WASHINGTON – While some tax scams have declined, new ones are quickly replacing them, misleading taxpayers into misusing trusts, pretending to be bishops and claiming deductions for their kids’ allowances, according to the Internal Revenue Service.
Some of the new scams have been seen in the state and the old stand-bys on the agency’s list of the “dirty dozen” tax scams — irregular offshore transactions, phony tax checks and “special tax refunds” for slavery reparations — are still around, but less common.
But, old or new, the IRS said taxpayers need to be on guard against scams.
The warning is especially important for Maryland, which ranked 12th among states for tax-crime convictions in 2003, with 23, mostly for frauds, according to the Transactional Records Access Clearinghouse, a federal records database maintained by Syracuse University. TRAC also said that Maryland has seen a sustained increase in the number of criminal investigations since 2000.
“I don’t know why. We actively investigate them but we do have a lot (of tax fraud) here,” said Mary Frances Martin, spokeswoman for IRS’ Criminal Investigation Division in Maryland.
She said some of the new scams have already been seen in the state, but the full impact will not be known until after all 2004 returns are filed.
But frauds have been common in the past: TRAC said the number of IRS investigations that resulted in a recommendation for prosecution in Maryland grew steadily, from 38 in 2000 to 65 in 2003. Of those 65 last year, 23 ended with convictions that brought an average sentence of six months in prison and $13,043 in fines, according to TRAC.
IRS officials declined to comment specifically on the TRAC-IRS numbers. But Martin noted that some of the sentences handed down last year ran to a few years in prison and tens of thousands in fines.
In most cases, people are not aware of the scams, which preparers may be doing to get bigger commissions from their refund, Martin said. The taxpayer becomes a victim when he is audited and has to take responsibility for what was filed.
Recent cases involved a preparer who charged $100 for filing returns that claimed nonexistent deductions, and a couple who listed other people’s children as dependents. Even an IRS employee in Baltimore was indicted with conspiring to submit fraudulent returns, among other charges.
And now is the easiest time to get caught up: At the beginning of the second week of April, about half of Maryland taxpayers had yet to file a return, said Jim Dupree, an IRS spokesman in Maryland. He said that 1.5 million people in the state had sent their returns in by last week and 1.2 million had received a refund, which averaged $2,113.
With just days before the April 15 filing deadline, tax experts said people are vulnerable to scams in two areas — falling for tempting offers that promise good refunds and believing frivolous arguments to get illegitimate deductions. They forget that those practices are violations of the law and can be punished with jail, said Jackie Pearlman, tax research analyst in H&R Block.
Jessica Lehman, spokeswoman for Prince George’s County’s chapter of the Association of Community Organizations for Reform Now, recommended looking for free or low-cost help in reliable places. She pointed to such sites as Prince George’s Community College, Hyattsville Library and several churches, for low-income taxpayers.
She also urged taxpayers to be alert to high or hidden fees that some tax preparers charge. A report by the Consumer Federation of America earlier this year said such practices cost workers $1.14 billion in loan fees plus $406 million in other fees in 2002.
Dupree recommended electronic filing as a safer and faster option.
“It’s like sitting in front of an accountant. It asks you all the questions,” he said. People can e-file from their home or with the help of a preparer listed in the IRS Web site.
Martin recommended that taxpayers not choose preparers just on hearsay, but to be as careful as when choosing a doctor or a lawyer.
“If it sounds too good to be true, it probably isn’t,” she said.
-30- CNS 04-09-04