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IR-2013-90: IRS Warns Consumers of Possible Scams Relating to Relief of Typhoon Victims

IR-2013-90: IRS Warns Consumers of Possible Scams Relating to Relief of Typhoon Victims

IRS Warns Consumers of Possible Scams Relating to Relief of Typhoon Victims

WASHINGTON ― The Internal Revenue Service today issued a consumer alert about possible scams taking place in the wake of Typhoon Haiyan. On Nov. 8, 2013, Typhoon Haiyan – known as Yolanda in the Philippines – made landfall in the central Philippines, bringing strong winds and heavy rains that have resulted in flooding, landslides, and widespread damage.

Following major disasters, it is common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Such fraudulent schemes may involve contact by telephone, social media, email or in-person solicitations.

The IRS cautions people wishing to make disaster-related charitable donations to avoid scam artists by following these tips:

• To help disaster victims, donate to recognized charities.
• Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website at IRS.gov has a search feature, Exempt Organizations Select Check, through which people may find legitimate, qualified charities; donations to these charities may be tax-deductible. Legitimate charities may also be found on the Federal Emergency Management Agency (FEMA) website at fema.gov.
• Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
• Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
• If you plan to make a contribution for which you would like to claim a deduction, see IRS Publication 526, Charitable Contributions, to read about the kinds of organizations that can receive deductible contributions.

Bogus websites may solicit funds for disaster victims. Such fraudulent sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim to be affiliated with legitimate charities in order to persuade members of the public to send money or provide personal financial information that can be used to steal identities or financial resources.   Additionally, scammers often send e-mail that steers the recipient to bogus websites that appear to be affiliated with legitimate charitable causes.

Taxpayers suspecting disaster-related frauds should visit IRS.gov and search for the keywords “Report Phishing.” More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.”

 

You may have violated tax law

You may have violated tax law

by submitting inaccurate returns

Our review of the Earned Income Tax Credit (EITC) returns you prepared for tax year 2012 indicates you may

have submitted inaccurate returns on behalf of your clients. Intentionally disregarding EITC tax law could

result in penalties and other consequences for you as the paid preparer and your clients. The primary issue we

identified on your TY 2012 returns is questionable income and expenses reported on Schedule Cs.

Letter 5025-C (Rev. 10-2013)

Catalog Number 59927S

Department of the Treasury

Internal Revenue Service

Date:

Tax year:

Contact telephone number:

If you file inaccurate EITC returns:

Your client may face:

• A ban for 2 or 10 years from claiming the EITC, depending on the reason we disallowed the EITC

• Accuracy-related or fraud penalties

• Interest charges on the amount he or she must repay

You may face:

• A $500 penalty for each failure to comply with EITC due diligence requirements (section 6695(g) of the

Internal Revenue Code)

• A penalty of at least $1,000 for each disallowed EITC claim if any part of the tax liability is understated

due to an unreasonable position (section 6694(a) of the Internal Revenue Code)

• A penalty of at least $5,000 for each disallowed EITC claim if any part of the tax liability is understated

due to willful or reckless conduct (section 6694(b) of the Internal Revenue Code)

If we assess return-related penalties against you, we might also:

• Revoke your status as a registered return preparer

• Bar you from preparing tax returns

• Refer you for criminal investigation

• Suspend or remove you or your firm from IRS e-file

• Conduct a due diligence audit

Last year, over 90% of due diligence audits resulted in a preparer penalty.

Requirements for paid preparer due diligence

As a paid preparer, you must take extra steps to ensure your EITC returns are complete and correct (section

6695(g) of the Internal Revenue Code and section 1.6695-2 of the Treasury Regulations). You must use your

knowledge of the tax laws to ask your clients the right questions and document your questions and their

responses to meet the following four due diligence requirements:

Letter 5025-C (Rev. 10-2013)

Catalog Number 59927S

DUE DILIGENCE REQUIREMENTS

STEP 1 Complete Form 8867, Paid Preparer's Earned Income Credit Checklist, and submit it with

every EITC return you prepare.

STEP 2 Complete an EITC worksheet, or its equivalent, that shows how you computed the EITC.

