In a recent blog post, we wrote about the IRS adding falsified income and fake Forms 1099 to its “Dirty Dozen” tax fraud list for 2019. In this article, our tax fraud defense attorneys are focusing on a different entry in this year’s Dirty Dozen: “promises of inflated tax refunds.” Scams of this nature trigger hundreds of tax audits, and even IRS criminal investigations, every year – and in many cases, conclude with costly penalties for CPAs, EAs and Tax Preparers and their clients alike. If you’ve been tempted to purchase (or offer) a service advertising “huge” or “guaranteed” IRS refunds, think twice before proceeding: that’s precisely the sort of scheme which routinely lands tax preparers (and their customers) on the IRS Dirty Dozen list – or worse, in prison for tax crimes.
IRS to Taxpayers: Avoid Tax Preparation Services that Guarantee Refunds
Earlier this month, the IRS issued another press release in a series of announcements alerting taxpayers to the dangers of 2019’s most common tax fraud scams. Another press release in that series cautions against falsifying income, while still another targets tax preparer fraud – a problem that often overlaps with the issue of inflated refunds, the focus of today’s article. (All are among this year’s “Dirty Dozen,” which speaks to how widespread these interrelated problems are.)
According to a CNBC report published in February, the average tax refund has shrunk by nearly 9% from last year, before the controversial passage of the Tax Cuts and Jobs Act (TCJA), decreasing from around $2,135 in 2018 to about $1,949 in 2019: a difference of $186. Incidentally, the total number of refunds issued also declined from 2018 to 2019, decreasing from 13.5 million to 11.4 million (though of course, this data may look very different after the April 15 filing deadline, which is still several weeks away).
These trends are no doubt troubling to taxpayers, some of whom might feel pressured to seek bigger, better tax refunds by any means necessary. But regardless of economic pressures, tax refund fraud is against the law – and for a fee, all too many CPAs EAs and Tax Preparers are willing to facilitate it. As the press release cautions, “boasting of inflated tax refunds” is a “common scam tactic during filing season” among “unscrupulous” tax professionals – and in many cases, these schemes target some of the most vulnerable demographics, notably “older Americans,” “low-income taxpayers,” and “non-English speakers who may or may not have a requirement to file a tax return.”
The IRS explains that these scammers often work by falsely claiming federal tax credits or deductions for which their clients don’t truly qualify – often (though not always) the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), or an education tax credit, with just one of many examples here. As the IRS has stated, “Every year, these types of tax preparers face penalties including prison time for defrauding their clients.” For example, CPAs convicted of willfully aiding or assisting in the preparation of a false return (26 U.S. Code § 7206(2)) face up to three years in federal prison – not to mention considerable IRS restitution, plus criminal fines of up to $100,000.
Credits and deductions are not the only danger areas where inflated returns are concerned. As the press release points out, unethical tax preparers might also attempt to obtain larger refunds for clients by:
- Filing false or fraudulent information returns, such as Form W-2 (Wage and Tax Statement)
- “Making claims for fictitious rebates” (i.e. tax refunds)
- Making false refund claims based on Forms 1099
Need Help Filing a Return? Contact Our IRS Tax Attorneys and CPAs
At the Tax Law Office of David W. Klasing, we are a dedicated, award-winning team of IRS tax lawyers, & CPAs, and former auditors with more than 20 years of experience assisting businesses and individuals with all types of tax planning, tax defense, and tax compliance issues, from basic tax preparation and filing assistance to highly complex tax litigation and IRS appeals. Whether you have questions about unfiled tax returns, need help rethinking your tax strategy in light of the TCJA, or need assistance with other domestic or international tax matters, the Tax Law Office of David W. Klasing is here to provide enthusiastic, around-the-clock support. Contact us online to set up a reduced-rate consultation, or speak with an experienced tax attorney in person by calling (800) 681-1295 today.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
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