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Tax Scams

02/10/2017

W-2 Scam Targets Small Business

Question-yikA5pBiEThe IRS has issued a new tax-related identity-theft scam warning to small businesses and human resources professionals.  The email phishing scam uses a business owner’s, corporate officer’s or human resource professional’s name in what looks like company or even official tax agency emails. The emails request copies of employee Forms W-2 from company payroll, internal accounting or human resources departments.

This is the second time the email scam has been identified as attacking businesses nationwide. The IRS urges business owners, internal accountants and company payroll officials to double check any executive-level requests for lists of Forms W-2 or Social Security Numbers.

The W-2 scam first appeared in early 2016. The IRS reports that cybercriminals tricked payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then attempted to file fraudulent tax returns to create fraudulent income tax refunds in a tax-related identity theft scheme.

This phishing variation is known as a “spoofing” e-mail.  It will contain, for example, the actual company chief executive officer’s name.  In this variation, the “CEO” sends an email to a company payroll office or human resource employee requesting a list of employees and information including their SSNs.

Crime investigators say some of the wording used in actual scam emails included:

  • “Kindly send me the individual 2016 Forms W-2 (PDF) and earnings summaries of our company staff for a quick review.”
  • “Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).”
  • “I want you to send me the list of Form W-2 copies of employees’ wage and tax statement for 2016.  I need them in PDF file type, and please send it as an attachment.  Kindly prepare the lists and email them to me asap.”

Working together in the Security Summit, the IRS, states and tax industry representatives have made progress fighting against tax-related identity theft.  However, cybercriminals continue developing more sophisticated tactics to impersonate taxpayers in their effort to steal even more data.

For more information about tax-related identity theft and other tax scams, click here to link to The Security Summit’s national taxpayer awareness campaign called “Taxes. Security. Together.

11/28/2016

2017 Tax ID Theft Guards in Place

Taxpayer id theftLaw enforcement officials designate identity theft as the fastest growing crime in the world.  New tax-related fraud prevention steps are set to kick in for the 2017 tax season. 

New or expanded tax-related identity theft features protecting taxpayers in 2017 include:

*37 new data elements that authenticate electronically transmitted individual tax returns

*32 new data elements that authenticate electronically transmitted business tax returns

*designation of what’s called “ultimate bank accounts” to ensure the refunds are deposited into a taxpayer’s real bank account

*the 16-digit Form W-2 Verification Code that will now be added to 50 millionW-2 forms to validate the information

*additional and more elaborate password requirements for software used by individuals and tax preparation experts that will both protect personal information and prevent multiple filings under the same Social Security number

More information resources will also be shared between federal, state and local tax authorities regarding identity-theft tax fraud. This is expected to not only help with early fraud detection, but also uncover trends that can more quickly uncover more complicated schemes that may affect a large number of taxpayers all at once.

Click here to find out more about the tax-related identity theft fraud prevention campaign called “Taxes. Security. Together.”

11/15/2016

Tax-Related ID Theft Drops

The IRS and its Security Summit partners say collective efforts to stop tax-related identity theft appear to be working.  New statistics show that the number of new people filing affidavits with the IRS claiming they have been victims of identity theft regarding their federal tax returns has dropped more than 50 percent compared to 2015.

Identity thieves typically file fake tax returns seeking refunds.  A taxpayer doesn’t know their personal information has been stolen until they file a tax return and are alerted that a refund was already issued.  So far in 2016, nearly 238,000 claims of tax-related identity theft have been filed compared to more than 512,000 in the same time period of 2015.  Overall, more than 74.5 million individual tax returns were filed in the 2015 tax year. 2016 totals are not yet available.

Identity theftThe IRS credits new systems checks with catching fraudulent returns before they are processed.  Through September of this year, the IRS stopped 787,000 confirmed identity theft returns, preventing more than $4 billion in losses from fake refunds.