STEP 3

• Analyze the information your client provides and ask appropriate questions in response

• Evaluate whether the information is incomplete and gather any missing facts

• Determine if the information is inconsistent or incorrect (recognize contradictions or

statements you know could not be true)

• Document your inquiries and your client's responses

STEP 4

Keep copies of:

• The completed Form 8867

• Your EITC worksheet

• Records of who provided you with EITC eligibility information and when they provided it

• Documents your clients provided that you relied on to determine eligibility for the EITC or

to compute the amount of the EITC

You must keep these records for 3 years from the later of:

• The due date of the return

• The date the return was e-filed

• The date the taxpayer signed the return

• The date you gave the part you prepared to the signing return preparer

Sincerely,

The most common reason we assess due diligence penalties is for failure to meet the knowledge requirement

(step 3 of the due diligence requirements). You should:

- Conduct an in-depth interview with every client, every year

- Apply a common sense standard to the information your client provides

- Ask additional probing and relevant questions if a reasonable and well-informed tax return preparer

knowledgeable in the law would conclude that any information appears to be incorrect, inconsistent, or

incomplete.

Tax software is a tool, not a substitute for your tax law knowledge and common sense. I am enclosing

Publication 4687, EITC Due Diligence Brochure.

For more information on EITC requirements or EITC due diligence

Visit our website at www.eitc.irs.gov/rptoolkit/main/. If you have further questions, you must call us within

30 days at the number at the top of this letter.

We will monitor your future returns to ensure that your accuracy improves.

Enclosure:

Publication 4687

Letter 5025-C (Rev. 10-2013)

Click to read actual PDF
http://www.eitc.irs.gov/EITCCentral/5025C.pdf

Catalog Number 59927S

2013 Enhancements for TaxPrep Software (Taxwise)

2013 Enhancements for TaxPrep Software (Taxwise)

New Menu Option for Program and Module Updates

• TaxWise has added two new menu options that allow you to download program and module updates without having to login to the Customer Support Site.

Latest News on TaxWise Home Page

• TaxWise created a new section on the Home Page that displays links to the latest news from the Customer Support Site. The Latest News puts important information right in front of you each time you visit the TaxWise Home Page.

Schedule Automatic Downloads of Program Updates

TaxWise now allows you to schedule the automatic download and installation of TaxWise Program Updates.

Integrated Refund Advantage


• Refund Advantage is no longer a third party bank. It is now fully integrated with the CCH SFS Electronic Filing Center processes.
• Check printing remains on the Refund Advantage system but all the data will flow into TaxWise


Changes to Extensions


• TaxWise now allows you to efile extensions without selecting the "Check here if using this form check box" on the extension forms. TaxWise will determine when to efile the form(s) based on the PIN check box(es) on the Main Information Sheet and state forms.



Expiration of E-Files
• Once an e-file has been created, you have 10 days to transmit it or TaxWise will display an Error 189 message during batching alerting you to recreate the e-file.
Section 508 Compliance
• TaxWise has implemented JAWS reader support needed for Section 508 compliance. This allows a screen reader to announce the fields and directions on screen to visually impaired preparers and is required for government contracts under the Americans with Disabilities Act.
1041 Returns Moved to MeF Platform
• Form 1041 returns now use the MeF platform instead of Legacy.
 
Form 5500 Allows Text Attachments
• In addition to PDF Attachments, Form 5500 returns now allow text (.txt) attachments due to agency requirements.
 
New Forms for tax year 2013
1040 Package
• Form 8959, Additional Medicare Tax
• Form 8960, Net Investment Income Tax
• Form 8967, Paid Preparer's Child Tax Credit Checklist
1065 Package
• Form 1065X, Amended Return or Administrative Adjustment Request (AAR)
1120S Package
• Form 1120S Schedule B-1, Information on Certain Shareholders of an S Corporation
• Form 1125-E, Compensation of Officers
1041 Package
• Form 8960, Net Investment Income Tax
 






Updated Return Query (F7)
TaxWise has updated the Return Query (F7) screen to show all refund solutions including Fee Collect and Fee Collect PS transactions and disbursements                   

2014 PTIN

2014 PTIN Renewal Period Underway for Tax Professionals

IR-2013-85, Oct. 31, 2013

WASHINGTON — The Internal Revenue Service today reminded the nation’s almost 690,000 federal tax return preparers that they must renew their Preparer Tax Identification Numbers (PTINs) for 2014. All current PTINs will expire on Dec. 31, 2013.

Anyone who, for compensation, prepares or helps prepare any federal return or claim for refund must have a valid PTIN from the IRS. The PTIN must be used as the identifying number on returns prepared.

“We ask that you renew your PTIN as soon as possible to avoid a last-minute rush. It’s easy to let this slip as the holiday season approaches,” said Carol A. Campbell, Director, IRS Return Preparer Office.

The PTIN system is ready to accept applications for 2014.

For those who already have a 2013 PTIN, the renewal process can be completed online and only takes a few moments. The renewal fee is $63. If you can’t remember your user ID and password, there are online tools to assist you. Preparers can get started at www.irs.gov/ptin.

