IRS on the lookout for bogus returns

Former IRS Agents Tell All

The guy who prepared your tax return came through big time. Not only was he cheap, he got you ahuge refund, way more than you expected.

How did he do it? You"d know if you could take a look at your return, the one he had you sign inadvance. That"s odd, you don"t have any kids to deduct. And this company on your W-2 that took outtoo much tax? You never worked there.

The magic was fraud fictional dependents and employers, overstated credits and fake W-2s.

A favorite target of these unscrupulous tax preparers are low-to-moderate wage workers and theearned-income tax credit that benefits them, according to the Internal Revenue Service. By its ownestimate, the IRS said the error rate on earned-income tax credit returns can be as high as 27percent.

In 2014, about $18 billion in overpayments were sent out. Some were unintentional, some werecases of fraud.

For about seven weeks beginning in January 2011, Brandon Hamilton and Kenitha Ferguson operatedthe In and Out tax agency at 1687 Oak St. on the Near East Side. They processed more than 20fraudulent 2010 tax returns, according to a federal indictment. That was enough time to steal$132,000 in undeserved tax refunds, which they split between themselves and their clients,prosecutors said.

Hamilton pleaded guilty last week in U.S. District Court in Columbus to conspiring to defraudthe government. The maximum penalty is 10 years in prison and a $250,000 fine. Ferguson pleaded notguilty and was released on bond.

Prosecutors said In and Out advertised on Facebook, by word of mouth and through recruiters whowere paid to line up customers.

Hamilton might face prison. His clients might face a government lawsuit to recover theoverpayments.

"Each taxpayer is accountable for their own tax return," IRS Special Agent Craig Casserly said."As this case progresses, we would look at all the clients" tax returns."

Dan Brown, an assistant U.S. attorney who prosecutes IRS cases, said, "In the long run, theywill have damaged their clients, and the IRS will go after those clients for the money andpenalties."

The IRS operates "scheme development centers" across the country, where investigators look foranomalies such as an unusually large number of earned-income tax-credit filings in a certain ZIPcode, or from the same preparer, Casserly said.

The agency investigated 266 alleged cases of preparer fraud nationwide in fiscal year 2015. Ofthose, 204 defendants were convicted, and 80 percent of them went to prison. The average prisonterm was 27 months.

The arrest numbers could be higher if the agency had more agents, Casserly said. Congressionalbudget cuts have reduced the ranks almost 14 percent through attrition during the past five years.There are about 2,100 agents for the current fiscal year.

"Still, we are doing a good job of prosecuting these individuals," Casserly said, "and we thinkother people are seeing this and getting out of the (fraud) business."

There are several red flags that honest taxpayers should heed when seeking a preparer, Casserlysaid. Ask them for their required "preparer tax identification number," do not sign a blank returnand check the completed return for accuracy.

And make sure the government refund check is sent to you. If a preparer gets the check, he orshe could skim off some of the refund money for themselves.

"Look at the deductions. Do you actually have kids?" Casserly said. He said he knows of cases inwhich people who didn"t plan to file a return "loaned out" their children"s identities to taxpreparers.

erinehart@dispatch.com

@esrinehart

Source: http://www.dispatch.com/content/stories/local/2016/01/25/irs-on-the-lookout-for-bogus-returns.html