Once again this tax season, tax return preparation and planning can prove hazardous to one’s financial health. Sapurstein & Associates has learned that senior citizens are once again targets of a tax refund scheme.

The IRS says perpetrators of this scheme exert pressure on elderly people who have little or no income, and who usually are not required to file a tax return, to get them to file tax returns claiming fraudulent refunds.

Scammers may suggest that a senior is eligible to receive a (nonexistent) “stimulus payment” based on the “American Opportunity Tax Credit.” Offers like these are fraught with typical warning signs. The IRS cautions taxpayers that when they are choosing a tax preparer, they should be on the alert for:

• “Too good to be true” refund or rebate claims
• Unfamiliar for-profit tax services promoting refund and credit schemes to congregations of local churches
• Internet offers prompting seniors to call a toll-free number (and reveal their social security number)
• Offers of free tax money without documentation
• Promises of refunds for “low income/ no document tax returns”
• Claims involving the expired Economic Recovery Credit Program or any “Economic Stimulus Payments”
• Offers to prepare a return and split the refund
• Unknown tax preparation firms soliciting business from distant locales

It’s nothing new, people trying to take advantage of seniors at tax time. Your first step, if you aren’t sure about an offer, is to go to www.irs.gov to check it out.

Best of all, make sure you’re working with federally authorized tax practitioners.  At Sapurstein & Associates, we put a lot of effort into doing things the right way.

At Sapurstein & Associates, our team of Indianapolis CPAs has been blogging about tax-related identity theft. That kind of theft is on the rise now with tax preparation season is in full swing. The IRS has doubled its efforts to help reduce this type of “white collar crime,” and federally authorized tax practitioners are on high alert.

One of the newer tactics employed by the Internal Revenue Service is to expand the offer of Identity Protection Personal ID numbers (IP PINs) to victims of identity theft.

An IP PIN indicates you’ve previously provided the IRS with information to validate your identification and that the IRS is satisfied that you are in fact the owner of your SSN (social security number). More than 200,000 new IP PINs will be issued this year.

Another theft prevention tactic by the IRS is marking the accounts of deceased taxpayers, so those numbers can’t be misused by identity thieves. So far, more than 230,000 accounts of decedents have been earmarked in this way.

Tax-related identity theft has never been more widespread. It’s more important than ever to do whatever you can to protect your important financial and retirement information – and guard your social security number closely.

Something else you can do, according to the CPAs at Sapurstein & Associates: View your credit report twice a year and be on the alert for suspicious activity, including mailings and bank statements.

And of course, you can always ask for experienced help from an authorized tax practitioner like those at Sapurstein & Associates.

Tax-related identity theft is a growing problem. The IRS incident tracking reports indicate that 254,079 taxpayers were affected by identity theft in 2008. By August 31^st 2011, that number had ballooned to 582,736 for the year, and that it was continuing to rise.

During the upcoming 2012 tax filing season, the CPAs at Indianapolis-based Sapurstein & Associates have learned, the IRS will be taking special counter-measures.

Barry Sapurstein, a small business CPA specialist, explains that tax identity theft generally takes two forms:

• personal identity theft for refund access (filing a fraudulent tax return claiming an inflated refund)
• employment identity theft.

Of the two, employment identity theft (when an individual uses another person’s identity to obtain employment, generally when they do not have proper identification) has a more long-lasting effect. It generally takes at least a year to determine that this crime has in fact taken place. During all that time, while the identity thief is been enjoying his/her illegally-gotten  benefits, the victims often remain unaware anything is wrong.

When the IRS attempts to take enforcement actions for a taxpayer’s unreported income (which the thief has been collecting!), legitimate tax refunds to the real taxpayer can be delayed for months. Tax returns can be complicated for years longer.

The IRS is on the alert.  But your best protection is your own heightened awareness, advise Sapurstein & Associates, who have put special protections in place to safeguard clients’ financial information including password protecting all email attachments that contain Social Security numbers and other client sensitive information. Better bookkeeping and accounting methods help protect and defend!

It’s tax prep season, and many of us are worrying about how much income tax we owe, not to mention how we’re going to pay it. If that isn’t enough to worry about, the IRS is warning consumers of an uptick in the number of fraudulent income tax scams out there.

Although a majority of return preparers provide excellent service and are honest, there are always those who engage in fraud and other illegal activities. As a small business accounting professional and CPA for over 35 years, all of us on Barry Sapurstein’s team at Sapurstein & Associates have seen more than our share of taxes prepared incorrectly – or fraudulently.

