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Protect Yourself from Fraud this Tax Season

Richard Gilbert talks about tax fraud and how to protect yourself.

Unless you’re an accountant or tax preparer who loves the increase in clients this time of year, you’re probably not a huge fan of tax season. But scammers love it because it gives them the opportunity to do what they like to do most – defraud you. There’s a massive web of tax-related scams out there hoping to commit tax fraud against unsuspecting individuals. Their strategies rely on taking advantage of what you don’t know. But by arming yourself with knowledge, you can spot their tactics and keep yourself safe.


See Tax Scams with Richard Gilbert for a complete transcript of the Easy Prey podcast episode.

Richard Gilbert is the Director of Examination for the North Carolina Department of Revenue. The Examination Division deals with all the taxes handled by the state Department of Revenue, and they also do their audit and compliance activities. Richard has been with the department a little over twenty-five years. Before that, he worked for the Missouri Depart of Revenue out of their Chicago office. He is also a licensed CPA with the state of North Carolina and has a Bachelor’s degree in Business Administration from North Carolina Central University.

Taxes are Complicated

One of the biggest things that enables tax fraud is how complicated taxes are and how intimidating they can be. If you’re in high school or college, even if you’re working, filing your taxes is fairly simple and easy. But when you get married, have kids, buy a house, or anything else, it gets more complicated.

And filing your taxes can be intimidating, too. It’s an official legal government thing. You have to file with both your state and with the federal government. And there can be big consequences if you do it wrong. At best, you’ll owe the IRS money (often a lot of money). At worst, you could go to jail. And to top it all off, different states and municipalities have different regulations and different tax rates and types. It’s easy for people to feel in over their head.

Despite that, it’s something that everyone has to do every year. Nobody wants to pay taxes, but we know that if we want society to function (and if we don’t want to go to jail for not paying), we need to. But most people aren’t thinking in advance about taxes. When tax season rolls around, you have to find the right preparer – someone you can trust to do the job. Many people use a random person they found online or the person their family uses. But that’s not always the best choice. It’s important to know your options and what kind of pitfalls are common so you can avoid bigger issues down the road.

Tax Fraud Through Fraudulent Preparers

The vast majority of tax preparers provide a great service. They do what they’re supposed to do for their clients and build returns accurately. But a small few deliberately try to cheat on your return. These tax preparers are committing tax fraud on your behalf, and it’s something the Department of Revenue has to deal with quite often.

The vast majority of tax preparers provide you with great service … there are a small few that deliberately try to cheat on your return.

Richard Gilbert

One of the most common signs of a fraudulent tax preparer is that they promise you the largest refund out there. They know most people don’t want to pay any more taxes than they absolutely have to. But if the preparer’s selling point is that they’ll get you a huge refund, run from that. They’re not going to make sure that your return is accurate. They’ll change or inflate your numbers or even make up their own to get you a big refund. That’s tax fraud, and it’s a felony punishable by both fines and prison time.

Fraudulent tax preparers are committing tax fraud and signing your name to it.

CPAs versus Tax Preparers

If you get a good Certified Public Accountant, or CPA, you should be safe. The qualifications for CPAs are very strict and rigorous. But there are always going to be some people out there who don’t meet those qualifications, and Richard is okay with that. For most people filing small individual returns, paying a CPA a huge hourly fee to prepare their taxes is overkill.

Tax preparers don’t have to go through the whole CPA licensing process. They are required kind of training class and they do have to register with the IRS, but that’s all. Tax preparers tend to be where people run into those committing tax fraud. Most tax preparers are legitimate and do good work. But some will do unethical and illegal things. If you say you have $1,000 in charitable donations for the year, they might bump that up to $10,000. Or they may file a Schedule C, a tax form to report business income and expenses. Richard once encountered a taxpayer who was astonished to find a Schedule C included in her tax filing – she didn’t have a business, but her preparer had her taking business deductions.