More banks are also joining the tax fraud fight by using internet-related signals to stop suspect refunds from being auto-deposited, especially refunds with an unusually high dollar amounts.  Shared information between state and regional tax offices has improved fraud filters and alerts.  New hidden data elements on tax returns filed by professional preparers has also helped detect suspicious returns.

02/23/2016

Another Cyberattack on Taxpayer Information

There was another cyberattack on the IRS attempting to generate and steal E-file PINs. The agency reports it discovered and stopped an automated attack that was using stolen Social Security numbers to attempt to generate the PINS. This is the second time in less than three weeks that the IRS has admitted its updated E-file system has been plagued by an incident.

E-file PINs are used by taxpayers to electronically file tax returns. A PIN is also assigned to taxpayers who use the online Electronic Federal Tax Payment System (EFTPS). E-filing is used by both individual and business taxpayers. A PIN is typically made up of four numbers and must be used with the correct Social Security number to log in to web-based systems to file returns, make payments, adjust taxpayer information and more.


1 cyber securityAn IRS statement says the most recent incident occurred on February 8th using malware. It says a review by cybersecurity experts estimates the unauthorized attempts to receive PINs involved 464,000 stolen Social Security numbers, of which 101,000 SSNs were successful at accessing an E-file PIN. A common tax-related scam uses the stolen information to file false tax returns claiming fraudulent refunds.

The agency claims “no personal taxpayer data was compromised or disclosed” in this most recent attack and any affected taxpayers are being notified by mail of the incident. However, there is still no confirmed understanding of how the Social Security numbers were stolen in the first place. The first reported incident involving the E-File system occurred on February 3rd when what was described as a “temporary processing system failure” left the agency unable to process electronically filed tax returns for more than 24 hours.

Meanwhile, the IRS has been working with state officials and cybersecurity experts to keep pace with new and increasingly sophisticated tactics to steal taxpayer information. Part of the defense strategy involves the collection of more than 20 data components between the IRS, the taxpayer and tax preparation professionals to ensure a legitimate tax return is being filed and/or a legitimate taxpayer is making a request.

In remarks at a security summit last year, IRS Commissioner John Koskinen said, “Our ability to address the risks posed by cybercrime will require new investments in authentication, monitoring and other cybersecurity technologies.” Koskinen said the cost would be an estimated $281 million. The newly approved 2016 federal budget maintains the IRS budget at fiscal 2015 levels, but there is an opportunity for the additional funding. The agency is being asked to provide more details of how it plans to spend the money and it must ensure the funds are specifically used for the indicated security improvements.

Reporting on the most recent incident, the Journal of Accountancy points out that last summer the IRS Get Transcript system was breached resulting in the theft of the tax data of 334,000 taxpayers. At that time, the IRS offered free credit monitoring services to affected taxpayers and offered them a choice to enroll in the identity theft filing program. Ironically, that program uses PINs along with Social Security numbers for security protection, which brings the cyberattack problem full circle to the most recent attack to generate and steal PINs.

So, as the IRS and cybersecurity experts struggle to keep up with cybercrime and tax-related identity theft, what is a taxpayer to do? There are online resources for more information. Click here for links found in previous The ReSource articles on tax-related identity theft. Also, you may need to develop new habits of checking your credit report annually, your bank and credit card weekly and reviewing your Social Security records for anything suspicious.

If you have any questions or feel you may have been a victim of a tax-related crime, contact us at McRuer CPAs and we’ll help you sort through the details.

01/27/2016

Warning Signs of Tax-Related Identity Theft

ENews 2016 pic Identify theft Most people don’t know they’ve been a victim of tax-related identity theft until they try to file their legitimate income tax return. Then they discover that a tax return has already been filed using their Social Security number, usually claiming a fraudulent tax refund.