And as federally authorized tax practitioners, we know it takes a lot of work to undo the damage caused by advisor misdirection. More times than not, that damage is in the form of penalties –with interest!– to the taxpayer. That’s because, even if your return was prepared by an independent tax preparer, you the taxpayer are the one legally responsible for what is filed with the IRS, whether you were aware of the fraud or not.

As the IRS cautions, if a tax preparation deal seems too good to be true, it probably is. While many tax professionals charge legitimate fees for genuine advice and tax preparation services, beware of what seem like outrageous guarantees or promises including prizes and winnings associated with filing taxes.

Here is what you should know as you choose an individual or firm to prepare your taxes:

• Be very careful to whom you provide with your social security number and financial information. Identity theft is on the increase.
• Never sign a blank tax form. Always review the return before signing it and ask about any entry you don’t understand.
• Watch out for tax preparers who say they can obtain larger refunds, who offer slavery reparation refunds or Americans with Disabilities tax credits, who set up phony business expenses, or recommend sharing Earned Income Tax Credit (EITC) dependents. All are illegal or non-existent tax refund schemes.
• Phony tax payment checks are on the rise. Be sure you use your check from your bank to pay the IRS, not an inflated check a tax preparer may recommend using (an illegal process that can lead to prosecution by the IRS).

It’s buyer beware – especially during tax season, when you are the buyer of tax preparation services. Be sure you have your taxes prepared professionally and accurately by a federally authorized tax practitioner. As longtime Indiana accounting and tax professionals, we know:  Better safe than sorry.

The CPAs at Sapurstein & Associates have learned that the IRS is gearing up to take additional measures to combat identity theft during the 2012 tax filing season.

Tax-related identity theft has grown significantly since 2008, and continues to be a problem. According to IRS reports, 254,079 taxpayers were affected by identity theft in 2008. As of August 31, 2011, tracking reports indicated that number more than doubled to involve 582,736 taxpayers. The IRS protected some $1.3 billion in refunds from being erroneously sent to identity thieves last year alone, but more help is needed.

Generally, there are two types of identity thefts relating to tax administration:

• An individual uses another person’s name or social security number to file a fraudulent tax return resulting in a refund
• An individual uses another person’s identity to obtain employment

Usually, well after an identity theft has successfully committed the crime and is enjoying the benefits, the victim begins to realize the harm. Identity theft affects lawful taxpayers ability to file their own returns and can often delay their tax refunds.

The IRS has enacted IP PINs (protection Personal Identification Numbers) to victims of identity theft under a pilot program. The IP PINs serve to validate the identity’s of past identity theft victims.

Sapurstein & Assoc. has learned that IRS is also taking steps to stop the growing trend of using deceased taxpayer identities to file taxes, marking 230,000 accounts of decedents against use. The IRS is also working with prison officials to curb fraudulent filings by inmates.

Be sure your personal tax information is protected. Federally authorized tax practitioners should always be your first choice for personal or business tax preparation.

Did you know that the IRS can effectively reopen a closed tax year to recover erroneous write-offs?

In an effort to maximize IRS results in audits, the IRS is resorting to some unusual, but perfectly legal tax recovery methods, Sapurstein & Associates has learned.

One such method is detailed in this story:  An accrual-method S corporation bought its inventory from a related cash-method S corporation in a previous tax year. But since the company did not actually pay for the goods, instead trading for them, the selling firm did not report any income.

Nevertheless, the accrual method firm took a deduction for the accounts payable, which is not allowed under the federal related party tax law. Subsequently the IRS audited the accrual method company. The Court let the Service go back to past years, even to years that were closed by the three-year statute of limitations, and add the erroneously deducted amounts into the buyer’s income.

Once an IRS credit technique like this is essentially approved by the court system, it tends to be applied more freely to other corporations, so take heed!

The CPAs at Sapurstein & Associates are familiar with federal and state business taxes. We are experts in small to medium sized business tax law. So if you have a business tax question, chances are, we can answer it.

One of our Indianapolis small business CPA clients received an email last month that was pretty unsettling. The email heading was “Rejected Tax Transaction.” The first line of the email message provided a Federal tax payment ID # on an official looking form. The email form stated that “Your Federal tax payment, recently sent from your bank account, has been canceled by the Electronic Federal Tax Payment System.” It listed the Internal Revenue Service location officiating the rejection as coming from an address in Landover, MD, and provided a seemingly official reason for rejection as well as a Tax Transaction Report.

The client forwarded Barry Sapurstein a copy of the email to see what Sapurstein & Associates could determine from the IRS.

