According to the IRS, tax fraud can be committed in a several different ways – including using your Social Security number in order to file a tax return with the purpose of getting a fraudulent refund. Another common fraud tactic occurs when your tax return preparer can claim expenses that you are not entitled to in order to inflate your refund, netting them higher fees. Fraudsters may also use tax season as an opportunity to commit identity theft.
The IRS identifies return fraud as one of the most common tax scams to be aware of in the 2015 tax season. According to the IRS, in 2013 alone, the number of criminal investigations in identity-related cases rose by 66 percent over the previous year with a total of 1492 investigations.
They caution tax payers to choose their return preparer very carefully – you need someone who understands tax law and who is up to date with the latest changes. An unqualified or inexperienced return preparer, while not out to defraud you intentionally, could cost you a lot of money in the long run because of mistakes.
The problem with both mistakes and fraud is that you will be left holding the bag – you might end up paying severe penalties or even facing jail time. Even if you were acting in good faith, you will have to prove that you were scammed and that may be tough to do.
How to Beat Tax Fraud
Fortunately, you are not completely defenseless against these criminals. Do your research before finding a tax accountant. In most cases, doing your homework properly upfront will enable you to protect yourself:
- Start out by finding out what the person’s IRS Preparer Tax Identification Number is, making sure that it is a valid and that the name and number match up.
- Find out whether he has professional credentials or is a member of a professional society. While legally speaking a return preparer does not need to be credentialed, a professional who is building a legitimate business is more likely to have some sort of qualification and be a member of a professional organization. You can also check with the organization whether the person you are considering is a member of good standing or not. A fly-by-night scam artist is less likely to have a professional association of this nature.
- Stick to a return preparer who charges a flat fee, rather than one who charges a percentage of your refund – the former have no financial motive when it comes to inflating your refund. Also be careful of the person who offers a refund that seems higher than normal. If it sounds to good to be true, it probably is.
- A professional will want to check your income and expenses. Legally speaking, he will need to see your W-2. Avoid anyone who fails to ask for supporting documentation.
- Never sign a blank return and always ensure the return is accurate before you do sign it.
- File your returns as early as possible and keep an eye out for your refund. Follow up quickly with the IRS should you not receive it.
Stay Up To Date
Being prepared for tax season doesn’t start right before you file your taxes. You need to keep an eye on things the entire year. While filing your taxes happens in the first few months of the year, the activities you do the whole year have an impact on what your refund will look like come tax season.