Besides understating income and overstating deductions, the Earned Income Credit (EIC) is the most highly auditable and fraudent error on tax returns. EIC is a refundable credit for low-income taxpayers with earned income. If you qualify for the earned income credit, you may receive a refund even if you had little or no income tax withheld.
Earned income tax credit may be worth checking out, but if you think that you can get away with claiming the credit, you might want to think twice. The earned income tax credit can be very helpful if you have a low salary or do not make a lot of cash each week. If you qualify, you can get a portion of your taxes refunded to you through this clause. Even if you have no tax liability, you may still qualify for a tax refund.
The credit is, however, a bit complicated and will usually take a professional to help to file it. Since the income is low, this may not be a possible option for most taxpayers. There is an online program which can help with the filing call Earned Income Tax Credit Assistant, via the IRS website. Just a few questions and some tax information is all that’s needed and the site can assist you in finding your correct tax bracket/filing status, and will tell you how much you are qualified to get back.
The IRS will refund more money to a tax payer with kids, rather than the individual without children, but it is still possible to get the credit even if you don't have kids.
In 2006, a taxpayer's income had to be less than $12,120 if they didn't have children, $32,001 with one child and $36,348 with two or more kids. Married couples filing jointly are allowed to earn $2,000 more in each category and still claim the credit. All wage or salary income, as well as any self-employment earnings, count toward the eligibility limits. So do investment earnings. In fact, if you make more than $2,800 in investment income, you cannot file for the earned income credit.
Married couples who file separate returns are not eligible for the earned income credit. If you are married, but your spouse did not live in your home for the last six months of the year, you may be able to file as head of household and take the credit. But be extremely careful with filing under the “separation rule”. This has become a highly auditable area. The IRS Audit Division has begun requiring “separated” individuals to show proof of separation, i.e. legal separation papers.
And if you have no children, you must meet three additional tests before you can claim it: You must be at least 25 years old, but younger than 65 at the end of the tax year for which you are making the claim, you cannot be the dependent of another taxpayer, and you must live in the U.S. for more than half of the tax year.
Bear in mind, refund returns are scrutinized by IRS’s Criminal Investigation Division. Tax returns claiming an Earned Income Credit are examined even more closely, since there is so much EIC fraud.
There are two major questions that I am asked each year by taxpayers trying to file for EIC who are receiving public assistance from local departments of Social Services.
Will claiming the EIC interfere with my ability to obtain food stamps or other forms of assistance?
No, you can claim the EIC and also receive such forms of assistance as food stamps, TAFDC, and Section 8 rental assistance. However, if the EIC payment you receive is not spent within a certain period of time, it may be counted as an asset and affect your eligibility for these other benefits. Most importantly, if you are caught submitting fraudulent information, you will lose all benefits.
Can legal immigrants claim the EIC?
Yes. Immigrants who are working in the country legally may claim the EIC if they meet the other EIC eligibility requirements and possess a valid Social Security Number, which allows work. An immigrant worker’s main home must be in the United States. Also, immigrant workers’ children must have lived with them in the United States for more than six months out of the year to be able to treat them as qualifying children.
What happens if I make a mistake or error or provide false information in claiming the EIC?
It depends:
If you made an unintentional mathematical error in your computations, the IRS will likely catch the error and correct your mistake and credit you the proper EIC amount. If you make an unintentional clerical error (e.g., you provide an incorrect Social Security number), the IRS will likely require you to provide the correct number before they release the EIC to you.
If the IRS decides or determines your error was due to "reckless or intentional disregard of the IRS rules" it can deny your claim and prohibit you from claiming the EIC for the year in which you applied as well as the next two years.
If the IRS decides that your error was due to fraud (i.e., you intentionally provided false information to the IRS in order to try to claim the EIC when you weren't eligible or a higher amount than you are entitled), the IRS can prohibit you from claiming the EIC for the year in which you applied and the next 10 years.
Making a small unintentional mistake when applying for the EIC should not present a problem. But giving deliberate false information to the IRS when claiming the EIC, is an extremely bad idea.
For anyone who’s EIC filing was denied or reduced in a previous year, you will likely need to complete Form 8862, Information to Claim Earned Income Credit After Disallowance, and attach it to your tax return.
In order to keep the Earned Income Credit program in existence, it is very important that it be fair and that only people who are eligible claim it on their tax returns. Fraud (e.g., individuals who attempt to claim the EIC when they, in fact, know they are not eligible) is very damaging to the EIC program as it reduces the public and lawmakers' desire to support it.
If you have good reason to believe that someone is claiming the EIC in a fraudulent manner (for example, they claim a child on their tax return who is not their own or for whom they are not responsible) you can report it to the federal government by calling the Internal Revenue Service's hotline for tax fraud. The phone number is 1-800-829-0433.
If you are willing to try to “beat the system” and cheat the government and those hard working friends and relatives out of their tax dollars, then you better be prepared to pay the piper when the IRS axe falls. You’ll not only be losing all your DSS benefits; you’ll find yourself in the position of having to hire a tax firm to dig you out of the financial hole that will result. Would it be worth the temporary monetary gain? And, do you really want the IRS on your back for the next ten years or more?
S. Raines, Sr. Financial Advisor/Tax Preparer
Showing posts with label tax fraud. Show all posts
Showing posts with label tax fraud. Show all posts
Tuesday, November 20, 2007
Tuesday, November 6, 2007
"Be Prepared for the Preparers!"
“Be Prepared for the “Preparers”!
With the recent news that overall nationwide tax preparation fees will increase by 30% for the 2007 filing season, It’s time to get folks to remember their Boy and Girl Scout days and “Be Prepared” to get the best bang for your bucks.
