Is tax fraud being enabled by too many dishonest preparers?

In February, I wrote about fraudulent tax returns being filed using forged W-2s.

Another story recently surfaced from the SF Bay area, where Jackson Hewitt preparers were complaining this seasonal type of fraud is getting out of control.

Kate Williamson (Examiner) wrote:

If successful, the fraud allows tax cheats to receive thousands of dollars, either from the federal government or from companies making tax refund anticipation loans. It is sometimes coupled with identity theft, which can create problems for law-abiding citizens when they go to file their own taxes.

Kate Williamson article, here.

Interestingly enough, Jackson Hewitt preparers were quoted for this story and in another story - a lot of Jackson Hewitt franchises are being taken to task by the Justice Department for (allegedly) committing tax fraud, themselves.

The AP (courtesy of CNN) is reporting:

The franchises were either totally or partially owned by Farrukh Sohail, the Justice Department said, and involved "a pervasive and massive series of tax-fraud schemes," according to court filings.

Sohail and other defendants "created, directed, fostered, and maintained a business environment" at the Jackson Hewitt franchises "in which fraudulent tax return preparation is encouraged and flourishes," according to court documents.

Employees were encouraged to ignore telltale signs of fraudulent information and to file claims even when it was obvious customers were using fake W-2 forms or false
deductions.

A sample of returns prepared by franchises connected to Sohail found 31 percent contained false information such as phony earned income tax credit claims, bogus deductions and fraudulent W-2 forms.

AP story, here.

Dishonest tax preparers and people using forged W-2 forms is nothing new. In the past couple of years, there were even stories about this being done by prisoners. W-2 blanks are easily purchased at office supply stores, or over the Internet.

This phenomenon is probably being enabled by large payouts for what is known as the earned income tax credit and a huge business in refund anticipation loans. Refund anticipation loans often carry a triple digit interest rate, when considering the term (normally less than a month).

The AP article states that the dishonest franchises cost the government $70 million and this represents about 2 percent of Jackson Hewitt's business.

Some believe, the huge business in refund anticipation loans, has been inspired by the large dollar refunds lower income people get based on the earned income tax credit.

Currently, our tax gap (yearly difference between what is taken in and paid out) is 354 billion, according to the AP article.

Maybe, we need a better way to verify that W-2s are legitimate?

We can all help the IRS if we suspect tax fraud by reporting it, here.

Someone is going to say, we spend too much time going after the poor (people filing for earned income tax credits). Before they do, I would like to point out that in the instance cited, the Justice Department seems to be going after an "enabler" (Jackson Hewitt).

With our resources coming up $354 billion short every year, we can't afford to keep looking the other way on issues, such as these. The result will be more taxes to pay for needed government services.

Another problem is that a lot of the criminals doing this are using other people's information (identity theft). A lot of people are filing their taxes - only to discover someone else has already gotten a refund using their name.

From what I hear, this can be pretty hard and (painful) to clean up, once it occurs.

Of course, this isn't the only type of tax fraud being committed. A great place to learn all about the various schemes is Quatloos.com, which can be read by linking, here.

Copy machines could store information useful to identity thieves

With copies of tax documents being made in massive numbers as the deadline grows nearer, we have something new to worry about.

My daughter a.k.a (Quembel) passed this one on to me from the AP (courtesy of CNN):

Consumers are bombarded with warnings about identity theft. Publicized threats range from mailbox thieves and lost laptops to the higher-tech methods of e-mail scams and corporate data invasions.

Now, experts are warning that photocopiers could be a culprit as well.

That's because most digital copiers manufactured in the past five years have disk drives -- the same kind of data-storage mechanism found in computers -- to reproduce documents.

AP story, here.

I'll quote my friend "Dissent" at PogowasRight on this one - "We have met the enemy and he is us."

IRS Renews Phishing Awareness Campaign

The IRS is reacting to recent phishing attempts, which are designed to steal people's personal information. Once stolen, this information is normally used in "identity theft" schemes, but they could be used by illegal immigrants (or in theory) terrorists.

In a recent release from the IRS site:

The IRS saw an increase in complaints in recent weeks about these e-mails, which are designed to trick the recipients into disclosing personal and financial information that could be used to steal the recipients’ identity and financial assets.

“The IRS does not send out unsolicited e-mails asking for personal information,” said IRS Commissioner Mark W. Everson. “Don’t be taken in by these criminals.”

The IRS has seen a recent increase in these scams. Since November, 99 different scams have been identified, with 20 of those coming in June – the most since 40 were identified in March during the height of the filing season.

Many of these schemes originate outside the United States. To date, investigations by the Treasury Inspector General for Tax Administration have identified sites hosting more than two dozen IRS-related phishing scams. These scam Web sites have been located in many different countries, including Argentina, Aruba, Australia, Austria, Canada, Chile, China, England, Germany, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, Poland, Singapore and Slovakia, as well as the United States.

If you get any of these e-mails, the IRS requests that you forward them to phishing@irs.gov. I highly recommend that you do so - the IRS seems to be actively investigating them.

For the full news release: Click Here.

Here is a story from SmartMoney.com about illegal immigrants using people's personal information.

In another vein, here is a story (released in March by the Washington Post) about how tax preparers are trying to "legally" sell information from people's tax returns.

Sadly enough, my personal belief that the current "identity theft" crisis has (in part) been spawned by the mass gathering of people's personal information for marketing purposes.

And Just When We Thought the IRS Phishing Scams Were Gone for the Year

All during tax season, we saw warnings about phishing attempts using the name of the IRS. April 15th has come and gone, but the "phishermen" are still using the IRS name to lure victims.

For those unfamiliar with phishing, it normally starts with a lure - such as a refund from the IRS - in the form of an e-mail directing you to "click" on a site. The site (which is also fake) then directs you to give up all sorts of personal information, which the "phishermen" use to commit "identity theft." In more sophisticated schemes - even going on the site - can lead to all sorts of cybernasties (crimeware) being injected into your system. The crimeware allows them to track your information on a more "permanent" basis.

Phishing is on the rise and according to the APWG (Anti Phishing Working Group), May set a all-time record for phishing attempts.

Here is an interesting story from KUTV in Salt Lake City:

Tax season is over but some people are still getting notifications that they have a refund coming from the IRS. There are all types of so-called phishing schemes out there. And we found a new one today. Here is what the email looks like: Click Here.

It claims to be from the internal revenue service. It says you have a refund coming, just go to a website and fill out the refund request. And look at this: Click Here.

For the full story from KUTV: Click Here.

If you spot one of these attempts, you can forward it to the good folks at PIRT (Phishing Incident Reporting and Termination Squad) - who will take action to shut the bad guys down.

And last, but not least; you can call the IRS directly at 800-829-1040 to verify any communications, or e-mail the "suspected" phish to phishing@irs.gov. The IRS also has some pretty good information on their website on how to avoid falling for scam involving your taxes.

You can also report the activity to the APWG, which is mentioned above.