IRS Commissioner Tells Congress about EITC Challenges with Tax Preparers

[kcjenkins]

http://www.accountingtoday.com/news/irs_watch/irs-commissioner-tells-congress-about-eitc-challenges-with-tax-preparers-70580-1.html?utm_campaign=daily-may%208%202014&utm_medium=email&utm_source=newsletter&ET=webcpa%3Ae2636147%3A2457290a%3A&st=email

[Jack from Ohio]

Blah Blah Blah Blah....

Takes him 3-5 pages to say nothing!!

His words fall on the deaf ears of Congressman anyway.

[David1980]

"The tax returns to be examined are selected using an effective risk-based audit selection model, resulting in a change rate of more than 90 percent." - probably less to do with their "effective risk-based audit selection model" and more "high fraud rate". Like shooting fish in a barrel.

"Last year there were more than 67,000 two-year bans and 45 10-year bans in effect." - wow those are disappointingly low. 45 total 10-year bans in effect? I'd consider anyone who has repeatedly reported fake income to obtain EIC filing fraudulent returns and there's way more than 45 of those.

It looks to me like the IRS is doing ... almost nothing ... with the information they have available to cut down on the EIC fraud. Instead, they want paid preparers to do the work. But this won't work because probably a significant portion of the EIC claimed on returns prepared by paid preparers are done by fraudulent preparers that file bogus returns with inflated refunds. They're not filing bad EIC claims because they didn't know better but rather because their intend is to file bad EIC claims. The IRS has to do more than send letters. Even the $500/return penalty doesn't matter when you make more than $500 a tax return. They need to put those preparers in a jail cell or deport them.

[kcjenkins]

Agree, when a huge number of the fraudulent EITC returns come from a small number of 'mills' that churn out many hundreds of returns using just a handful of addresses, and most of those get processed and paid, and only a handful of preparers go to prison, something is rotten at the IRS. And the fact that politicians are encouraging them to process the refunds fast is a real part of the problem.

[BulldogTom]

Would those "mils" include HRB, Liberty and Jackson Hewitt? Commissioned based sales staff preparing returns for a population that does not care about how much they pay, only what the "net" tax refund is.

Tom

Hollister, CA

[SaraEA]

Tom, I know that the "mills" don't include HRB. When I worked there, we had to go through all kinds of training for EITC--and that was before the stricter due diligence requirements took effect. I imagine that their training is now even longer and more detailed. I was never, ever encouraged to inflate a refund.

The mills are the ones you read about that IRS's CI unit shuts down. They operate independent storefronts and are pros at producing bogus W2s or at least inventing businesses with just the right amount of income and expenses. One was recently caught with lists of stolen CHILDREN's SS #s and birth dates, which they sold to childless individuals who needed a kid or two to claim maximum EITC. These people get a hold of a large local employer's EIN and produce W2s showing just the right amount of income for the "sweet spot" maximum EITC. For people who have real W2s, these places invent medical expenses, charitable contributions, F2106 expenses, whatever the client needs. In our area one was caught last year with stacks of blank Goodwill receipts (the ones you get at the attended donation centers that you have to fill out yourself). He gave the receipts to clients when they started getting audited. Problem was that Goodwill had stopped using that receipt a few years ago and had since used ones with a newer design. He's in jail.

I thought that check-cashing joints were prohibited from preparing tax returns starting a few years ago. Anyone know for sure? I got a referral from an attorney for a young man who died in a car crash last year. The attorney gave me the 2012 return, which was marked "self-prepared" on the appropriate line. Yet there was a full instruction sheet about how to file, and the top of the page had the name of a check-cashing joint on it. Do these places now have computer stands where you can prepare your own return, or do they really do it for you and call it self-prepared? The guy did receive EITC, but I didn't see any funny business so the return appears to have been accurately prepared.

I read that next tax season the IRS will limit refund deposits to three per account. I don't know how much that will help because crooks will just buy 100 debit cards to accept their 300 refunds instead of a handful. The IRS has tried to work with banking regulators to require ID when people buy prepaid debit cards, just like you need ID to open a bank account, but to my knowledge nothing has come of it so far.

The only way to solve most of the problem is to get refundable credits out of the tax system.

[Jack from Ohio]

Tom, I know that the "mills" don't include HRB. When I worked there, we had to go through all kinds of training for EITC--and that was before the stricter due diligence requirements took effect. I imagine that their training is now even longer and more detailed. I was never, ever encouraged to inflate a refund.

The mills are the ones you read about that IRS's CI unit shuts down. They operate independent storefronts and are pros at producing bogus W2s or at least inventing businesses with just the right amount of income and expenses. One was recently caught with lists of stolen CHILDREN's SS #s and birth dates, which they sold to childless individuals who needed a kid or two to claim maximum EITC. These people get a hold of a large local employer's EIN and produce W2s showing just the right amount of income for the "sweet spot" maximum EITC. For people who have real W2s, these places invent medical expenses, charitable contributions, F2106 expenses, whatever the client needs. In our area one was caught last year with stacks of blank Goodwill receipts (the ones you get at the attended donation centers that you have to fill out yourself). He gave the receipts to clients when they started getting audited. Problem was that Goodwill had stopped using that receipt a few years ago and had since used ones with a newer design. He's in jail.