For these kinds of fraudulent tax preparers, their goal is to get you the biggest possible refund so that you can be their advertising. They want you to tell people you know that you got such a huge refund that they should use this preparer next year.

Avoid Tax Fraud From Scam Preparers

If a tax preparer is talking about how you can obtain the largest refund, it’s time to step back and ask more questions. Every tax professional knows that people want big refunds. But if that’s their main selling point, that may be a sign that they’re willing to commit tax fraud to get you a bigger refund. Avoid any preparer that bases their fee on a percentage of your refund. If they make money when you get a bigger refund, that’s a big incentive for them to do shady things to give you a bigger refund.

In addition, if a preparer gives you a blank tax form and asks you to sign it, get up and walk away immediately. You are responsible for that return and your signature indicates you’re attesting everything on that return is true. Before you sign, you need to know everything that’s on it. If you sign a blank form, you’re certifying to the government that whatever the preparer feels like putting on the form is something you’re willing to be liable for.

You are responsible for that [tax] return, so before you sign it, you need to know everything on it.

Richard Gilbert

When you first talk to a good tax preparer, they should be asking you questions. They’ll want to know about your history, about your previous tax returns, what you do for a living, your marital status and if you have dependents, and if you own a business, among other things. They need this information to properly prepare your taxes. In addition, they’ll also request the documentation that they need. If they’re not asking questions or collecting documentation, that’s not a good tax preparer and you don’t want to work with them.

How to Choose a Tax Preparer

If you can afford to hire a CPA, that’s a great choice. But CPAs are expensive, and if you don’t make a lot, you may not be able to afford that. But a good preparer should be able to tell you where they took the required classes to become a tax preparer. There are a lot of different schools that teach these skills, but it’s important to make sure they didn’t learn them off YouTube or the internet.

Legitimate tax preparers should also be licensed with the IRS and have what’s called a Preparer’s Tax Identification Number (PTIN). You can ask them for that. They should also be putting that number on the bottom of your return and sign that return as a preparer.

When you’re considering a tax preparer, don’t be afraid to ask for references. If you were hiring someone to build your house or babysit your children, you’d want references. You can do the same thing with your tax preparer. Contact their references and see if they seem reputable based on what former customers say. You can also check online to see if there’s any Better Business Bureau records about them.

Even with all of these checks, Richard cautions people that no matter who prepares the return, and even if the preparer puts their PTIN on the return and signs it, you are ultimately responsible for what’s in it. Before you sign it, carefully and thoroughly review everything. If you don’t understand something, ask. Check that the numbers match the ones you actually gave the preparer. Watch for overstated charitable donations or other deductions, or business expenses for a business you don’t have. Don’t sign until you’re confident everything is accurate.

No matter who prepares the return … you are the person responsible.

Richard Gilbert

Tax Fraud Through Fraudulent Returns

The North Carolina Department of Revenue has a unit called the Discovery Unit. On every return that’s file, the unit goes through and check against certain criteria to make sure it’s an actual return filed by an actual taxpayer. One way a lot of scammers try to commit tax fraud is to file a return on your behalf first and get your refund sent to them.

If the Discovery Unit finds two returns filed for the same person, they’ll get in touch and have the person go through a process. This year alone, the Discovery Unit prevented around $400 million dollars in fraudulent refunds from getting sent to scammers. Picking the right preparer is only part of protecting yourself from tax fraud. It’s just as essential to protect your personal information so a scammer can’t file a return before you do.

You can take steps to protect yourself from tax fraud.

Richard hears a lot of taxpayers complain about how refunds take so long and why they can’t get them quicker. But the answer is because the people handling the refunds are actually trying to protect your identity and make sure your refund doesn’t get stolen by tax fraud. It slows the process down, but it keeps you safer.

Precautions to Protect Yourself from Tax Fraud

If someone files a fraudulent tax return for you in North Carolina, the Department of Revenue has a process for proving which return is real. Richard isn’t going to go into detail about the process so fraudsters can’t find a way around it, but there is a process in place. The same is likely true for other states and the federal government as well.

