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IRS warns tax filers to be wary of fraud now that 2024 season is underway

Phishing scams, fraudulent preparers are two prominent schemes
An IRS criminal investigation unit raided Ken & Sue’s restaurant in Durango on Aug. 26, 2020, and seized accounting and tax records. The IRS Criminal Investigation Denver Field Office is warning tax filers to be on the lookout for fraudulent tax preparers and phishing email schemes as tax season takes off. (Shane Benjamin/Durango Herald file)

Tax season is just getting started and the Internal Revenue Service has a word of caution about preparers promising bigger tax returns than others: If it’s too good to be true, it probably is.

IRS Criminal Investigation, the IRS’s law enforcement branch, found $5.5 billion in tax fraud and initiated 1,409 investigations into tax crime in fiscal year 2023, according to the IRS. Six hundred fifty-five defendants were sentenced, including former Brighton resident Steven Darbee, who was sentenced to 12 months and one day in federal prison for tax evasion.

In February 2023, former Ken & Sue’s restaurant owners Kenneth and Suzanne Fusco were sentenced to five years of probation, six months of house arrest and 150 hours each of community service for tax evasion. They were each fined $25,000 as well.

Jonathan Towle, assistant special agent in charge at in the IRS Criminal Investigation Denver Field Office, said two primary tax scams filers should be aware of are fraudulent preparers and email phishing scams.

Although many certified public accountants and attorneys have formal credentials and education, tax return preparers are not required to have any formal education or credentials to prepare tax returns for clients, he said.

Just like hiring a contractor to remodel a home or a mechanic to work on a car, Towle said people should do their due diligence by checking references and credentials before hiring a preparer, especially if they’re promising bigger returns than anyone else.

“If the reviews for the preparer are very brief, like they’ve been preparing returns for the past two weeks only, and there’s no history to them and they are cited as positive reviews because the taxpayers are enjoying very large refunds, that's usually a red flag,” he said.

He said big tax returns are short-term gains, but fraudulent filings carry long-term results. Namely, filers are responsible for their own tax returns, not hired preparers. Which means if one’s filing isn’t accurate, the individual is on the hook.

“You’ll probably be audited. And if you’re audited, you’re gonna have to pay that money back with interest in penalties,” Towle said. “So, that short term gain of getting that bigger refund than you normally do is offset pretty quickly with the pain of an audit.”

Joseph Simms, public affairs officer in the Denver field office, said tax codes apply to everyone, and preparers don’t have “insider knowledge” or effective tricks to net bigger returns.

Tax return documents can be confusing to many people, but Towle said people really should take the time to review and understand their tax returns when they get them back from preparers.

Fraudulent preparers are known to invent fake business deductions or fabricate fake businesses entirely in business tax returns to write off as large losses and offset income earned, he said.

Upon reviewing one’s tax return, it’s wise to look for anything uncharacteristic of oneself.

“Always understand when you’re thumbing through that tax return at the end, that anything that seems unusual or out of character for yourself is probably wrong,” Towle said. “I would question that with the preparer right away or go find another preparer.”

Another big sign one is dealing with a fraudulent preparer is if they refuse to sign the tax return upon completing it or they don’t have a preparer identification number.

“That’s a major red flag that there’s probably problems with that return, and they don’t want to be associated with it,” Towle said.

The IRS often investigates preparers when batches of tax returns contain patterns of fraud, and preparers can find themselves in jail or prison if they’re found guilty. However, it’s still an individual filer’s responsibility to correct a filing and pay penalties and interest because of the fraud, he said.

Reporting fraud

If one does encounter a fraudulent preparer, Towle said there are several ways to report them to the IRS.

People can call an IRS field office directly, such as the Denver field office responsible for IRS criminal investigations in Colorado, Wyoming, Montana and Idaho. People can also file online reports at irs.gov.

Phishing scams, which have become more sophisticated over the years, can be reported at phishing@irs.gov.

Towle said common scams involve an email, phone call or text message claiming the IRS will threaten to arrest the person being scammed if a payment isn’t received in a certain amount of time.

“The IRS will never telegraph via electronic email or text messages that they’re going to arrest you,” Towle said. “That’s not going to happen.”

Other scams involve the fraudster posing as a CPA the individual has used for years. Such tactics include presenting as local tax preparers, not just nationwide chains with recognizable brands.

As for fraudsters posing as trusted tax preparers, who may send a seemingly innocent “click here” email with a hyperlink saying they’d like to get an early start ahead of tax season, the best response is to contact the preparer directly via their official website or by phone.

“Ask if they’re actually sending out those emails before you blindly start sending your tax information through a link that you ultimately are giving it to the fraudsters,” Towle said.

He said fraudulent activity is abound throughout tax season, but it starts picking up even more in March.

Taxes and filing extension requests are due by April 15.


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