WASHINGTON – With tax season in its final two weeks, the Justice Department urged the public today to avoid dishonest tax-return preparers who fleece their customers and illegally drain the U.S. Treasury. Noting that every taxpayer is ultimately responsible for the contents of his or her own return, Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division also warned the public to be wary of anyone who guarantees a refund or who claims to sell a sure-fire way to reduce your taxes.

U.S. taxpayers filed approximately 150 million returns in 2014. According to statistics available from the Treasury Inspector General for Tax Administration, the Internal Revenue Service (IRS) identified more than 2.1 million of those returns that claimed fraudulent refunds totaling more than $15.7 billion. As in past years, the IRS has designated return preparer fraud as one of 2016’s “Dirty Dozen” tax scams to avoid during return filing season. In 2015, the Tax Division permanently shut down more than 35 fraudulent tax-return preparers located all over the United States. The defendants in those cases spanned the spectrum from large-scale return preparation franchises to small, independent return preparers.

“Every year, thousands of federal income tax returns are prepared by people who care much more about making a quick buck than about preparing accurate returns,” Ciraolo said in a news release. “Most tax return preparers are honest. But some preparers who charge clients a percentage of their tax refund intentionally prepare false returns to increase their clients’ refund, and thus their own fees. Likewise, some preparers who charge by the form will intentionally prepare incorrect forms that their clients don’t need in order to increase their compensation. Taxpayers might think that they’re getting a good deal on their taxes, or that as long as someone else prepares the return, they’re not responsible. They’re wrong. Taxpayers who have their return prepared incorrectly are required to pay the tax they owe, or pay back the refund they weren’t entitled to get. These clients might also owe interest and penalties, which can be substantial. Fortunately, there are red flags that taxpayers can look for and avoid when choosing a return preparer.”

Your refund should never be deposited directly into a preparer’s bank account.

In United States v. Elton L. Barnes, No. 2:14-cv-05621 (C.D. Cal.), the court barred a return preparer who caused other people’s tax returns to be deposited to bank accounts in his name.

Never sign a blank return or a blank form, or sign a return or a form without reading it first.

By law, a return preparer must provide a client with a completed copy of the return no later than the time the customer is asked to sign the return. In United States v. Syed N. Ahmed et al., No. 2:15-cv-11461 (E.D. Mich.), the United States alleged that the defendants’ Liberty Tax Service franchises asked customers to sign blank forms that stated that the customers had non-existent businesses, which were then used to maximize the customer’s refund. Although the defendants did not admit to the allegations in the complaint, they agreed to an order from a federal court permanently shutting down the stores.

Don’t use a preparer who mischaracterizes your expenses.

In United States v. Lawrence Preston Siegel, No. 3:15-00643 (S.D. Cal.), the defendant prepared returns that falsely characterized personal purchases as deductible expenses. For instance, one customer’s return deducted purchases at Tiffany & Co., Louis Vuitton, and Royal Caribbean Cruise Lines as “medical expenses.” The court permanently barred Siegel from preparing tax returns or providing tax advice for compensation.

Do not use a preparer who fabricates business expenses or deductions, or who claims bogus credits to which you are not entitled, such as the Earned Income Tax Credit, the child care credit, or the education credit.

One of the most common dishonest return-preparation practices is to prepare returns that include non-existent businesses, sometimes based on a client’s hobbies. In 2015, for example, federal courts shut down tax return preparers in Kahului, Hawaii; Appleton, Wisconsin; and Chicago, Illinois, who fabricated supposed “businesses” for their clients. Federal courts have also ordered return preparers in Miami, Florida, and Memphis, Tennessee to submit to third-party monitoring at their own expense to make sure they are not preparing returns with fraudulent “businesses.”

Some other fraudulent schemes and practices that have been stopped through injunction orders entered by federal courts throughout the country include:

Fabricating fake Form W-2 (Wage and Tax Statement) information;
Claiming bogus education and first-time homebuyer credits;
Claiming phony child and dependent care credits or residential energy credits;
Claiming fraudulent fuel tax credits;
Falsely exempting foreign earned income;
Inflating unreimbursed employee business expense deductions; and
Fraudulently inflating or decreasing a client’s income or deductions to maximize the Earned Income Tax Credit.

In January 2016, a federal court in Orlando, Florida entered a preliminary injunction against Jason Stinson, who ran a series of tax return preparer storefronts under the name “Nation Tax Services,” requiring him to shut down the stores pending resolution of the case. As part of its explanation for why it was ordering Stinson’s stores to shut down in the middle of the case, the court said that Stinson’s business “exposes . . . [his] customers to individual tax liability. Both the Government and Stinson’s customers will suffer irreparable harm if an injunction is not granted. Moreover, it is in the public’s best interest to protect vulnerable customers from the inaccurate preparation of their taxes, not to deplete Government resources, and to maintain the public trust in the tax system.” The case is United States v. Jason Stinson et al., No. 6:14-cv-1534 (M.D. Fla.).

The IRS advises taxpayers who ask a tax professional to prepare their return to be careful in the professional they select. The IRS offers some basic tips and guidelines to assist taxpayers in choosing a reputable tax professional and is also offering taxpayers a number of instructional YouTube videos to help them prepare their own taxes for the upcoming filing season. Several options, including free assistance with preparation and electronic filing for the elderly and individuals making $50,000 or less, are available to help taxpayers prepare for the current tax season and receive their refunds as easily as possible.