In other cases, the taxpayer receives a letter from the IRS saying it has identified a suspicious return and needs more information. You may be a victim of tax-related identity theft if the IRS notifies you that more than one tax return was filed under your Social Security number, the IRS reveals you received income from an employer for whom you did not work, or the IRS notifies you that you owe additional tax, have had collection actions taken against you or have a refund offset for a year that you did not work.

There are steps to follow if you think you’ve been a victim of tax-related identity theft. First, the Federal Trade Commission (FTC) requests you file a complaint through their website dedicated to fighting identity theft crimes at www.identitytheft.org. You will also be requested to contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records to prevent anyone (including yourself until things get sorted out) from opening a bank or credit card account or applying for a loan under your Social Security number. You should then close any financial or credit accounts that may have been opened by identity thieves.

You should respond to any IRS notice immediately, either by contacting the IRS directly or connecting with a tax preparation expert to determine your next steps. You will need to complete an IRS Form 14039 Identity Theft Affidavit in order to continue to file your legitimate tax return.

All of this sounds ominous; and it is. You should not consider responding to potential tax-related identity theft alone. If you suspect you may be a victim of tax-related fraud, contact one of our tax preparation experts at McRuer CPAs for more information.

Note: "The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels."  Quote from IRS Publication 5027

01/25/2016

Tips to Keep Tax Records Safe

Imagine a burglar breaks into your home while you’re at work. The thief doesn’t steal jewelry, your TV or your favorite collectible. Instead, the thief heads directly to the home office files and steals your tax documents and bills where you’ve organized your records alphabetically to make them easier to find. The thief checks out your basement, closet and upstairs attic for boxes that look like they contain financial records. The thief walks out with paper. Tax_related_identity_theft

All in all, the paper value of the loss is negligible, but the thief has stolen all of your and your family members’ personal information and private financial data. The end result is that you and your loved ones could suffer hundreds of thousands of dollars or more in identity-theft related damages that may follow you the rest of your lives. It could also affect your taxes.

Tax documents in particular contain your and your dependent’s tax and personal information including receipts, old W-2 forms and bank account information. Experts point out that all documents containing your financial, health and tax information, especially records with your Social Security number on them, should be kept securely.

Most of us are being more diligent about using passwords and keeping digital connections and information about our personal data secure online. However, many taxpayers may have forgotten about the old paper copies that remain unprotected and vulnerable. Almost daily the IRS uncovers new scams using stolen identities. These scammers file fake tax returns under legitimate taxpayer Social Security numbers seeking refunds. The stolen IDs come from online and paper copy sources.

The issue is that taxpayers are supposed to keep records but doing so may provide an opportunity for someone else to take advantage. Regulations mandate that we keep a record of our tax returns and their supporting documents (receipts, statements, etc.) for a minimum of three years to a maximum of seven years. Additionally, we are to keep records related to a property we own for three to seven years after disposing of it.

To keep things safe, if you keep paper tax records, make certain they are stored in a locked and secure area such as a locked desk drawer, locked file or safe. Consider scanning your records instead and saving them electronically in encrypted files, both on your computer and your hard drive back-up. This also applies to all financial and health records that contain your personal and account information.

Converting paper files to digital files takes time and may require a scanner and a small investment in software to accept scanned documents (though many printers today serve that function). Remember that you’ll need encryption software. Make certain you keep your passwords in a secure place as well. You may also request electronic versions of your tax documents from your tax preparer, who should already be submitting your records in an electronic version to the IRS.

Dispose of paper tax records by shredding them first. If you are disposing of an old computer or any other product with a hard drive, remember that just “deleting” a file does not erase it completely from the computer. Electronic products that can hold data should be “wiped” to ensure all data is wiped out. This will require specialized disk utility software. Your computer, your mobile phones and tablets, most printers, copiers and all other electronic devices that can save files should be wiped before disposal.

To keep your computer files secure from an online thief, experts recommend you use reputable security software that updates automatically with essential tools including a firewall, virus and malware protection and file encryption options for sensitive data. Use strong passwords, protect them and back up your files regularly.

