- Days left
IRS tax preparationAs Tax Day creeps closer, tax refund scams are on the rise. A number of fake tax refund schemes have been made public in recent days, as the Justice Department appears to be stepping up enforcement.

Just yesterday, the Justice Department announced that Idrissa Bassoum, formerly of Cincinnati, had been charged with 15 counts of aiding in the preparation of false income tax returns and other charges. According to the indictment, from February 2003 through 2005, Bassoum prepared tax returns for his clients that included inflated or entirely fake deductions, with the intention of securing fraudulent tax refunds for his clients. If convicted, Bassoum faces a maximum sentence of three years in prison and a maximum fine of $250,000 for each of the 15 counts of aiding in the filing of a false tax return.



The Bassoum indictment is just the latest in a string of charges announced in an effort to curb tax refund fraud. Last month, the Justice Department announced charges against Alexander Adams and his sons, Garrett and Brandon, of Huntington Beach, Calif. The Adams family (go ahead, snicker -- you know you want to), who did business as Adams Beach Income Tax, engaged in a scheme to generate substantial fake tax refunds based on made up withholdings. Twice they filed for refunds of $2.5 million; they are charged with attempting to collect more than $15 million on fake refunds.

Of course, that's nothing on Penny Lea Jones, who has been accused of attempting to collect $93 million in fake tax refunds for her clients. Jones, who was barred from preparing returns this season while she is being investigated, used a scheme previously highlighted by the IRS as one of their dirty dozen tax scams (and again this year), known as a "redemption scheme." In a redemption scheme, tax preparers tell customers that the federal government maintains "secret" accounts of money. Taxpayers are advised that they can gain access to the funds by issuing bogus 1099-OID forms to their creditors. According to the IRS, the redemption scheme is so popular that taxpayers have requested a total of $3.3 trillion in fraudulent refunds.

It's not just large claims for refund that attract attention -- even smaller instances of fraud are being targeted. Late last month, Cynthia Peters and Melissa Peters, both of Jasmine and Melissa's Tax Service in Baton Rouge, La., were charged with aiding in the preparation of false tax returns for clients. These refund schemes weren't in the millions, but in the thousands. According to the indictment, Peters and Edwards prepared fraudulent tax returns that reported false amounts of telephone excise tax refund (TETR) credits. The TETR credit was a one-time credit available to taxpayers for the 2006 tax year. The credit was available in standard amounts ranging from $30 to $60 or in the amount of actual excise tax paid; the rate was 3% of the cost of long distance and bundled service. The two are charged with preparing taxpayer returns claiming bogus TETR credits in amounts ranging from just over $1,000 to under $7,500.

In the past 10 years, the Justice Department's Tax Division has secured nearly 500 injunctions against tax fraud promoters and dishonest tax-return preparers. You can find more information about the Justice Department's Tax Division and its enforcement efforts at www.usdoj.gov/tax/.

But don't be fooled into thinking that the blame for these schemes falls solely on the tax preparers. This March, a federal judge in Sacramento permanently barred Teresa Marty of Placerville, Calif., from working as a federal tax preparer. As part of the case against her, the judge ordered Marty to turn over her complete customer list to the Department of Justice. Those taxpayers may find themselves subject to substantial penalties: The penalty, of up to 20% of the amount of the improperly claimed refund, applies even if the IRS doesn't pay out the claim. Other penalties and even jail time may also be imposed.

IRS Commissioner Doug Shulman has said that "[t]axpayers should steer clear of any situation involving fabricating tax forms or reporting fictitious tax withholding. These schemes carry a high price for promoters and for taxpayers. We aggressively pursue unscrupulous tax return preparers involved in such scams. Taxpayers should remember they are ultimately responsible for what's on their tax returns. If a promoter's sales pitch sounds too good to be true, be sure to check it out first."

In other words, use common sense. There are no "secret accounts" for taxpayers, and you can't claim additional refunds by creating fake tax forms. And if there was really such a scheme that allowed you to generate more in refunds than you actually paid in, simply by watching a webinar or paying some guru to coach you, wouldn't everyone be doing it? If in doubt about whether a deduction or credit is proper, ask a trusted tax professional for help -- or call the IRS at 1-800-829-1040.

Increase your money and finance knowledge from home

Getting out of debt

Everyone hates debt. Get out of it.

View Course »

Goal Setting

Want to succeed? Then you need goals!

View Course »

TurboTax Articles

What is IRS Form 8824: Like-Kind Exchange

Ordinarily, when you sell something for more than what you paid to get it, you have a capital gain; when you sell it for less than what you paid, you have a capital loss. Both can affect your taxes. But if you immediately buy a similar property to replace the one you sold, the tax code calls that a "like-kind exchange," and it lets you delay some or all of the tax effects. The Internal Revenue Service (IRS) uses Form 8824 for like-kind exchanges.

What are ABLE Accounts? Tax Benefits Explained

Achieving a Better Life Experience (ABLE) accounts allow the families of disabled young people to set aside money for their care in a way that earns special tax benefits. ABLE accounts work much like the so-called 529 accounts that families can use to save money for education; in fact, an ABLE account is really a special kind of 529.

What is IRS Form 8829: Expenses for Business Use of Your Home

One of the many benefits of working at home is that you can deduct legitimate expenses from your taxes. The downside is that since home office tax deductions are so easily abused, the Internal Revenue Service (IRS) tends to scrutinize them more closely than other parts of your tax return. However, if you are able to substantiate your home office deductions, you shouldn't be afraid to claim them. IRS Form 8829 helps you determine what you can and cannot claim.

What is IRS Form 8859: Carryforward of D.C. First-Time Homebuyer Credit

Form 8859 is a tax form that will never be used by the majority of taxpayers. However, if you live in the District of Columbia (D.C.), it could be the key to saving thousands of dollars on your taxes. While many first-time home purchasers in D.C. are entitled to a federal tax credit, Form 8859 calculates the amount of carry-forward credit you can use in future years, not the amount of your initial tax credit.

What is IRS Form 8379: Injured Spouse Allocation

The Internal Revenue Service (IRS) has the power to seize income tax refunds when a taxpayer owes certain debts, such as unpaid taxes or overdue child support. Sometimes, a married couple's joint tax refund will be seized because of a debt for which only one spouse is responsible. When that happens, the other spouse is said to be "injured" and can file Form 8379 to get at least some of the refund.

Add a Comment

*0 / 3000 Character Maximum