If you are registering for the first time, the PTIN application fee is $64.25 and the process may also be completed online.

Form W-12, IRS Paid Preparer Tax Identification Number Application and Renewal, is available for paper applications and renewals, but takes four to six weeks to process. Failure to have and use a valid PTIN may result in penalties. All enrolled agents, regardless of whether they prepare returns, must have a PTIN in order to maintain their status.

There have been a number of enhancements to the online PTIN system since last year. They include:

• The fully functional "Manage My Account" tool allowing preparers to self-correct almost any field at any time (including professional credentials). Previously, most changes had to be made during renewal. A phone call was required for users to make changes during the rest of the year. However, for security reasons, name changes still require written documentation.
• Preparers can now view completed continuing education programs reported by IRS-approved providers beginning with 2013 courses. Providers report completed CE programs to the IRS based on your PTIN number. Enrolled agents must have a minimum of 16 CE hours annually and a total of 72 hours every  three years. Others can also view voluntary programs completed. If something is missing, contact your provider directly as we only display what providers send to us.
• Planning to take a year off for any reason? A new function allows certain preparers to inactivate their PTINs voluntarily and then reactivate the same number when they return to work. This is only for those preparers who plan to take a full year off. If you are paid to prepare tax returns during any part of a year, you must have a valid PTIN. Note: Enrolled agents must maintain a valid PTIN each year in order to maintain their EA credential and therefore are not eligible to inactivate their PTIN.

For more information about requirements for federal tax professionals and access to the online PTIN system, go to www.irs.gov/for-Tax-Pros. 

Fourth Largest Tax Prep Business In The Country Shut Down By Feds

Instant Tax Service (“ITS”), the fourth-largest tax preparation business in the United States, has been ordered by a federal court judge to shut down its operations.

U.S. District Judge Timothy S. Black found that ITS had a culture of “fraud and deception.” The order, which was quite extraordinary, was said to be “necessary to protect the public and the Treasury.”

 

According to the complaint (downloads as a pdf), ITS engaged in a pattern of false and deceptive practices in all facets of its operations – from marketing the franchises to the preparation of returns and the offering of loan products.

ITS marketed its franchises to practically anyone who could afford to pay the fees, no matter whether they were otherwise qualified. According to the complaint, ITS touted its franchise to potential owners as so simple that, “[n]o tax experience [is] necessary!” ITS claimed that it would train franchisees all they needed to know: they received just seven hours of training related to tax instruction. ITS also ignored its own background checks, setting up a franchise in at least one case with a known felon.

It’s alleged that franchisees did what ever it took to maximize charges to customers. The complaint further charges that ITS tacked on a number of junk fees to its invoices including bogus charges for “service bureau,” “document preparation,” “refund estimate,” “technology/software,” “account set up,” “check printing,” and “Efile/electronic transmission.” Those fees, together with tax prep fees pushed charges to an average of $400–$500 per return; fees could run “as high as $1,000 or more for as little as 15 minutes of return preparation.” Franchisees were accused of failing to disclose all fees and increasing fees without the customer’s consent; often, customers never know the total amount of fees charged because their fees were deducted from the taxpayer’s refund check – without explanation – before the check was made available.

Many of the questionable fees were related to loan products such as Instant Cash Loans (ICLs) and Refund Anticipation Loans (RALs), marketed to ITS customers. Those products were run through Tax Tree, LLC, which is owned by Fesum Ogbazion, who also owns Instant Tax Service, even though customers are given the impression that Tax Tree is an independent, third-party lender.

Tax Tree has an extremely high denial rate for loans but doesn’t share that information with its customers. In fact, ITS did just the opposite: franchisees encouraged customers to apply for loans that they might not be eligible for in order to charge them junk fees. The loan denial rate is bolstered by certain pre-denial criteria set by Ogbazion and his staff: for example, single males who file head-of-household and customers with expected refunds under $2,000 are categorically turned down – but not before paying related fees. Adding insult to injury, in a prior tax season, some taxpayers who met the criteria for loans were issued bad checks.

 

It wasn’t only the customers who were lied to: the complaint indicated that ITS had a written “IRS Audit Guide” to distribute to franchisees which encouraged lying to the IRS in the event of an audit. For example, the guide recommended telling Internal Revenue Service auditors that corporate policy prohibits filing tax returns based on paycheck stubs rather than forms W-2 (which is not allowed by the IRS per Publication 1345); in reality, the practice was common at ITS franchisees. The guide also encouraged franchisees to lie to the IRS about their tax preparation fees, claiming that tax preparation fees range from “FREE to $140″ (by now, you already know that fees at ITS average over $400).