An IRS publication sums it up this way, “Treat your personal information like cash, don’t leave it lying around.”

01/20/2016

IRS Releases ID Theft Videos

ENews 2016 pic tax theif graphicA series of new videos titled “Taxes. Security. Together.” is being released on YouTube to provide more information about how to protect your identity online. The information includes tips for properly handling the online exchange of tax and financial data.

The videos are a joint effort between the IRS, state revenue departments and tax preparation professionals. The information campaign follows last year’s “Security Summit” where experts gathered to exchange ideas and tactics to fight online tax-related identity theft and tax refund fraud.

IRS Commissioner John Koskinen says, “We are jointly implementing major new procedures to protect taxpayers on our end, but people can help by taking some precautionary steps themselves to help us work to prevent identity theft.”

Many new IRS identity-theft protection steps may be invisible to taxpayers, but you may notice updates for the 2016 tax season that include new password standards for tax software admissions, faster information sharing about tax fraud and tax-related identity theft schemes, and updated verification standards.

The number one tip to prevent your identity from being stolen in a tax-related fraud scheme is to remember the IRS NEVER contacts you by email or telephone. The IRS communicates by letter through the US Postal Service. The department already knows your social security number and an authentic letter will not request you to submit that information.

To review the six new videos released by the IRS, click here.

To read more about online tax-related identity theft, click here.

If you need more information or feel you may have been a victim of tax-related identity theft, contact one of our tax planning and preparation experts at McRuer CPAs.

03/13/2015

IRS Cuts Affect Tax Refunds and Audits

As we file 2014 individual tax returns and pay federal income taxes, it’s hard to imagine the IRS having on-going budget troubles. Yet, IRS Commissioner John Koskinen is requesting an additional $2 billion to keep up with service requests, timely refunds and enforcement actions such as tax audits on individuals and businesses.

1040 form with glasses and penniesIn a previous edition of The ReSource, we have given details of the delays and complaints associated with the decline in IRS customer service responses as the IRS has cut its staff and switched to more automated systems.  Now, political payback is cutting deep as the agency faces ongoing heat for mixing politics with taxes due to allegations of targeting conservative groups and paying for expensive “training” retreats.

Last month, Congress approved a $10.9 billion budget for the IRS for fiscal year 2015, which ends in June.  It is the lowest level of funding for the embattled agency since 2008 with total budget amounts declining $1.2 Billion in the last 5 years. 

Whether a taxpayer thinks there should be more or less of the IRS, the budget push-me-pull-you debate is affecting the taxpayer’s experience in a number of ways.  Commissioner Koskinen describes it as “changes” in how the IRS will do business with taxpayers this tax season.

Here are some of the issues that may impact you directly:

Refund Delays:  Nearly 8 out of 10 tax filers receive a federal tax refund. The average amount paid is close to $2,800, according to the most recent filing statistics.  Refunds from electronically filed returns are usually processed in about 3 weeks, but the IRS warns staff cutbacks have increased processing time up to an average of 5 weeks. Taxpayers who file paper returns are now being told their refund check might not be processed for 7 weeks.

Audit Declines:  The number of audits in 2014 declined 6% overall from the previous year while experts cannot agree on what the audit numbers will be in 2015.  The audit predictions range from roughly 1% to 6% of total individual and business tax returns. 

Some taxpayers may be relieved that the risk of being audited has decreased slightly, but the conclusions are based on the percent of audits compared to the number of tax returns filed.  More fraudulent tax returns are being filed each year due to tax-related identity theft.  Fewer audits may mean it will be more difficult to detect this kind of tax fraud just as new enforcement agencies are gaining steam.

Audit Hassles: Even though last year’s audit numbers report a decline, taxpayers complain they are receiving more correspondence audits, which are computer-generated letters triggered by an automated tax form-matching program.  The correspondence letters request timely answers, but there are mounting frustrations due to the inability to connect with a “live” IRS auditor.

