The Southbourne Tax Group: Educational Tax Tips

I’m sure growing up you heard your parents say that education was the key to success. Whether that meant going to college, vocational school or having an internship or apprenticeship, education was always the answer for good, stable futures. However, schooling at all levels can be rather expensive. There’s crayons, pencils and notebooks to buy, new clothes to buy, tuition to pay for, paying for room and board and even meal plans. It can be quite expensive and adds up really quick, but surprisingly enough, there are tax benefits for knowledge! So to add to your knowledge are some tax tips to keep in mind. As they say, knowledge is power…and at times financially beneficial!

First and foremost is the easiest tip that probably everyone knows about; tax free weekend. In Virginia, this year (2016) tax free weekend was August 5 through August 7. It’s a three-day event where there is no sales tax on qualified items such as most school supplies, clothing and shoes, and even things like first aid kits and batteries. It’s a nice little perk, and tax break, to help parents load up on much needed school supplies and that’s only the beginning!

Did you know there is a tax credit where before and after school care can be deducted for children under thirteen? Babysitters, summer camp or other care providers may qualify for the tax credit of up to 35 percent of qualifying expenses of $3,000 for one child or up to $6,000 for two or more dependents. The tax credit was designed to help working parents with some of the expenses involved with raising children and the credit helps reduce the amount of federal income tax, which can then increase a taxpayer’s refund.

Educational saving plans, such as 529 plans, are also something designed to help parents have some extra funds for education in terms of college and university. These plans are specifically geared towards education and are not federally taxable. Further, withdraws from the account are not taxable as long as the money is used for college expenses such as textbooks, computer, calculators, etc.

Even with something like a 529 plan, sometimes further assistance by way of student loans is necessary. There’s not much to be excited about where student loans exist, but there is a slight silver lining to them. For instance, when filing your taxes, make sure you list the interest you’ve paid on the loan because up to $2,500 can be deducted within a given year. Yippee!

If you do have a student loan, you should receive a 1098T, and it’ll let you know the amount of interest you’ve paid. This nifty little form is also helpful for the American Opportunity Tax Credit (AOTC). This can amount to $2,500 in tax credits and up to 40 percent of the credit is refundable. This is available for the first four years of post-secondary education (vocational school, college and graduate school) and eligible expenses include tuition, books and required supplies, not room and board. AOTC is intended to help offset college expenses but keep in mind there’s an income limit attached to this credit.

We just wanted to give our beloved clients a heads up on some options they may have when it comes to their children’s education, or if they themselves are thinking about further education. While education can be spendy at times, but we try to help lessen the stress of it if when we can!

Additional resources for business accounting tips are available here.

The Southbourne Tax Group: Stopping tax identity theft - Practical advice for CPAs and clients

Tax return and other tax-related identity theft is a growing problem that CPAs can help their clients with—both in taking preventive actions and in correcting problems after an identity thief has struck. Tax return identity theft occurs when someone uses a taxpayer’s personal information, such as name and Social Security number (SSN), without permission to commit fraud on tax returns to claim refunds or other credits to which a taxpayer is not entitled, or for other crimes.

Thieves normally file early in the tax-filing season, often before the IRS has received Forms W-2 or 1099, to thwart information matching and avoid receiving duplicate return notices from the IRS. Taxpayers sometimes discover they are victims of identity theft when they receive a notice from the IRS stating that “more than one tax return was filed with their information or that IRS records show wages from an employer the taxpayer has not worked for in the past” (FS-2012-7 (January 2012)).

In 2011, the IRS processed about 145 million returns. About 109 million were claims for refunds, with an average refund amount of almost $3,000. As of May 16, 2012, the IRS had pulled 2.6 million returns for possible identity theft, and that trend is on the increase. The IRS recently reported an inventory of more than 450,000 identity theft cases. For the 2011 filing season, the Treasury Inspector General for Tax Administration (TIGTA) estimated that identity-theft-related fraud accounted for approximately 1.5 million tax returns in excess of $5.2 billion.

CONSEQUENCES OF IDENTITY THEFT

Tax return identity theft delays legitimate taxpayer refunds because the return appears to be a duplicate return and may be a sign of other fraud or identity theft problems. IRS support to solve traditional and nonfraud problems may be delayed as well when IRS resources are diverted to combat identity theft. Other tax-related identity theft can cause problems for the taxpayer as well. If an individual fraudulently used a taxpayer’s SSN to get a job, the taxpayer may have extra W-2 wages erroneously reported (and perhaps also extra taxes withheld), leading to a correspondence matching audit. The National Taxpayer Advocate notes that time and money are spent to clear the individuals’ names, during which “victims may lose job opportunities, may be refused loans, education, housing or cars, or even get arrested for crimes they didn’t commit” (IRS Publication 4535, Identity Theft Prevention and Victim Assistance).