I’ve often wondered what percentage of taxpayers would prefer going to an incompetent tax preparer if it meant that they would file an incorrect return and taking the risk of betting with Uncle Sam. While reading several articles on the IRS website recently on the Return Preparer Fraud program, there was some very valuable information that I want to pass along. This is an excerpt from those articles:
“Return Preparer Fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.
In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer must pay the additional taxes and interest and may be subject to penalties and criminal prosecution.
While most preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. You should be as careful as you would in choosing a doctor or a lawyer. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.”
If you are a “joint jumper” and run from one tax professional to another to get the result you want, just remember, you can go to ten different tax professionals and get a different answer for any one question. There are volumes and volumes of tax code and laws, no one professional knows the answer to every question. A good professional should be upfront and let you know that they don’t know the answer, but they’ll find it. That’s true professionalism, someone worth trusting and someone worth sticking with.
Here are my tips for Choosing a Return Preparer:
Avoid “I can get you more” tax preparers
Avoid preparers who base their fee on a percentage of the amount of your refund.
Find out the person’s credentials. Ask if they take continuing education classes each year for tax updates. If they can’t look you in the eye and say yes, then that’s your cue to say no!
Never use a tax professional who will not sign your tax return or who doesn’t provide you with a copy for your records.
Make sure that your preparer can be contacted during the year to answer any questions you may have after the return has been filed.
Review your return before you sign it and ask questions on entries you don't understand.
Never sign a blank tax form.
Find out if the preparer is affiliated with a professional organization that holds them to a code of ethics.
Ask questions, there are no stupid questions when it comes to your financial future.
On the other hand if you do find that preparer who finds you that refund be prepared for the wrath of the IRS. You might make it through the first, second and third year without a word. But suddenly one day that letter comes in the mail. After opening the letter, you find that you are being audited and the scrambling begins for receipts, which by the way, you don’t have. Now think about this, after the audit and the adjustments, you’re facing three years of additional liability and accrued interest.
Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.
As a year round tax preparer, I find myself amending returns that have been prepared by every profession whether it be an accountant, CPA, independent firms and of course, the self-preparers. And as the years pass, I realize that there is no one sector of tax professionals who shouldn’t be questioned on their credentials or education. Working with clients who have received that audit letter and find themselves in major “tax debt” trouble, I understand the overwhelming need for “tax debt help” to avoid an “IRS Levy”. They find themselves in a situation of having to hire the services of Tax Resolution firms such as Effectur, Inc.
The final result of being “prepared” can be paying four to five times the amount you would have paid had the returns been completed correctly. Seems to me the only one who is truly prepared is Uncle Sam as he “prepares” to take your money.
Sharon R. Raines, Sr. Financial Advisor/Tax Preparer
With the recent news that overall nationwide tax preparation fees will increase by 30% for the 2007 filing season, It’s time to get folks to remember their Boy and Girl Scout days and “Be Prepared” to get the best bang for your bucks.
I’ve often wondered what percentage of taxpayers would prefer going to an incompetent tax preparer if it meant that they would file an incorrect return and taking the risk of betting with Uncle Sam. While reading several articles on the IRS website recently on the Return Preparer Fraud program, there was some very valuable information that I want to pass along. This is an excerpt from those articles:
“Return Preparer Fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.
In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer must pay the additional taxes and interest and may be subject to penalties and criminal prosecution.
While most preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. You should be as careful as you would in choosing a doctor or a lawyer. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.”
If you are a “joint jumper” and run from one tax professional to another to get the result you want, just remember, you can go to ten different tax professionals and get a different answer for any one question. There are volumes and volumes of tax code and laws, no one professional knows the answer to every question. A good professional should be upfront and let you know that they don’t know the answer, but they’ll find it. That’s true professionalism, someone worth trusting and someone worth sticking with.
Here are my tips for Choosing a Return Preparer:
Avoid “I can get you more” tax preparers
Avoid preparers who base their fee on a percentage of the amount of your refund.
Find out the person’s credentials. Ask if they take continuing education classes each year for tax updates. If they can’t look you in the eye and say yes, then that’s your cue to say no!
Never use a tax professional who will not sign your tax return or who doesn’t provide you with a copy for your records.
Make sure that your preparer can be contacted during the year to answer any questions you may have after the return has been filed.
Review your return before you sign it and ask questions on entries you don't understand.
Never sign a blank tax form.
Find out if the preparer is affiliated with a professional organization that holds them to a code of ethics.
Ask questions, there are no stupid questions when it comes to your financial future.
On the other hand if you do find that preparer who finds you that refund be prepared for the wrath of the IRS. You might make it through the first, second and third year without a word. But suddenly one day that letter comes in the mail. After opening the letter, you find that you are being audited and the scrambling begins for receipts, which by the way, you don’t have. Now think about this, after the audit and the adjustments, you’re facing three years of additional liability and accrued interest.
Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.
As a year round tax preparer, I find myself amending returns that have been prepared by every profession whether it be an accountant, CPA, independent firms and of course, the self-preparers. And as the years pass, I realize that there is no one sector of tax professionals who shouldn’t be questioned on their credentials or education. Working with clients who have received that audit letter and find themselves in major “tax debt” trouble, I understand the overwhelming need for “tax debt help” to avoid an “IRS Levy”. They find themselves in a situation of having to hire the services of Tax Resolution firms such as Effectur, Inc.
The final result of being “prepared” can be paying four to five times the amount you would have paid had the returns been completed correctly. Seems to me the only one who is truly prepared is Uncle Sam as he “prepares” to take your money.
Sharon R. Raines, Sr. Financial Advisor/Tax Preparer
Subscribe to:
Posts (Atom)