Hiring Freeze:  IRS officials say budget cutbacks and the resulting hiring freeze will result in nearly 4,000 fewer full-time employees at the agency by the end of June.  When those numbers are added to the headcount losses in the last 6 years, the IRS has lost nearly 17,000 full-time workers.

Less Taxpayer Help:  Officials’ statements warn that fewer than half the taxpayers that call the agency for help will be able to get through to an actual person.

Technology Timing:  Updates that were in line for streamlining IRS internal and processing systems are being delayed to avoid taking up staff time for training and testing the new systems.  Among the updates included the latest taxpayer protection tools against identity theft.

Possible Shutdown:  Commissioner Koskinen says the agency may implement a money-saving temporary shutdown as a last resort.  To minimize disruptions, he says the agency may close for two days after the main tax-filing season, possibly in May or June.

The best taxpayer defense is to make certain your federal income tax return and necessary documentation is mistake-free to avoid audits and delays. 

If you have questions about how the IRS cuts may affect your federal income tax filing, contact us at McRuer CPAs for more information.

03/09/2015

Tax-Related Identity Theft on the Rise

New statistics released by the Law Enforcement Assistance Program show progress is being made in the discovery of tax-related identity theft cases, but they also indicate that these cases are on the rise.  Warning: Know who you are dealing with when it comes to sharing your personal information as well as who you choose to prepare your tax return.

Tax identity theft graphic

In most cases, the identity thieves are using stolen social security numbers and other taxpayer information to file fake tax returns in order to receive fraudulent tax refunds.  They are using information stolen from government, organization and business databases and some even claim to be tax preparers and accountants to collect personal information.

Now due to an increase in criminal activity, more small businesses are being notified to protect their clients’ personal data and to monitor more closely for data breaches.

The newly released IRS Top Ten Identity Theft Prosecutions list shows tax-related identity thieves are working all across the country.  The number one case involves a 2 small business owners in North Carolina who used stolen names, birth dates and social security numbers, some collected by their business store fronts, to file more than 1,000 false returns to collect nearly $4 million dollars in fraudulent tax refunds.

The good news is that new laws have given rise to more efficient joint criminal investigations between federal, state and local law enforcement officials.  They are now able to discover the tax-related crimes sooner and share information to result in more prosecutions.

In fiscal year 2014, federal agencies report a 75% increase in the success of law enforcement cases with 748 convictions and sentencings in FY 2014 compared to 438 in FY 2013. 

New laws also allow courts to impose higher sentences resulting in a rise in incarceration rates last year from 7.1% of convictions to 87.7% of convictions.  The amount of time convicted offenders must serve in jail is also increasing from an average 38 months in jail (3.2 years) to 43 months (3.6 years). The longest prison sentence handed out in 2014 was 27 years.

How do you protect your personal information from this kind of tax-related crime?  Stay alert and ask more questions.

  1. The IRS never communicates with a taxpayer by email, text or social networking to collect personal or financial information.
  2. The IRS does not make phone calls to taxpayers to collect information nor to demand payments.
  3. If you receive notice that more than one tax return has been filed under your social security number, contact the IRS right away.
  4. If you receive a notice that you received wages from an employer unknown to you, this could be a sign that someone is filing a fraudulent return using your social security number.
  5. If you receive a notice that a government benefit has been cancelled because of an income change and you have not had an income change, your information may have been used to file for a fraudulent refund.
  6. Ask more questions to be confident that your tax preparer is certified and working for a real company with a good track record.

You can find out more information in the Taxpayer Guide to Identity Theft, which explains what to do to prevent identity theft as well as what to do if you believe you have already been a victim of this kind of crime.

Our tax preparation experts at McRuer CPAs are trained and experienced professionals ready to help you.  If you have any questions about tax-related identity theft, contact us for more information.