Further, until recently, the IRS would hold suspicious refunds while verifying the underlying W-2 information, for up to 11 weeks. With the increase in the number of cases and budget limitations, refunds may take longer. So, the IRS says, “[I]dentity theft can impose a significant burden on its victims, whose legitimate refund claims are blocked and who often must spend months or longer trying to convince the IRS that they are, in fact, victims and then working with the IRS to untangle their account problems” (IR-2012-66).

A typical identity theft starts when thieves have (illegally) bought or stolen information from individuals, employers, hospitals, or nursing homes or have used the public list of deaths with SSNs issued by the Social Security Administration. With a number or list of numbers, they file false tax returns for refunds. For example, investigators found a single address that was used to file 2,137 tax returns for $3.3 million in refunds (see TIGTA Rep’t No. 2012-42-80). Most thieves prefer to receive the refund using direct deposit or prepaid debit cards. In another example, 590 tax refunds totaling more than $900,000 were deposited into a single bank account. Although banks have strict rules to verify the identity of account holders, they don’t have the ability to monitor whether the direct deposit is for a legitimate refund.

Although the IRS planned to spend about $330 million in 2012 to combat identity theft, the IRS has limited resources and needs additional funding to combat this problem. Identity theft also happens to tax systems in other countries, but the extent of the problem is lessened in countries where the government can immediately (or in “real-time”) match income and withholding with the tax return. IRS Commissioner Douglas Shulman called for real-time matching in his prepared remarks at the AICPA Fall 2011 National Tax Conference for the purpose of reducing the number of taxpayer audits, but such a system should help reduce identity theft fraudulent tax returns as well (IR-2011-108).

IDENTITY THEFT IN THE MAKING: HOW ID IS STOLEN

Common ways to obtain personal information include email or telephone phishing and Dumpster diving. Thieves are looking for “discarded tax returns, bank records, credit card receipts or other records containing personal and financial information” (FS-2008-9 (January 2008)). For example, some taxpayers receive email messages allegedly from the IRS advising them that they are under investigation or have a refund pending. To get the victim to respond, the email may threaten a dire consequence (see Exhibit 1 for a typical phishing message). Often, the recipient is asked to click on a link to access what appears to be—but is not—the legitimate IRS website.

The IRS does not send unsolicited, tax-account related emails to taxpayers and never asks for personal and financial information, including PINs and passwords, via email. The IRS advises that “[s]ince the IRS rarely contacts taxpayers via e-mail, and never about their tax accounts, taxpayers should be cautious about any e-mails that claim to come from the IRS” (FS-2008-9). (People receiving a suspicious email from the IRS are encouraged to report the email by calling the IRS at 800-829-1040 or forwarding the email to phishing irs; note in Exhibit 1 how the email uses “irs.org” not “irs.gov.”)

IDENTITY THEFT DETECTION: HOW IDENTITY THEFT IS CAUGHT

The IRS has several filters that address different issues. These filters are designed to distinguish legitimate returns from fraudulent ones and to prevent the recurrence of identity theft. If a tax return is caught by a filter, it is manually reviewed to validate the taxpayer’s identity. If the IRS identifies a suspicious return, it corresponds with the taxpayer to verify the correct information. Alternatively, if a second, unauthorized person is using the taxpayer’s SSN, the taxpayer may receive a correspondence audit notice informing the taxpayer that he or she failed to report income from another (erroneous) employer.

When a taxpayer’s identity has been stolen, the legitimate taxpayer may be issued a confidential identity protection PIN (IP PIN) that identifies the taxpayer as the legitimate party using the SSN and other identifying information. The IRS issues these numbers to taxpayers who have reported that their identities have been stolen, verified their identities, and had an identity theft indicator applied to their accounts. Not all victims of identity theft will receive an IP PIN—the IRS says that taxpayers who submitted Form 14039, Identity Theft Affidavit, and proper documentation or taxpayers whom the IRS has itself identified as victims will receive them. During the 2012 filing season, the IRS issued 250,000 IP PINs, up from about 54,000 the year before. Once the IP PIN has been issued, it must be present and correct on the specific tax return for which it was issued. For the 2012 tax year, the six-digit IP PIN is inserted at the bottom of page 2 of Form 1040, to the right of the taxpayers’ signatures.