The best way to protect yourself from tax fraud through fraudulent returns is to safeguard your personal information. Make sure your Social Security Number is out there in as few places as possible. Make sure you keep your devices updated. Ensure firewalls are on and you have the latest antivirus. Keep your passwords secure and don’t re-use them on other sites. And check your credit report regularly.

Finally, you can beat the fraudsters to the punch by filing your taxes as early as possible. If you can get your tax return in before the scammers, you will not only get your refund sooner, but it will be much harder for fraudsters to get money from a fake return if your real one has already been received and processed.

If you want to beat the fraudsters … file your tax return as early as possible.

Richard Gilbert

Threatening Calls from the IRS

Another common form of tax fraud involves the scammer pretending to be the IRS or your state Department of Revenue. They call you and claim that they’re a tax official, and they have a local or state police officer with them. You haven’t paid your taxes, or there’s fraud on your tax account. If they don’t get a payment right now, they’re going to send this officer to arrest you.

Neither the IRS or the state Department of Revenue will ever call you as a first contact. It sometimes happens for large corporations. But as an individual taxpayer, they will always start by sending you a notification in the mail. You’ll get some sort of official letter about what’s going on with your taxes. If this call is the first time that you’ve heard about this, it’s a scam.

You won’t get official tax communication through text message or social media. And the only time they will contact you through email is to follow up on an existing issue. If you get an email about an issue with your taxes and you haven’t already received a letter about it, it’s a scam.

In addition, the government will never demand that you pay immediately. You will always have the opportunity to ask questions or submit an appeal about any amount that you owe. And any deadlines for payment will give you a few weeks or even a few months to pay. Any call or even any letter that demands you pay immediately and doesn’t give you an opportunity to appeal is trying to scam you.

We will never call a person and tell them you have to pay and pay now. You always will have the opportunity to question or appeal any amount owned.

Richard Gilbert

Suspicious Payment Methods

Another way you can spot tax fraud and scams is by what payment method they ask you to use. If someone tells you that there is only one way to pay your tax bill, that’s not the Department of Revenue. The North Carolina Department of Revenue accepts a variety of payment methods. If they’re not giving you options, be very suspicious about who you’re talking to.

Just because they give you options doesn’t mean they’re legitimate, though. The Department of Revenue does not accept gift cards, and they probably never will. Only a scammer will tell you to go down to a store and buy gift cards to pay your tax bill. They also don’t use cryptocurrency. If someone offers you the option to pay your tax bill in gift cards or cryptocurrency, you’re talking to a scammer.

Open Mail About Your Taxes

It’s scary to receive correspondence from the government. But tax authorities have a lot of security checks in place to confirm that the tax returns are legitimate and not scammers trying to commit tax fraud. When they encounter a potential problem, they send the taxpayer a letter about it.

The biggest problem Richard encounters is that people don’t respond. Often they call asking where their refund is. When informed that the Department of Revenue needs additional information and they should have received a letter about it, they often respond that they never opened it.

If you get a letter from the IRS or your state’s Department of Revenue, open it! There may be something in there that you need to deal with immediately. Also make sure that you update your address so that the letter gets mailed to the right place. If you move after filing your return and don’t update your address, the letter about problems with your tax return may not reach you.

Finally, make sure you have your documentation available. That includes items like your driver’s license, passport, social security number, and copies of tax returns. If there’s a problem, it will help you get through the process quicker. Participating in the verification system keeps the government from giving your money to anyone else. Any way you can help provide that information as quickly as possible only helps you in the long run.

If you live or pay taxes in North Carolina, there’s a variety of resources on the North Carolina Department of Revenue’s website at ncdor.gov. You can also call 1-877-252-3052. If your concern is about federal taxes, visit irs.gov; if you don’t live or pay taxes in North Carolina, look up your state’s Department of Revenue for the most relevant advice.

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