02/19/2015

Tax Software vs Professional Accountants

As we enter into the peak of tax preparation season, we are often asked about the difference between using tax preparation software and using the services of a professional accountant.  Today there are dozens of preparation software options online and in software packages that can help a taxpayer complete their tax return.  This as today's tax liabilities and concerns are growing more complicated than they've ever been. 

1040 form with glasses and penniesA recent Wall Street Journal article revealed as taxpayers try out new tax software tools, they are making more and more mistakes.  Often, it has to do with not knowing the right questions to ask to discover their best options.  Many times, incorrectly entered numbers cause automatic equations to produce the wrong totals.  

Don't misunderstand, there are good reasons to choose tax software to help you complete your income tax return on your own.  There are also good reasons to choose a professional accountant.  We came across an interesting and concise article online on Investopedia that explains your options clearly.

Here is that article for your consideration as you choose the best steps to take regarding the preparation of your federal and state income tax returns. 

Tax Software Vs. An Accountant: Which Is Right For You?    By Jason Steele | Updated January 29, 2014

""With every important job comes the question of whether or not individuals should do it themselves or hire a professional. While the ever-improving selection of tax preparation software certainly makes it easier to do your own taxes, it has hardly put Certified Public Accountants (CPAs) and other personal tax preparers out of business. 

The Advantages of Using Tax Software
Price
There is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from the $10 to $120 range to websites that offer the service for free. On the other hand, the least expensive tax preparers will cost at least $100 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes. 

The Advantages of Using Tax Software
Price
There is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from the $10 to $120 range to websites that offer the service for free. On the other hand, the least expensive tax preparers will cost at least $100 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes. 

The Benefits of Hiring a Professional Accountant
Better Software
Accountants pay around $1,000 to $6,000 for their software, which is far more sophisticated than the products sold to consumers. These more advanced programs have the ability to quickly scan your information and organize line items and forms correctly. By automating much of the data entry and organization, there's less chance for human error to hurt your tax return.

Human Touch
Like a good family doctor that knows your medical history, you can develop a relationship with an accountant so that he or she understands your family's financial situation and future goals. According to Wehner, who has been preparing taxes for 45 years, "A tax professional is often able to make valuable tax savings suggestions that a software program just can't anticipate." The value of this advice can easily exceed the additional cost of consulting with a professional. For example, a tax accountant can provide you advice on tax-friendly ways to save for your children's education, or how to reduce taxes on your capital gains.

Accountants Can Answer Your Questions Year Round
As a trusted professional, a good accountant will be able to answer important questions that arise not just during your annual consultation, but at other times during the year.

Calculator help and form 1040A CPA Saves You Time When Handling Complicated Issues
Taxpayers who find themselves at the center of complicated business and investment matters may even have the skill to sort through their taxes on their own, but is it worth their time? A professional tax preparer is so familiar with the system; he or she can quickly and easily accomplish tasks that might take even skilled taxpayers hours of research. For busy non-tax professionals, their time can generally be better spent earning money in their area of expertise. Even if your tax situation is straightforward, hiring a professional will save you the time and stress of doing your taxes.

The Bottom Line
Ultimately, there is no universally correct answer to the question of hiring a tax professional or doing your taxes yourself with software. Your comfort and familiarity with IRS rules will be part of your decision, but the complexity of your finances should be the key deciding factor. Those with a single employer and few investments may save hundreds of dollars by preparing their own taxes, while those with business income or rental properties will find the expense of hiring an accountant to be worth their peace of mind and potential tax saving.""

##  So, as we add one final thought to the article above, consider that the more complicated your taxes are, the more likely you need comprehensive accounting services and an accounting professional to help you make the best decisions. For us at McRuer CPAs, it's all about making certain you pay no more taxes than you owe.

If you have any questions, or would like to review your income tax situation with an accountant, contact us at McRuer CPAs to set up a consultation.  We'll take a look and provide you options so you can make the best choice.  Call us:  816.741.7882 or contact us online.

 

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