If two taxpayers are married filing jointly and each taxpayer receives an IP PIN, the couple should use the IP PIN of the SSN that appears first on the tax return. Tax preparation software is generally equipped to ask taxpayers if they received an IP PIN. If a taxpayer is filing a printed copy of the return, however, this number will not print, and should be handwritten in the space provided. A request for an extension or installment agreement using an IP PIN must be made on paper, but the tax return may still be filed electronically.

A new IP PIN is issued every subsequent year as long as the theft indicator remains on the legitimate taxpayer’s account. Returns with an IP PIN are processed more efficiently, in that they bypass the regular filtering system, and the IP PIN prevents fraudulent returns from being processed. The IRS began a pilot program in 2010 to mark the accounts of deceased taxpayers to prevent misuse by identity thieves.

IDENTITY THEFT CORRECTIVE ACTIONS: WHAT TO DO IF AN IDENTITY IS STOLEN

As trusted financial advisers, CPAs may be asked what to do if a client’s identity is stolen. The CPA should consider advising or helping the client with several steps:

1.For tax and nontax identity theft, report the theft to the Federal Trade Commission at 877-438-4338 or TTY 866-653-4261.

2.File a report with the local police.

3.Close any affected bank and credit card accounts.

4.Inform the credit bureaus and consider putting a credit freeze on the accounts. A credit freeze restricts access to credit reports, making it unlikely that thieves can open new accounts in the client’s name. Credit freeze laws vary from state to state.

5.If personal information is lost or stolen during the year, contact the IRS Identity Protection Specialized Unit at 800-908-4490, and complete Form 14039, if necessary. Expect to be patient, though. The National Taxpayer Advocate noted in her semiannual report that “this unit has been unable to answer about two out of every three calls it has received from taxpayers so far this year. At times during the filing season, it was answering only about one out of every nine calls it received—and those who managed to get through waited an average of over an hour to speak with an employee.”

6.Respond to all IRS notices immediately, using the name and number printed on the notice.

7.Tax preparers should ask their clients if they received an IP PIN.

IDENTITY THEFT PREVENTION TECHNIQUES

Since identity theft is so prevalent and growing, a CPA may consider providing general preventive advice through newsletters, websites, and other communications. This advice may include:

1.Have clients arrange for masked SSNs where possible, e.g., on insurance cards, so that client SSNs are closely protected and circulated as little as possible.

2.Watch credit reports from the three major credit bureaus; consider offering this as an off-season service or adding a timely reminder with contact information to the firm newsletter. (Contact details for the fraud departments of the three major credit bureaus are: Equifax – 800-525-6285; Experian – 888-397-3742; and TransUnion – 800-680-7289.)

3.Advise clients to forward all information appearing to be from the IRS promptly and to not click on links or open attachments from emails claiming to be from the IRS.

4.Advise clients to safeguard their Social Security cards, store them in a safe and secure location, and not discard any documents with an SSN on them.

5.Advise clients to resist giving businesses an SSN or other personal information just because they ask for it; often it is not required, and dissemination of SSN information is risky.

6.Advise clients to protect financial information by investing in and using a shredder before discarding documents.

7.A taxpayer should secure personal information in one’s own home. For example, copies of tax returns can be kept in a locked file cabinet or safe.

8.Taxpayers should protect personal computers by using firewalls and anti-spam or anti-virus software, updating security patches, and regularly changing passwords for internet accounts with sensitive information, such as online banking sites.

CPAs may be able to take additional preventive steps for tax returns, where the client is cooperative:

1.File clients’ returns early if possible.

2.E-file returns to be notified of duplicate return notices more quickly.

3.Consider truncating or masking SSNs on Forms 1098, 1099, and 5498 consistent with Notice 2011-38.

4.Communicate with the client to change client expectations: Refunds might take longer in future years as additional system security steps are taken.

5.Finally, CPAs with new online clients should be very careful to confirm the identity of those new clients, so that an identity thief cannot trade on an unwitting CPA’s credibility in filing false returns.

CPAs can find additional information at:

• IRS website, and
• IRS resources including the Taxpayer Guide to Identity Theft page, or the Identity Protection page.

Additional resources for business accounting tips are available here.

The Southbourne Tax Group: Fraud prevention – 2017 predictions

Challenges and Opportunities

The Paypers has invited various thought leaders to share their views on 2017 predictions regarding security threats and fraud management solutions

Monica Eaton-Cardone, Global Risk Technologies: Criminal fraud, in the form of unauthorised transactions, will remain an ever-present threat

Criminal fraud, in the form of unauthorised transactions, will remain an ever-present threat. Fortunately, though, technologies have made it easier to mitigate this type of fraud. The threat will continue, but it is a manageable concern. Conversely, another type of fraud continues to go unmitigated. Friendly fraud, which is unwarranted or illegitimate chargebacks, is growing at an alarming rate—as much as 50% annually in certain regions and industries. To date, this threat has remained relatively unmitigated.