The result of these behaviors was an “environment where fraudulent tax return preparation and violations of federal tax laws flourish.” A laundry list of illegal activities related to tax preparation was alleged including:

(1) preparing fabricated W-2s;
(2) preparing phony Forms Schedule C depicting fabricated businesses and income;
(3) falsely claiming education and dependent care credits to which their customers are not entitled;
(4) improperly claiming false filing status;
(5) reporting fictitious income and deliberately circumventing due diligence requirements in order to fraudulently maximize the Earned Income Tax Credit; and
(6) filing federal income tax returns without the taxpayer’s consent and fraudulently omitting certain sources of reportable income.

The feds argued that the powers that be at ITS “knew of and has reason to know of this pervasive illegal conduct, but did virtually nothing to stop it, and, at times, directly or indirectly encouraged it.” In at least one case, the government says that Ogbazion knew that a franchisee’s operation resulted in, from his own words:

[E]very tax return being done is pretty much fraudulent.

 

Ogdazion, however, did nothing to stop the fraud. In other situations, Ogbazion promoted employees suspected of fraud – once even awarding an accused fraudster with his own ITS franchise.

And how much did these behaviors cost taxpayers? The IRS randomly sampled 2010 tax returns prepared by five ITS franchisees and found that over half of the over 24,000 tax returns prepared by those franchises were non-compliant. The estimated tax loss to the government from those franchisees alone exceeded $16 million in 2011. Yes, from five franchisees. ITS boasts “hundreds of locations to choose from in 30 states” – the government believes that the losses at those locations would be just as significant.

At trial over the summer, evidence seemed to bolster the government’s claims. In a flurry of post-trial filings, ITS argued that the evidence presented focused on isolated incidents and were not representative of the company as a whole. The company further argued that it was making efforts to resolve these outstanding issues, a charge that the government disputes.

The judge was not convinced by ITS’ protestations, entering a permanent injunctionordering ITS Financial LLC, the parent company of the Instant Tax Service franchise, to close all operations. The injunction also bars Ogbazion “from operating or being involved with any business relating to tax-return preparation.” Tax Tree LLC and TCA Financial LLC were also ordered to cease operating.

And the judge didn’t mince words, writing that the harm to the public was “extensive and egregious, indeed appalling.”

The court further stated: “Defendants’ repeated attempts at trial and in argument to downplay the gravity of their lawlessness was stunning.”

That attitude was, the court found, the reason for “putting the Defendants permanently out of business.”

Ouch.

 

In its heyday in 2009, Instant Tax Service was ranked #1 on Entrepreneur Magazine’s Top New Franchises list; #1 lowest cost franchise in the United States and #3 as the fastest-growing franchise. Those honors remain predominantly displayed on the company’s home page – right next to a copy of the preliminary injunction against the company from October 2012 (downloads as a pdf).

IRS Warns of Phone Scam

IRS Tax Tips November 7, 2013

 

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Issue Number:    IRS Special Edition Tax Tip 2013-13 Inside This Issue IRS Warns of Phone Scam The IRS is warning the public about a phone scam that targets people across the nation, including recent immigrants. Callers claiming to be from the IRS tell intended victims they owe taxes and must pay using a pre-paid debit card or wire transfer. The scammers threaten those who refuse to pay with arrest, deportation or loss of a business or driver’s license. The callers who commit this fraud often: Use common names and fake IRS badge numbers. Know the last four digits of the victim’s Social Security number. Make caller ID appear as if the IRS is calling. Send bogus IRS emails to support their scam. Call a second time claiming to be the police or DMV, and caller ID again supports their claim. The truth is the IRS usually first contacts people by mail – not by phone – about unpaid taxes. And the IRS won’t ask for payment using a pre-paid debit card or wire transfer. The agency also won’t ask for a credit card number over the phone. If you get a call from someone claiming to be with the IRS asking for a payment, here’s what to do: If you owe federal taxes, or think you might owe taxes, hang up and call the IRS at 800-829-1040. IRS workers can help you with your payment questions. If you don’t owe taxes, call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484. You can also file a complaint with the Federal Trade Commission at FTC.gov. Add "IRS Telephone Scam" to the comments in your complaint. Be alert for phone and email scams that use the IRS name. The IRS will never request personal or financial information by email, texting or any social media. You should forward scam emails to phishing@irs.gov. Don’t open any attachments or click on any links in those emails. Read more about tax scams on the genuine IRS website, IRS.gov. Additional IRS Resources: Treasury Inspector General for Tax Administration FTC Complaint Assistant Report Phishing Protect Yourself from the Dirty Dozen Tax Scams IRS YouTube Video: Tax Scams – English | Spanish | ASL