Tuesday, February 23, 2016

Taxpayers Have False Sense of Security about Identity Theft

Tax identity theft is a serious topic at any time, but especially at this early point in the 2016 filing season. The following article from Accounting Today provides some timely information.

Taxpayers Have False Sense of Security about Identity Theft

Taxpayers are not doing enough to protect themselves from identity theft-related tax fraud and a majority of them don’t expect it to happen to them, according to a new survey.
The survey, from security company IDT911, found that 63 percent of Americans are taking an “it could never happen to me” approach and say they aren’t worried about their identities being stolen this tax season despite high-profile data breaches involving the Internal Revenue Service and some service providers.
Nineteen percent admitted they have not ensured their Wi-Fi network is password protected if they are filing their taxes online, and 49 percent said they don’t even lock their mailbox when receiving their tax refund through the mail, potentially exposing sensitive personal and financial information to thieves.
Despite the uptick in tax-related identity theft incidents, 48 percent of those surveyed believe the holiday shopping season is the most risky time of year. Tax-filing season came in second at 30 percent.More than a third (38 percent) of the 1,500 adult U.S. consumers surveyed said they’re unsure how to vet a tax preparer, including an overwhelming 92 percent of Millennials aged 18 to 34. Over half of the respondents (52 percent) said they do not trust, or are not sure if they trust, online tax services, likely due to the recent data breaches of multiple providers.
Only 12 percent planned to file their taxes in January despite experts advising consumers to file as early as possible in order to beat out identity thieves who might potentially claim their tax refunds.
“Tax season has become fraud season,” said IDT911 chairman Adam Levin. “As breaches have become the third certainty in life, cybercriminals are able to glean information from literally hundreds of millions of compromised records in order to target consumers in tax related identity theft and phishing schemes. In today's dangerous digital world, each of us must be vigilant and remain on high alert.”
IDT911 said its fraud center saw a 154 percent increase in tax-related cases from 2014 to 2015, with 2016 showing no signs of slowing down. Tax refund fraud losses are estimated to reach $21 billion by 2016, according to the Treasury Inspector General for Tax Administration, and the Federal Trade Commission recently announced that it received a 47 percent increase in identity theft complaints in 2015, with tax refund fraud being by far the biggest contributor. These numbers are expected to rise if the proper precautions are not put in place.
Despite the increased likelihood of identity theft during tax season, many Americans may not know where to go when they are eventually impacted. More than a third of the survey respondents (38 percent) are unsure if their financial services or insurance providers offer identity theft or fraud protection services. The majority of respondents (57 percent) said their financial institution would be the first entity they’d contact once they learned they were the victim of a data breach.

Please contact our office at (630) 986-0540 or taxes@brummetandolsen.com with any questions.

Monday, February 15, 2016

IRS Looking For Taxpayers Who Pad Their Tax Deductions

The following article demonstrates the increasing role advancing technology is playing in the automated analysis of tax returns. It is important to know your tax preparer and know your responsibilities and rights as a taxpayer.

IRS Looking For Taxpayers Who Pad Their Tax Deductions

It's tax time. For those who might think, "I'll add a little here, maybe add a little more there ... nobody will notice, right?" Well, the IRS is looking harder at deductions and is warning taxpayers to avoid the temptation of falsely inflating deductions or expenses on their returns to under pay what they owe and possibly receive larger refunds.

The vast majority of taxpayers file honest and accurate tax returns on time every year. However, each year some taxpayers fail to resist the temptation of fudging their information. That’s why falsely claiming deductions, expenses or credits on tax returns is on the “Dirty Dozen” tax scams list for the 2016 filing season.

"Taxpayers should file accurate returns to receive the refunds they are entitled to receive and shouldn't gamble with their taxes by padding their deductions," said IRS Commissioner John Koskinen.

Taxpayers should think twice before overstating deductions such as charitable contributions, padding their claimed business expenses or including credits that they are not entitled to receive – like the Earned Income Tax Credit or Child Tax Credit.

Increasingly efficient automated systems generate most IRS audits. The IRS can normally audit returns filed within the last three years. Additional years can be added if substantial errors are identified or fraud is suspected.
Significant civil penalties may apply for taxpayers who file incorrect tax returns including:
  • 20 percent of the disallowed amount for filing an erroneous claim for a refund or credit.
  • $5,000 if the IRS determines a taxpayer has filed a “frivolous tax return.” A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax reported is substantially incorrect.
  • In addition to the full amount of tax owed, a taxpayer could be assessed a penalty of 75 percent of the amount owed if the underpayment on the return resulted from tax fraud.
Taxpayers even may be subject to criminal prosecution (brought to trial) for actions such as:
  • Tax evasion
  • Willful failure to file a return, supply information, or pay any tax due
  • Fraud and false statements
  • Preparing and filing a fraudulent return, or
  • Identity theft.
Criminal prosecution could lead to additional penalties and even prison time.

Using tax software is one of the best ways for taxpayers to ensure they file an accurate return and claim only the tax benefits they’re eligible to receive. IRS Free File is an option for taxpayers to use online software programs to prepare and e-file their tax returns for free.

Community-based volunteers at locations around the country also provide free face-to-face tax assistance to qualifying taxpayers helping make sure they file their taxes correctly, claiming only the credits and deductions for which they’re entitled by law.

Taxpayers should remember that they are legally responsible for what is on their tax return even if it is prepared by someone else, so they should be wise when selecting a tax professional. The IRS offers important tips for choosing a tax preparer at IRS.gov.

More information about IRS audits, the balance due collection process and possible civil and criminal penalties for noncompliance is available at the IRS.gov website. Taxpayers can also learn more about the Taxpayer Bill of Rights at IRS.gov. This is a set of fundamental rights each and every taxpayer should be aware of when dealing with the IRS, including when the IRS audits a tax return.

Please contact our office at (630) 986-0540 if you have any questions about this 2016 filing season.