I thought that check-cashing joints were prohibited from preparing tax returns starting a few years ago. Anyone know for sure? I got a referral from an attorney for a young man who died in a car crash last year. The attorney gave me the 2012 return, which was marked "self-prepared" on the appropriate line. Yet there was a full instruction sheet about how to file, and the top of the page had the name of a check-cashing joint on it. Do these places now have computer stands where you can prepare your own return, or do they really do it for you and call it self-prepared? The guy did receive EITC, but I didn't see any funny business so the return appears to have been accurately prepared.

I read that next tax season the IRS will limit refund deposits to three per account. I don't know how much that will help because crooks will just buy 100 debit cards to accept their 300 refunds instead of a handful. The IRS has tried to work with banking regulators to require ID when people buy prepaid debit cards, just like you need ID to open a bank account, but to my knowledge nothing has come of it so far.

The only way to solve most of the problem is to get refundable credits out of the tax system.

Key words. I have seen things to agree with Tom. Even in my small town here.

[David1980]

The mills are the ones you read about that IRS's CI unit shuts down. They operate independent storefronts and are pros at producing bogus W2s or at least inventing businesses with just the right amount of income and expenses. One was recently caught with lists of stolen CHILDREN's SS #s and birth dates, which they sold to childless individuals who needed a kid or two to claim maximum EITC. These people get a hold of a large local employer's EIN and produce W2s showing just the right amount of income for the "sweet spot" maximum EITC. For people who have real W2s, these places invent medical expenses, charitable contributions, F2106 expenses, whatever the client needs. In our area one was caught last year with stacks of blank Goodwill receipts (the ones you get at the attended donation centers that you have to fill out yourself). He gave the receipts to clients when they started getting audited. Problem was that Goodwill had stopped using that receipt a few years ago and had since used ones with a newer design. He's in jail.

Yup, that's exactly what I'm talking about with preparer EIC fraud. Apparently that one in jail failed to have a fall guy (or was he the fall guy)? One way I've seen these done is someone hires employees/sells franchises/whatever to "tax preparers" (often immigrants in their early 20's, people looking to start a new business, and so on) and trains them on how to create large refunds through refundable credit fraud. That way if caught the blame is put on the preparer.

As for HRB, Liberty, and so on the national chains have some bad preparers but I'd be shocked if they were doing anything like that. It's more likely a few bad apples at the national chains rather than the entire company being corrupt. Those aren't the ones I think of when I talk about preparers intentionally claiming fraudulent EIC. I think of the office that does 2,000 returns and every single one is a "hair braider" or "baby sitter" or whatever generic business type they use with similar income and dependents with different last names. I'd love to see the statistics on the percentage of EIC claims made by preparers excluding those ones.

[BulldogTom]

My wife worked at HRB for 6 years. She came home all the time upset that she would sit down with a client, and when the return was done, they would compalin that the EIC was not high enough. After my wife explained why the return came out the way it did, the client would pick up their papers and walk. They would go to another preparer and tell them a different story until they got a big enough refund. One time, the clients even came back to the same HRB office and had their return prepared by a different preparer, the very next day! She came to work early and the clients were back and they miraculously ended up with 2 more children living in their home!

From my wife's experiences, MOST of the preparers at the office she worked for only cared about the commissions they were getting from preparing taxes, upselling Piece of Mind, selling IRA's and selling RAL's.

That may not be typical, but it was for 6 years at the office she worked at.

Tom

Hollister, CA

[TAG]

The EIC should NOT be part of a tax return. The EIC should have been a function of welfare agencies.

[kcjenkins]

HRB shops are franchise businesses, so while most are honest, if the local owner is crooked, he/she will hire and promote crooked people, and we all know how easy it really is to cheat if you really want to. And plenty of clients just want a big refund, and don't care how or why it changes with a change in preparers.

[taxxcpa]

The EIC should NOT be part of a tax return. The EIC should have been a function of welfare agencies.

Absolutely right. People who really need financial help gain little by just a once-a-year windfall that they spend the first month and then have to look elsewhere for help.

It is a big incentive to work in the underground economy and/or to file fraudulent claims.

[kcjenkins]

I agree, Atticus, but politicians love it as a way to buy votes.

[MAMalody]

While I agree that it is probably one of the biggest welfare programs out there and should be handled elsewhere, there is a thing called advanced EIC where they can get it on a payperiod basis and not have to wait until the end of the year. Of course, the year end filing will confirm the actual number and there could be a pay back. Am I remembering this correctly?

[frazzled]

I believe the advanced EIC option ended a few years back.

[Lion EA]

Yep. So few were taking advantage of the advanced option that it was eliminated.

[MAMalody]

Hmmm. Good thing I don't do payroll...or I guess if I did I would have known that. Thanks for getting me up to date. I appreciate it.

[Carolbeck]

Yep. So few were taking advantage of the advanced option that it was eliminated.

I had one client only who had the advanced EITC. So few used it because it was not a huge refund all at once to spend as soon as they received their refund. Didn't make a difference for them living paycheck to paycheck.

[Terry D EA]

I worked for HRB in my area back in 1997. We were told that due diligence with EIC wasn't necessary and to do what the client said and don't ask questions. This is why I only lasted a week and a half with them. I agree with KC with franchise thing and if the local owner could be dishonest and a crook.