Tax scammers are not limited to anonymous entities operating from far. Many times, they can be somebody you hire the services of, such as a return preparer, owner of a company, or in this case, the founder of a tax return preparation service.
Instant Tax Service Scam
Fessum Ogbazion of Cincinnati was the founder of Instant Tax Service till he was found guilty of conspiring with others to commit fraud in connection with the operations of the national tax return preparation company he owned and managed. He was sentenced to a year and a day in prison. In addition, he was also to serve three years of supervised release and pay approximately $933,708?to the United States in restitution.
Ogbazion had created Instant Tax Service (ITS) in 2004. According to The United States Department of Justice, “The ITS advertisements offered tax refund anticipation loans through an independent third-party lender, despite the fact that ITS had no such lender to fund the promised loans. Ogbazion used the false advertising campaigns to entice customers to visit ITS locations for a loan, then used the loan applications to prepare and file income tax returns, often without the customer’s authorization. Between 2006 and 2011, ITS collected more than $70 million in fees.”
Along with misleading and conning his customers, Ogbazion also did not pay payroll taxes of ITS and another business for four years amounting to approximately $1.3 million. “Ogbazion evaded IRS attempts to collect its unpaid payroll taxes by directing business revenue to nominee accounts, placing assets in the names of nominee entities, and making false statements to an IRS revenue officer who attempted to collect ITS’s tax debt,” said The United States Department of Justice.
Bronx Return Preparers Scam
Ogbazion is not alone. Fraudulent return preparers often use deceptive advertising, file fraudulent tax returns, and promote illegal practices for their own gain. Two Bronx return preparers did exactly that. They claimed exaggerated deductions on their clients’ tax returns. Laureano Lopez and Valasquez ran a company called Roy’s Agency Inc. Lopez was a registered New York State tax preparer while Valesquez wasn’t registered to legally prepare taxes in New York. After the fraud was discovered, The Albany County District Attorney’s Office prosecuted the return preparers.
Responding to the Bronx return preparer scam, Acting Commissioner of Taxation and Finance, Amanda Hiller said, “We will continue to aggressively pursue dishonest tax professionals who aim to profit at the expense of New York State and to the detriment of their clients. As the income tax filing season approaches, I encourage all New Yorkers who decide to hire a paid preparer to ensure they’re ethical professionals.”
New Yorkers aware of tax preparers committing fraud can anonymously report the fraud online at tax.ny.gov or by phone at 518-457-0578.
How to Identify Fraudulent Return Preparers
Since fraudulent return preparers become active during the tax season, taxpayers need to be especially vigilant during that time. Certain characteristics that run common in scam return preparers, which can alert taxpayers of the legitimacy and intent of a return preparer are:
- False advertising – Scam preparers use misleading advertising to lure taxpayers into buying their services. The temptation can be a bloated refund, paying less in taxes using false deductions, and so on.
- Promise of an exaggerated refund – If a return preparer promises a bloated tax refund when the taxpayer’s tax/financial situation hasn’t changed, it can be a sign of a fraud.
- Preparation of false tax return – Fraud return preparers often use false deductions/credits/exemptions that the taxpayer is not eligible for in order to receive a bigger refund.
- Fee structure – Beware of return preparers who charge their fee on the percentage of the refund amount the taxpayer receives.
Whether the taxpayer knows about the fraud or not, if the IRS finds irregularities in the return, it is the taxpayer who must pay the taxes owed along with interest and penalties, not the tax preparer. Since taxpayers are held responsible for the information on their return, they need to choose their return preparer carefully.
How to Ensure Your Return is Prepared Correctly
Taxpayers can use these advices to ensure their return is prepared correctly.
- Check if the return preparer has signed the return and provided you with a copy of the return for your records.
- Review your return before signing it. Ask the preparer to explain information you don’t understand.
- Know the preparer’s credentials (office address, company history, years in service, etc.).
- Check the authenticity of your return preparer’s Personal Tax Identification Number (PTIN) using this IRS resource – PTIN Information and the Freedom of Information Act.
- If the preparer works for a company, gather basic information about the company such as its office address, years in operation, consumer complaints, etc.
According to the IRS, the courts have issued more than 255 permanent injunctions against abusive tax scheme promoters and abusive return preparers since 2003. Though most return preparers are legitimate and honest, there are only a few unscrupulous ones that deceive their clients. If a taxpayer encounters an abusive return preparer, they may use IRS Form 3949-A, Information Referral, to report the fraud.
