am talking about an attorney experienced in representing taxpayers in criminal tax cases. Not a criminal generalist attorney, or a tax generalist. For God sakes not an accountant. Accountants are profoundly ill-equipped to represent taxpayers in criminal tax investigations. Moreover, there is no accountant-client privilege in Federal court. When the IRS investigates a criminal tax case, one of the first things it does is subpoena the taxpayer’s accountant and compel him to tell everything he knows about the case, and produce his documents concerning the taxpayer. Concerned about complicity in the alleged tax fraud, the accountant may be anxious to talk with Federal prosecutors, in return for immunity.
Don’t talk with Federal agents, or with anyone who mysteriously appears at the taxpayer’s business. Tax crimes are specific intent offenses—the IRS must prove beyond a reasonable doubt that the taxpayer knew that his tax return materially understated his tax. One of the best ways for the government to prove is by the taxpayer’s own admissions. IRS agents make detailed notes of an interview of a taxpayer, and often embellish the taxpayer’s statements, or misquote the taxpayer. The taxpayer is better off leaving communication with Federal agents to his counsel.
Don’t panic. The IRS has a heavy burden. The more complicated the facts and the law, the tougher it is to prove that the tax returns materially understated tax, or that the taxpayer knew it. This too shall pass.
Consider a voluntary disclosure. If the facts clearly establish a material underreporting of tax, the taxpayer should consider making a voluntary disclosure. This decision should not be delayed, as the IRS will accept a voluntary disclosure only as long as the IRS has not opened an investigation of the tax returns. The IRS no longer recognizes “quiet” voluntary disclosures. Taxpayer’s counsel makes an initial inquiry of IRS CID as to whether there is a tax fraud investigation afoot at to the taxpayer. If the answer is negative, then taxpayer’s counsel may submit a voluntary disclosure for the taxpayer, under guidelines prescribed by IRS. IRS CID will then send taxpayer’s counsel a letter stating that if the taxpayer does what the IRS requires, including filing appropriate amended tax returns and paying the tax due thereon, the taxpayer will not be prosecuted. The IRS will conduct a civil audit of the amended tax returns.
Don’t ignore the problem, but rationally analyze options with counsel.
Acting IRS commissioner Steven Miller recently sat before a congressional panel and hinted that the best way to combat the explosion of tax fraud may be to either delay the tax filing season, or wait to release all refunds until after the filing season concludes on April 15th.
The reasoning goes something like this: The vast majority of fraud involving income taxes occurs early in the filing season (January & February). Delaying the filing season will reduce fraud because a) It gives the IRS a chance to cross reference filed tax data with what employers are required to send to the IRS and b) There will simply be less time to perpetrate fraud and thus less cases. Looking simply at the black & white numbers, yes this would seem like a good idea. However, like the tax code, this is not a black & white issue. Millions of honest taxpayers file their returns as early as possible because they really need the money. These are usually lower-income taxpayers who depend on their refunds to pay bills, rent, and put food on the table. When you consider the money spent for the holiday season, the urgency for these refunds is magnified. Delaying the start of the filing season could seriously put these taxpayers at risk.
Another proposal involves waiting until after April 15th to issue all refunds. That way every tax return can be reviewed and verified before refunds are released, and would virtually eliminate the majority of fraud cases. However, under current IRS regulations, the government would be required to pay taxpayers interest on their delayed refunds. This cost of combating fraud could outweigh the cost of the fraud itself.
Either way, it is very early to speculate proposed changes and whether or not they will be implemented. Nevertheless, if either of these proposals are ultimately implemented in full or in part, it appears the group that will be affected the most will be the lower income taxpayer.
The Internal Revenue Service has been looking the other way instead of rooting out fraud when people apply for taxpayer identification numbers, Treasury Department investigators said Wednesday, exposing a shortfall with both financial and national security implications.
A member of Congress who sits on the House’s tax-writing committee responded to the report by calling on IRS Commissioner Douglas Shulman to resign, claiming the IRS is helping illegal immigrants defraud the government.
Non-citizens without Social Security numbers have to get ID numbers from the IRS to claim tax refunds. Their applications for ID numbers are processed at an IRS center in Austin, Texas.
J. Russell George, the Treasury Department’s inspector general for tax administration, said investigators looking into the application process found “an environment which discourages employees from detecting fraudulent applications.”
Instead, IRS employees were encouraged to process as many ID applications as possible, George said in his report. In addition, investigators learned that the IRS had quit using successful fraud-detection measures in processing the applications.
“There is a potential that erroneous tax refunds are going to non-qualifying individuals, allowing them to defraud the federal government of billions of dollars,” investigators wrote in the report.
Once ID numbers are obtained fraudulently, they can be used for other deceptions. When first introduced in 1996, the ID numbers were supposed to be used only for taxes. But investigators found they’re now being used in several states to get driver’s licenses.
Almost 3 million tax returns seeking $6.8 billion were filed last year using IRS ID numbers rather than Social Security numbers. Investigators said they couldn’t put a number on how many of those returns may have been fraudulent.
At issue are the documentation requirements for verifying the identity of those who apply for an ID number. Unlike applications for a passport or a Social Security number, applicants for the ID number weren’t required to submit certified copies of their birth certificate or other identification.
IRS managers had been aware of the problem since at least 2002, but failed to take sufficient action, investigators said. Tax examiners at the agency also complained to investigators they had little to no training in how to root out fraudulent applications.
IRS officials responding to the report said they already had taken action to address the problem. In June, the agency started requiring original or certified documents until new rules can be developed for 2013.
“Our leadership moved quickly and aggressively to address issues that were identified,” IRS spokeswoman Michelle Eldridge said.
Treasury investigators said the IRS has agreed to adopt seven of their nine recommendations for correcting the problem and is still considering the other two.
In a letter to Shulman calling for his resignation, Rep. Sam Johnson, R-Texas, cited investigators’ findings that people sought $4.2 billion in refundable child tax credits last year using IRS ID numbers.
“The commissioner and certain IRS officials are essentially aiding and abetting illegal immigrants and others in fraudulently receiving tax refunds courtesy of the American taxpayer,” Johnson said in a statement.
IRS officials declined to comment on Johnson’s letter.
In these tough times for state and municipal governments, the Department of Taxation and Finance wants to make sure it’s not losing a single dime. To that end, it’s focusing on multiple techniques, including public spiritedness and humiliation.
The department has created a page to help taxpayers report people and businesses who, allegedly, are not taxpayers. Via phone, fax, mail or online form, those who suspect misbehavior can make an “information referral” against an individual, business or a tax preparer/practitioner. The state promises to keep all information confidential. Infractions may include the following, according to the department:
Failing to report income
Failing to file a return
Failing to remit monies collected
Selling untaxed liquor, motor fuel or cigarettes
Meanwhile, the department has created an electronic public square for those who are already in trouble. It is publicly listing the top 250 warrants—in both business and personal categories—that were filed in the last 12 months, ranked by amount of tax owed.