We represent clients from all U.S. and International locations regarding Federal Tax and California Issues.
With the tax filing season in full swing for most Americans, we believe that it is important for our readers to be aware of some of the more common tax scams and how to avoid falling for them. Most of the traps that we’ve identified in this article are perpetuated by third-party tax preparers who are out to make a quick buck from unsuspecting Americans. Understanding the premise of the scams can help taxpayers steer clear of them and save themselves from some serious negative consequences.
This first scam isn’t as much of a single fraudulent activity, but rather a large red flag that could uncover several illegal actions taken by a tax preparer. As tax season approaches, the tax preparation market is inundated with advertisements about services that will help taxpayers receive the largest refund possible. Many of those tax preparers are not scam artists. They are tax professionals who will sift through piles of receipts, W-2’s, and other financial documents to determine the largest refund that can be legally claimed.
On the other hand, there are “tax preparers” who will claim refunds that were calculated erroneously, the mistake often being intentional. They will typically make up facts that qualify a taxpayer for a particular deduction or credit. Many taxpayers have no idea that this illegal activity is occurring. To them, they are getting a larger direct deposit or check in the mail than they would have received if they had gone to a reputable tax preparer. But the problem lies in the consequences of being caught, which may not surface until years after the tax refund money has been spent.
One of the most common misconceptions among taxpayers are the consequences for lying on your taxes. Whether you understate your income or overstate your deduction/credits, the government will make the correcting adjustments for you and issue you a bill. Many Americans believe that if a tax preparer incorrectly fills out a tax return, the preparer is liable for the unpaid tax. This is incorrect. The taxpayer is responsible for any unpaid tax, whether or not they prepared their own return. When a taxpayer signs his or her name at the bottom of a tax return, they are certifying that all of the information contained on the return is accurate.
Although a taxpayer that has been duped can go after a preparer for penalties that were incurred, tax preparers engaging in fraudulent activity are typically nowhere to be found, leaving the unpaid tax, penalties, and interest with the taxpayer. Staying away from pop-up tax preparers who only open up shop during the tax season can be a way to avoid a run-in with a scammer. Lastly, taxpayers should make sure that they receive a copy of their tax return after it has been prepared and filed.
In a recent news release by the IRS, the Service warns that one of the “Dirty Dozen” tax schemes for the 2015 tax year is the improper use of tax credits. This trap can be fallen into by individuals or businesses. For individual taxpayers, credits that are often abused include the Earned Income Credit and the Child Tax Credit. Whether preparing your own returns or seeking the assistance of a professional tax preparer, you should be wary of utilizing tax credits that you didn’t qualify for in previous years (unless of course, you have a major life event that gives rise to such a credit).
For those filing business tax returns, there are several business tax credits that are appealing but only qualify in particular situations. The IRS identified the Fuel Tax Credit and the Research Tax Credit as business credits that have historically been abused. Very often, shady tax preparers will attempt to win business by claiming that they can help a business take advantage of a “secret tax credit”. Many times, these preparers know that most businesses do not qualify for the credits in question, but will prepare the business tax returns as if they did. Again, the only victim of being caught in one of these schemes is the taxpayer, who without a doubt, will be left to pay the ultimate tax bill.
As discussed above, certain tax credits are available to those taxpayers who qualify. Although many tax credits for individuals are somewhat straight-forward, there are individual and business tax credits that require a deep analysis into the finances of the taxpayer. On occasion, those analyses are too complex for a run-of-the-mill tax preparer to handle. An experienced tax attorney can ensure that a taxpayer is taking a legally-defendable position on their taxes.
Additionally, taxpayers who find themselves in trouble with the IRS because of tax returns from previous years can benefit from a tax defense lawyer. Our tax law and accounting professionals have assisted taxpayers in a myriad of different situations involving disputes with the IRS and state taxing authorities. One of the most common mistakes made by taxpayers is not seeking the help of an attorney during examinations, investigations, and litigation. A criminal tax attorney has the skill set to counsel you on how to handle tough investigative questions or how to react when presented with a request to turn over certain financial documents. When the IRS and Department of Justice come knocking, they are often looking to do two things: to recover money from you and (if your action was criminal) secure a criminal conviction. Allow our zealous advocates to stand beside you and mitigate or eliminate any negative consequences of being involved in a tax dispute. The stakes are too high to take a gamble by going at it alone. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.