Wednesday is the official start to the tax-filing season. Ordinarily, taxpayers would have been able to file their 2012 federal returns shortly after the start of the year. But, thanks to the wrangling over the "fiscal cliff," about 120 million taxpayers have had to wait until today to file, either electronically or by mail.
Because of provisions in the American Taxpayer Relief Act, the Internal Revenue Service has been required to update a number of forms used to file income taxes and to test the systems to make sure returns are processed correctly.
With the new regulations and revised filing procedures, many taxpayers are opting to use a professional to help them prepare their tax returns. According to the national Society of Accountants, the average cost to hire a tax preparer this year will rise to $246 for an itemized Form 1040 and a state return. Here in the Pacific region the average price is $288.
The IRS has noticed a dramatic increase in recent years of the number of fraudulent tax returns filed by tax preparers. The crimes involve two major areas: identity theft and bogus tax refunds.
“The problem has grown worse as organized criminal actors have found ways to steal the Social Security number of taxpayers, file tax returns using those taxpayers’ names and SSNs, and obtain fraudulent tax refunds," according to a report prepared by the National Taxpayer Advocate, Nina Olson.
"Then, when the real taxpayer files a return claiming the refund, that return is rejected. The impact on victims is significant. More than 75 percent of taxpayers filing returns are due refunds, which average some $3,000 and are not paid until the IRS fully resolves the case,” according to the report.
The IRS cites a case in San Diego in 2011 involving a tax preparer convicted on 32 felony counts including tax evasion, conspiracy to defraud the United States, and witness tampering.
Saleh Mahmoud Zahran was sentenced to 132 months in prison and ordered to pay more than $32,000 to cover the cost of prosecution.
According to the IRS, “Zahran filed 40 fraudulent federal income tax returns with the IRS. Zahran obtained Social Security numbers for false identifies for himself, as well as other family members, and used the names and Social Security numbers of several of his clients’ minor children and the business names and employer identification numbers of his clients’ businesses, without the knowledge or consent of his clients.”
The IRS inspector general, Russell George, estimates the agency may issue as much as $21 billion in fraudulent tax refunds over the next five years.
Last year the IRS implemented a new program to require all paid tax return preparers to have a Preparer Tax Identification Number (PTIN). In addition, it has phased in a new test requirement to make sure those who are not an enrolled agent, CPA, or attorney to meet minimal competency requirements.
In addition, taxpayers are encouraged to check with organizations like the Better Business Bureau to learn if a tax preparer has had any problems in the past. Any history of disciplinary actions or license status can be obtained through state boards of accountancy, the state bar association or the IRS Office of Enrollment.
Common sense also suggests taxpayers be clear about the fees they pay for filing services, never sign a blank return, and make sure the preparer also signs the tax forms and includes their PTIN.
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