Fortunately, we are identifying new techniques that are proven effective at preventing illegitimate chargebacks and recovering unnecessary revenue loss. First, merchants need to identify the cause of each chargeback. Identifying the source of a problem is the only way to effectively mitigate it—otherwise, solutions merely address the symptoms. Technologies like Chargebacks911’s Intelligent Source Detection make this possible.  Second, once merchants have identified the chargeback sources, they need to dispute known cases of friendly fraud. Disputing illegitimate chargebacks effectively challenges faulty consumer behaviours.

Lastly, the industry needs standardisation and compliance. Programmes piloted by schemes to address these concerns are apt to provide good feedback. Without more attention on identifying the underlying source of this growing problem, consumer expectations will threaten sustainable growth industry-wide.

Jason Tan, Sift Science: Stolen identities or accounts are attractive to fraudsters because they offer a richer form of data than simple payment details

While companies are making strides in fighting payment fraud, there are still some worrying gaps when it comes to combating the new frontier of fraud, account takeover (ATO). Nearly half (48%) of respondents to the Sift Science Fraud-Fighting Trends 2017 survey reported that they saw a rise in ATO last year. And with large-scale data breaches showing no sign of slowing down, there should be plenty of fodder floating around on the dark web for criminals to use in their attacks.

Stolen identities or accounts are attractive to fraudsters because they offer a richer form of data than simple payment details. Non-payment data like login information, birth dates, social security numbers, and security questions can be used to create more accounts, make purchases, or even sign up for new credit cards.

From the standpoint of a merchant or financial institution, ATO is particularly concerning since these fraudsters may take the guise of some of your most trusted customers. However, machine learning and behavioral analysis can help unearth the subtle nuances that separate a real, valuable user from an imposter – so you can stay ahead of the game.

Luke Reynolds, Featurespace: It’s time to embrace machine learning to identify new fraud attacks as they occur while protecting your customers and revenue

Do not treat your customers like criminals. That is the big differentiator for banks and payment processors that want to get ahead. Criminals are advancing faster than existing fraud systems can cope with. Machine learning and advanced anomaly detection are the answer to preventing new fraud attacks, while accepting ‘good’ business from genuine customers.

One type of fraud attack increasing within financial services is Authorisation Stream attacks, where criminals manipulate the standard authorisation message, impacting payment processors upstream of where fraud systems usually spot an attack at transaction stage.

Social Engineering attacks on the elderly and vulnerable are also an increasing threat – where genuine banking customers are manipulated via phone by a criminal impersonating the bank.

Financial Services organisations are typically already capturing data needed to protect customers from these attacks. However, to do so, organisations need to be identifying anomalies accurately and efficiently at the level of accounts, merchants, cardholders and locations.

The good news? Machine learning systems – which use adaptive behavioural analytics to monitor individuals in real-time and detect anomalies – enable organisations to understand behaviour across their customer base. It’s time to embrace machine learning to identify new fraud attacks as they occur, while protecting your customers and revenue.

John Karantzis, iSignthis: The convergence of 4AMLD and PSD2 can lead to proactive solutions that mitigate fraud

Are companies ready for even more sophisticated fraud attacks? Unfortunately, it appears not, as card fraud has continued to rise around the world, with fraudsters becoming more sophisticated and harder to catch than ever.

In 2015, we saw more than USD 16.31 bln lost to card fraud globally, with a significant proportion of this being within SEPA. Whilst more and more predictive or risk-based solutions are released to the market each year to protect businesses from fraud, the fraud statistics are not decreasing.

Clearly, relying on risk-based assessment or predictive systems such as ReD, Kount, Cybersource, are proving to be less and less effective, and often lead to false positives or false negatives.

In response, regulators have introduced the Payment Services Directive 2 (PSD2), which incorporates a requirement for ‘Strong Customer Authentication’ (SCA) for every payment transaction. SCA however, relies upon Knowing Your Customer, which for transactions originating outside of SEPA can be extremely challenging. The strengthening of the transparency rules regarding identity has been introduced to tackle terrorism financing, tax avoidance and money laundering, which in turn will also address the adjacent issue of card not present (CNP) fraud. The convergence of 4AMLD and PSD2 can lead to proactive solutions that mitigate fraud, which in turn increases merchant’s confidence to pursue exporting and revenues from outside the SEPA.

