More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
An increase in tax-return-related scams prompted the IRS on Monday to issue an alert, urging taxpayers to be wary of promoters who engage in fraud and other illegal activities.
The agency said unscrupulous people are gulling taxpayers in the South and Midwest into filing for tax credits, refunds or rebates for which they are not entitled.
Others are charging unreasonable rates for legitimate return preparation that could have been done for free by the IRS or IRS-sponsored Volunteer Income Tax Assistance partners. In still other situations, identity theft is involved.
The IRS said taxpayers should be on the lookout for any of the following:
- Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits
- Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS, enabling a payout from the IRS
- Unfamiliar for-profit tax services teaming up with local churches
- Home-made flyers and brochures implying credits or refunds are available without proof of eligibility
- Offers of free money with no documentation required
- Promises of refunds for “Low Income–No Documents Tax Returns”
- Claims for the expired Economic Recovery Credit Program or Recovery Rebate Credit
- Advice on claiming the Earned Income Tax Credit based on exaggerated reports of self-employment income
The agency said unsuspecting individuals—often low income individuals and the elderly—are most likely to get caught up in scams, and it warned all taxpayers, and those that help others prepare returns, to remain vigilant. “If it sounds too good to be true, it probably is.”
In a further effort to smoke out unscrupulous tax preparers, the IRS announced Tuesday that it had begun sending out letters to 100,000 preparers who had either used an outdated Preparer Tax Identification Number (PTIN) or a Social Security number as identifying numbers on returns they prepared this filing season.
Last fall, the IRS launched an initiative to bolster its oversight of the tax return preparation industry whereby all paid tax return preparers must obtain a PTIN and when required to do so, sign their names and include their PTIN on returns and refund claims they prepare for compensation. Since then, more than 700,000 tax preparers have registered and obtained PTINs, according to the agency.
It said some unscrupulous preparers may attempt to elude the oversight program by not signing returns they prepare. It warned taxpayers never to use tax return preparers who refuse to sign returns and enter PTINs.
The letters to delinquent preparers explain the oversight program, inform them how to register for a new PTIN, or renew an old PTIN, and where to get assistance.
“The vast majority of federal tax return preparers complied with the rules,” IRS commissioner Doug Shulman said in a statement. “Obviously, some preparers did not get the word, so these letters provide additional information so they can register as soon as possible. We owe it to the compliant tax preparers to make sure that everyone is on a level playing field.”