Tax Division Sues to Shut Down Promoters of Fraudulent Tax Schemes

In addition to return preparers who deliberately falsify returns, the Tax Division targets those who peddle schemes that purportedly reduce taxes—but in fact rely on false statements or financial sleight-of-hand.

In United States v. Wayne Reeves et al., No. 12-cv-1916 (D. Nev.), the court found that defendants Wayne Reeves and Diane Vaoga advised their clients “to set up sham trusts and have their wages directed into accounts for those trusts as a way to improperly reduce their tax liability.” They advised their clients that the income the clients received from the trusts was “nontaxable and did not need to be reported on tax returns.” The court further found that Reeves prepared tax returns that “willfully attempted to understate his clients’ correct tax liabilities,” and that Vaoga assisted him in doing so. In January 2015, the court permanently barred both Reeves and Vaoga from preparing returns or giving tax advice to others.

In November 2015, the Tax Division sued to shut down an alleged tax scheme based on a purported solar energy generation facility in Utah. The case is United States v. RaPower-3 LLC et al., No. 2:15-cv-00828 (D. Utah). The United States’ complaint alleges that the defendants purportedly sell “solar thermal lenses” to customers, and tell their customers that they are entitled to claim depreciation expenses and the solar energy credit for the lenses—even though the defendants allegedly know or have reason to know that their customers are not in the business of producing and selling solar energy and that the defendants’ purported solar energy facilities do not actually produce solar energy in a manner that meets the Internal Revenue Code’s requirements for claiming the credit.

And in the same month, in United States v. James Tarpey et al., No. 2:15-cv-00072 (D. Mont.), the Tax Division sued to shut down an alleged timeshare donation scheme. According to the United States’ complaint in that case, the defendants have their customers give rights in a timeshare to “Donate for a Cause,” a tax-exempt entity operated by Tarpey. The complaint alleges that the customers receive an appraisal that grossly overvalues the donated timeshare rights and use that appraisal to claim a large charitable donation deduction, even when the true market value of the timeshare right is a small fraction of the appraised value.

“The Tax Division is committed to stopping those who promote fraudulent tax shelters and other schemes or who prepare false returns,” Acting Assistant Attorney General Ciraolo said. “Along with our colleagues at the IRS, we will find dishonest preparers and fraudulent tax-scheme promoters and work to shut them down. We will hold accountable those who willfully assist taxpayers to file false returns. And in appropriate cases, we will prosecute them. But everyone can help stop fraud and protect our public finances. Pay attention to your tax return and make sure that it’s right. If you think that a tax return preparer is deliberately preparing incorrect returns, or you suspect someone is selling a phony tax-loss scheme, report that person to the IRS.”

The IRS website has information about how to report a dishonest return preparer, as well as information about how to report other types of tax fraud. The Justice Department’s website has a list of tax-return preparers and tax-scheme promoters whom the courts have shut down.

In addition to the civil enforcement through injunctions that stop their illegal actions, many return preparers and promoters also face prosecution. Examples of those investigations can be found for fiscal years 2014 and 2015.

The use of the Internet has revolutionized our daily lives. We keep informed, keep entertained, do research, buy goods and services (including insurance), do other financial transactions, and even play games.

However, such widespread use of personal information and communication should come with an increased awareness that our personal lives and data can be viewed by unscrupulous computer hackers.

At the Kansas Insurance Department, we routinely go through cybersecurity checks to make sure that any insurance information of our Kansas citizens and insurance companies who serve them is as secure as it can be. While we use some sophisticated procedures to make sure that information is safe, you as an Internet individual consumer can take some common sense action to make sure your personal data is secure.

Following are several considerations about Internet safety that we encourage you to follow.

• Use common sense. Posting personal information on public sites could be an invitation for criminals to steal information and pose as you. Make sure you use privacy settings to keep your information private.
• When entering an address for a website, be sure to spell it correctly. Even typing in one incorrect letter could lead to a site that, while appearing legitimate, is an illegal data mining portal.
• Be wary of websites and emails that look to recruit others, receive money or advance payments. The old saying that “if it sounds too good to be true, it probably is” is useful to repeat after reading these types of offers.
• Don’t open unknown attachments or click on unknown links.
• Look for website addresses that begin with https://. The “s” stands for “secure.” Also, there should be a padlock symbol in the browser window when you attempt to login. If you do not see those, do not enter any personal information into that site.
• Back up your data regularly, and use anti-virus software that is current.
• Look carefully at the entries from any browser search. Make sure that you get exactly what your search indicates.
• Banking, shopping for insurance or shopping for other goods and services should be done on a device that belongs to you. The information you type on a public computer; by using free Wi-Fi access; or by using a friend’s computer or mobile device, could be stolen.
• Visit the security and privacy settings or the “help” area of your browser website to check your ability to manage your settings.
• Remember to log out of a secure website after you have completed your transaction. Just closing the browser might not log you out.

Cybersecurity experts have said that 2016 could see increased nationwide computer data breaches and illegal activities. I urge you to protect your computer activities, whether for insurance or personal data.

Ken Selzer, CPA, is the Kansas Commissioner of Insurance.