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IRS on the lookout for bogus returns

By Earl Rinehart • Jan 25, 2016 at 10:00 AM

The guy who prepared your tax return came through big time. Not only was he cheap, he got you a huge refund, way more than you expected.

How did he do it? You'd know if you could take a look at your return, the one he had you sign in advance. That's odd, you don't have any kids to deduct. And this company on your W-2 that took out too much tax? You never worked there.

The magic was fraud — fictional dependents and employers, overstated credits and fake W-2s.

A favorite target of these unscrupulous tax preparers are low-to-moderate wage workers and the earned-income tax credit that benefits them, according to the Internal Revenue Service. By its own estimate, the IRS said the error rate on earned-income tax credit returns can be as high as 27 percent.

In 2014, about $18 billion in overpayments were sent out. Some were unintentional, some were cases of fraud.

For about seven weeks beginning in January 2011, Brandon Hamilton and Kenitha Ferguson operated the In and Out tax agency at 1687 Oak St. on the Near East Side. They processed more than 20 fraudulent 2010 tax returns, according to a federal indictment. That was enough time to steal $132,000 in undeserved tax refunds, which they split between themselves and their clients, prosecutors said.

Hamilton pleaded guilty last week in U.S. District Court in Columbus to conspiring to defraud the government. The maximum penalty is 10 years in prison and a $250,000 fine. Ferguson pleaded not guilty and was released on bond.

Prosecutors said In and Out advertised on Facebook, by word of mouth and through recruiters who were paid to line up customers.

Hamilton might face prison. His clients might face a government lawsuit to recover the overpayments.

"Each taxpayer is accountable for their own tax return," IRS Special Agent Craig Casserly said. "As this case progresses, we would look at all the clients' tax returns."

Dan Brown, an assistant U.S. attorney who prosecutes IRS cases, said, "In the long run, they will have damaged their clients, and the IRS will go after those clients for the money and penalties."

The IRS operates "scheme development centers" across the country, where investigators look for anomalies such as an unusually large number of earned-income tax-credit filings in a certain ZIP code, or from the same preparer, Casserly said.

The agency investigated 266 alleged cases of preparer fraud nationwide in fiscal year 2015. Of those, 204 defendants were convicted, and 80 percent of them went to prison. The average prison term was 27 months.

The arrest numbers could be higher if the agency had more agents, Casserly said. Congressional budget cuts have reduced the ranks almost 14 percent through attrition during the past five years. There are about 2,100 agents for the current fiscal year.

"Still, we are doing a good job of prosecuting these individuals," Casserly said, "and we think other people are seeing this and getting out of the (fraud) business."

There are several red flags that honest taxpayers should heed when seeking a preparer, Casserly said. Ask them for their required "preparer tax identification number," do not sign a blank return and check the completed return for accuracy.

And make sure the government refund check is sent to you. If a preparer gets the check, he or she could skim off some of the refund money for themselves.

"Look at the deductions. Do you actually have kids?" Casserly said. He said he knows of cases in which people who didn't plan to file a return "loaned out" their children's identities to tax preparers.


©2016 The Columbus Dispatch (Columbus, Ohio)

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