Meanwhile, the client’s IT team went to work behind the scenes. They were able to backtrack the email and determine that it did not originate with the IRS in Landover, MD. But rather, China, and was then sent to Pakistan, and finally to our client.

A little checking in with the IRS by Sapurstein & Associates yielded no IRS problems for our client. All their federal tax payments had been received and they were in good standing with the IRS. We also confirmed that the IRS does not send out any “Rejected Tax Transmission” emails – ever. Naturally, there was nothing at all “official” behind the email. Instead, it was an elaborate phishing scheme engineered to get financial information and bank account numbers to access the company’s account.

Our client absolutely did the right thing by checking in with us and doing a little research before responding in any way to the phishing scheme. Between their IT department and our swift IRS check, no compromising information was shared with those behind the email.

Pretending to be from the IRS to conduct fraud is a Federal offense, punishable by stiff fines and penalties. If you suspect fraud or phishing related to tax issues, go to www.irs.gov for appropriate information and to report the crime. If you receive an email claiming to be from the IRS, contact the IRS at phishing@irs.gov to determine how and where to report your attempted extortion. For more IRS information, click here.

Tax preparer fraud is on the increase. According to the IRS, Federal courts have issued more injunctions ordering suspected individuals and firms to cease preparing returns than ever before. In addition, the Dept of Justice now has hundreds of pending complaints against many others.

Sapurstein & Associates wants you know that the IRS has implemented new requirements for paid tax preparers, including registration with the IRS, as well as competency tests and mandatory ongoing professional education. These new regulations require paid tax preparers (including attorneys, CPAs and enrolled agents) to apply for a Preparer Tax ID number (PTIN) which must be shown on all tax returns beginning this year.

Dishonest return preparers can create a huge headache for taxpayers. Fraudulent schemers may derive benefit by skimming from their client refunds, charging inflated fees, and attracting new clients by promising inflated tax rebates. Even honest return professionals may make basic errors or provide old, outdated information that can cost you money.

Higher standards for tax preparers  – and greater tax payer education and vigilance will result in better compliance with tax laws, increased confidence in the tax system, and ultimately lead to a better experience for taxpayers.

Got a question about your last return or new tax regulations? Sapurstein & Associates CPAs stay on top of state and Federal implementations. Give Barry or Leanne a call (317-706-0958) with your question. We’re happy to sit down with you and discuss your particular tax situation.

No doubt you know that Identity theft is a major problem that affects many unsuspecting people each year. What you may not hear about is tax fraud, although it is rampant according to the IRS.

That’s why Sapurstein & Associates wants to get the word out to taxpayers to protect their personal information against phishing. Phishing is used to trick people into revealing personal or financial information online. Using phony email or websites, or even social media, a scammer can pose as an institution such as the IRS to collect information needed to gain access to bank information, work history, 401K files, credit card access, and much more. Spyware, which can be loaded onto an unsuspecting taxpayer’s computer by opening an email attachment or clicking on a link, is another tool often used to collect personal information.

IRS impersonation schemes flourish during tax season. When it comes to taxes, a criminal with someone else’s personal information can fairly easily file a fraudulent tax return –and collect your refund. Suspicious emails or “IRS” web sites that do not begin with http://www.irs.gov should be forwarded to the IRS at phishing@irs.gov. The IRS will never ask for your personal information via email.

If you suspect your personal information has been stolen and used for tax purposes, Barry or Leanne, CPAs at Sapurstein and Associates help you contact the IRS, and begin to undo the damage done.

Sapurstein & Associates has been blogging about tax fraud, and for good reason. It’s on the upswing.

Although most tax return preparers are honest, it’s critical that you check  credentials when you interview perspective tax return preparers for yourself or your company (see December 13, 2010 blog).

Tax evasion is a felony, and even though the IRS is cracking down on unscrupulous tax preparers, you should know that you are ultimately responsible for your taxes, and will also be held libel and fined.

Continuing our series on tax fraud, here are IRS recommendations about how to report suspected tax fraud activity:

• Tax fraud or abusive return preparers can be reported to the IRS on “Information Referral” form 3949-A, downloadable from the IRS web site or by calling (800) 829-3676 to order.
• The form should contain specific information about the alleged fraudulent activity, when the violation took place, how the reporter became aware of it, and information about the person or business.
• The individual reporting the fraudulent activity could receive a monetary award from the IRS Whistleblower Office.

Sapurstein & Associates are here to help with all your accounting and tax needs, including careful tax preparation. Contact Pat to find our how we can help you with your taxes at pat@sapursteincpas.com.