Victims of Tax Fraud

I recently read an article by Accounting Today, https://www.accountingtoday.com/news/tax-fraud-blotter-defrauded-disgorged-and-deceased, it depicted various tax preparer frauds. According to the article, tax preparers committed the fraud by various methods, including, but not limited to, inflating expenses, inflating deductions on Schedules A, ID theft, adding dependents that are out of the country, and overcharging clients for tax payment amounts higher than they actually owed. The article listed seven different tax preparers and how they attempted to fool the IRS. Some of the fraud was for the benefit of the client, resulting in lower tax amounts owed to the IRS, and some just line the pockets of the tax preparers. The majority of the time the fraud was accomplished by the tax preparers by simply lying on the returns. The article does a great job identifying the various ways tax fraud occurred. I would like to take it one step further and identify how you could prevent yourself from becoming a potential victim of tax fraud in the future.

Below are some practical steps to avoid becoming a victim of tax fraud or putting yourself in the position where the high dollar amount of the tax payment overwhelms your normal decision making process and you yourself commit fraud.

-         Hire a Certified Public Accountant (CPA), Attorney, or other reputable tax preparer. A CPA is required to renew their license and achieve a minimum of continuing professional education, which includes ethics training. Tax law is continually changing, is your preparer? Ask whether your preparer has gone through ethics training. The extra cost associated with these tax preparers are often worth the assurance and lack of future headaches.

-         Make sure you verify your direct deposit bank account information on your return before it is submitted. Also, it is my recommendation that you always have your refund deposited to your account or sent directly to you, not your preparer. I also suggest to have any tax payments come directly from you the tax payer. This prevents an unethical tax preparer from possibly defrauding you.

-         If your financial situation remains fairly consistent, plan and budget each month for the amount of last year’s tax payment. The amount you owe shouldn’t be a surprise. This will prevent you from concocting fake expenses or not reporting income. The financial pressure and opportunity to lie on your tax return will be decreased by planning ahead.

-         Identify how your tax preparer handles your Personally Identifiable Information (PII). Is it encrypted? Are they sending your returns to you securely? The information contained on your tax return would make it easy for a fraudster to steal your identity.

If your organization would like to continue a discussion on this topic or other fraud related topics, please email me at [email protected].