Avoid Making Hasty Decisions As the Tax Deadline Filing Approaches

March 29, 2013

April 15 Piggy BankAs the April 15th tax filing deadline quickly approaches, Better Business Bureau is warning taxpayers to avoid making hasty decisions that could result in their selecting a bad tax preparer or being lured into a scam. This time of year, BBB receives many complaints regarding tax preparation companies and complaints alleging that the preparer made an error or mistake in the tax return. These mistakes often require the consumer to pay fines or added fees to rectify the problem. BBB is also concerned about scams and schemes that take advantage of cash-strapped Americans who are anxious to receive a tax refund check and tax prepare fraud, which is when a preparer alters a return for personal benefit without the knowledge of the consumer.

“Taxpayers looking for help filing their taxes should not wait until the last minute, people need to be smart consumers by shopping around to find a preparer who is both qualified and has a strong track record of providing good customer service,” stated Nancy B. Cahalen, President and CEO of the Better Business Bureau of Central New England.“Some consumers who rush to hire a tax preparer at the last minute or participate in tax reduction schemes without spending time to thoroughly check out the situation find themselves dealing with problems for years afterward.”

During this tax season, Better Business Bureau advises taxpayers to file for an extension if their return won’t be filed by the April 15 deadline and not to make hasty last minute decisions that could result in being the victim of a scam that leaves them cleaning up the mess and paying fees.

Tax Reduction Schemes
Some companies claim that they can help consumers reduce the amount of money they owe in taxes or fines to the government. They often state the company will be able to reduce the amount people owed to the IRS by pennies on the dollar. Unfortunately, many consumers have paid thousands of dollars to such companies and are devastated to learn that the company didn’t keep its promise to reduce the amount owed and, in some cases, never even contacted the IRS. Common examples of tax reduction scams include:

  • Zero Wages. Taxpayer is told to attach to their return a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 showing zero or very little wages or other income. The taxpayer indicates he or she is rebutting information submitted to the IRS by the employer.
  • Zero Return. Promoter instructs taxpayer to enter all zeros on their income tax filing, or to enter zero income, report their withholding and then write “nunc pro tunc” (Latin for “now for then”) on their return. The taxpayer is told this will lead the IRS to disregard the original return on which they reported wages and other income.
  • Tax Abatement. This scam rests on a faulty interpretation of the Internal Revenue Code and involves the tax filer using Form 843 to request abatement of previously assessed taxes.
  • Misuse of Trusts. Taxpayer is encouraged to transfer assets into a trust to reduce income subject to tax deductions for personal expenses and reduced estate or gift taxes. Be aware that some trusts do not deliver the promised tax benefits; the IRS does examine these arrangements.
  • False Arguments. No one has the right to disobey tax laws. The following are false arguments used by shady promoters and thrown out of court: the 16th Amendment concerning Congressional power to lay and collect income taxes was never ratified; wages are not income; filing a return and paying taxes are voluntary acts; and, being required to file Form 1040 violates the 5th Amendment right against self-incrimination or the 4th Amendment right to privacy.

BBB suggests consumers who have a tax debt with the IRS seek the advice of an IRS enrolled agent, Certified Public Accountant (CPA), or a tax attorney to determine if they qualify to file for an offer in compromise, or some other type of payment arrangement.

While the IRS will work directly with the taxpayer and negotiate an offer in compromise—which essentially reduces the taxpayer’s debt—the taxpayer has to demonstrate that he or she is in extreme financial hardship. The Web site, www.irs.gov, has more information on the IRS’s rules for an offer in compromise. Another option is to create an installment plan for paying off the debt—which can be set up between the taxpayer and the IRS without the need to pay a company thousands of dollars. Each year, the IRS accepts about three million installment agreements.

If a taxpayer does decide to enlist outside help when dealing with the IRS, he or she should be wary of exaggerated claims and large upfront fees, and always check out the business’s Reliability Report with Better Business Bureau.

Just say No to Refund Anticipation Loans
Refund Anticipation Loans (RALs) are cash advances offered by a tax preparer based on a taxpayer’s anticipated refund. Anyone who relies on a RAL is essentially paying to borrow their own money. The loan is extremely low-risk for the tax preparer but, the rates and risks can be extremely high for the borrower. The National Consumer Law Center (NCLC) found that the effective annualized rate for a RAL can range from about 50 percent to nearly 500 percent. Another risk to the consumer is if the return is less than anticipated due to errors in the filing process. This causes the consumer to pay interest and fees plus the difference in the amount of the loan and the return.

BBB advises the fastest and most secure way for consumers to get their refund is to file their taxes online and then allow a direct deposit of the refund into their bank account. Taxpayers can have the money in as little as 8 to 15 days. If a consumer absolutely must take out a RAL, shop around before making decisions because rates and restrictions vary by preparer.

Don’t Take the Bait on Phishing E-mails
Phishing e-mails around tax time usually tell the recipient that there’s an issue with their refund, that they are being audited or that there is a problem preventing their taxes from being processed. In most cases, the fraudulent e-mail will provide a hyperlink directing potential victims to a Web site set up by the scammers, where victims are asked for Social Security numbers, bank account information or credit card numbers. And in some cases, these illicit sites are designed to automatically install viruses and malware on the victim’s computer to steal personal information without the victim even knowing what has happened.

Many tax-related e-mail phishing scams are run by people and organizations operating outside the United States, and their e-mails are often rife with spelling and grammatical mistakes. Bear in mind that if the IRS has questions or concerns with a tax return they will not contact you by email, they typically contact the taxpayer by mail.

Those who have received a questionable e-mail claiming to come from the IRS may forward it to a mailbox the IRS has established to receive such e-mails at phishing@irs.gov.

Choose Tax Preparers Wisely
Better Business Bureau wants consumers to be aware and understand that when the IRS detects a false return, the taxpayer – not the tax preparer – must pay any additional taxes, as well as any other associated interest, fees and penalties. In the end, the taxpayer is responsible for all information submitted to the IRS. While most tax preparers provide quality services to their clients, BBB encourages consumers to use the same caution in selecting tax preparation help that they would use in selecting other professional services, such as those provided by doctors or lawyers.

Better Business Bureau offers the following advice when searching for help with taxes:

  • Ask around. Get referrals from friends and family on who they use, and check the BBB Reliability Report on tax preparation services free-of-charge at on our website.
  • Look for credentials. Ideally, tax preparers should either be a certified public accountant, a tax attorney, or an enrolled agent. All three can represent taxpayers before the IRS in all matters, including an audit. Also, find out if the preparer is affiliated with a professional organization that holds its members to a code of ethics.
  • Don’t fall for the promise of a big refund. Be wary of any tax preparation service that promises larger refunds than the competition, and avoid any tax preparers who base their fee on a percentage of the amount of the refund.
  • Think about accessibility. Many tax preparation services only set up shop for the months leading up to April 15. In case the IRS finds errors, or in case of an audit, consumers need to be able to contact their tax preparer throughout the year.
  • Read the contract and know what you’re paying for. Consumers must read tax preparation service contracts closely to ensure they understand issues such as, how much it is going to cost for the service, how the cost will be affected if preparation is more complicated and time consuming than expected, and whether the tax preparer will represent the consumer in case of an audit.