The iSignthis Paydentity solution adds a layer of proactive defence for merchants against sophisticated CNP attacks, in addition to providing a basis for compliance for the 4AMLD and PSD2.

Additional resources for business accounting tips are available here

The Southbourne Tax Group: IRS Making Strides in Detecting Fraudulent Tax Returns

The IRS has improved its identification of fraudulent tax returns that involve identity theft, but the agency needs to be more accurate in its identity theft estimates, according to a new report from the Treasury Inspector General for Tax Administration (TIGTA).

TIGTA performed an audit to determine how effective the IRS is at detecting and preventing identity theft. The watchdog also looked at how the IRS is measuring undetected identity theft and coordinating identity theft information with other agencies and tax industry partners.

TIGTA identified 568,329 undetected potentially bogus tax returns with refunds totaling more than $1.6 billion for tax year 2013. That’s a drop of more than $523 million from the prior year, the report states.

However, the false reporting of wages and withholding accounts for the largest amount of undetected potentially fraudulent refunds at $1.3 billion. TIGTA believes the new Jan. 31 deadline for employers to file their W-2 forms with the Social Security Administration will reduce this type of fraudulent return.

The new Jan. 31 filing deadline also applies to certain Forms 1099-MISC reporting nonemployee compensation, such as payments to independent contractors.

TIGTA also noted that using states’ lead data during tax return processing could improve detection of identity theft.

TIGTA also discovered that the accuracy of the Identity Theft Taxonomy quantification for both protected and unprotected revenue needs improvement. As an example, the IRS’s estimate of protected revenue was overstated by almost $2.4 billion as a result of the wrong calculation of refunds associated with rejected electronically filed tax returns.

The audit resulted in the following six recommendations, which the IRS agreed with:

1. Expand the use of identity theft models to include all accelerated W-2s to compare with tax returns for possible identity theft.
2. Develop criteria to identify and evaluate potential fraud in tax returns.
3. Develop a way to use state lead data to help evaluate tax returns for identity theft.
4. Use tax return data to find the refund amount associated with electronically filed tax returns that were rejected when computing revenues, leave out rejected returns that don’t claim a refund, and account for tax returns with multiple reasons for rejection.
5. Review revenues to ensure that duplicate tax returns are omitted.
6. Tax returns with mismatched income because of amended or duplicate income documents should not be considered for potential identity theft.

Additional resources for business accounting tips are available here

The Southbourne Tax Group: Voices Preventing tax-related ID theft

As the owner of a small tax office business, I see tax-related identity theft among others often, but when it happened to my employees as well, I decided to expand the responsibilities of my business to become tax protectors as well as tax preparers. To do this, I needed to educate not only my employees and clients, but first, myself. I was then able to take action that has provided positive results and empowered employees and a loyal customer base.

Tax-related identity theft happens when a taxpayer’s Social Security number is obtained from someone else and used to file a tax return claiming a refund. Thieves may also use a stolen Employee Identification Number from your business clients to create fake W-2s. Both of these actions could support fraudulent refund schemes.

For example, earlier this year at Tampa General Hospital, an employee with access to the personal health information of thousands of patients was found guilty of illegally accessing the personal information of more than 600 patients between June 2011 and December 2012. That information was used to file 29 false tax returns of refunds totaling over $226,000.

So my first step was to become intimately familiar with Publication 5199, Tax Preparer Guide to Identity Theft, and IRS.gov. Most of the information I organized into steps derived from these resources. This helped me to formulate actions when identity theft happens or when fraud is suspected, and finally what measures to take in prevention. My next step was to lay out separate procedures for reporting and prevention.

In either instance, I directed all employees and recommended to clients that they become familiar with the Federal Trade Commission Web site, www.identitytheft.gov, for reporting fraud or protecting their credit.

For prevention of identity theft and fraud, I made it policy for all my employees to mark out the Social Security number and direct deposit bank account information when providing physical copies of returns to clients. This was the most obvious weakness, as it could allow someone simple access in obtaining a Social Security number just through viewing someone’s return. Secondly, I provided referral information to them regarding securing their credit with fraud alerts or a security freeze through the three major credit bureaus, Experian, Equifax and TransUnion. This was something that each employee and client needed to do independently.

Last and most important, I made it mandatory for all tax preparers to obtain certification with the Internal Revenue Service. This was actually easier to implement, as I offered to reimburse my employees for their training and testing. Having certified preparers turned out to be a valuable investment all around as it not only increased their knowledge, but also their job satisfaction.

These are some specific steps I started looking for as warning signs before reporting:

1. When you receive an IRS reject code of R0000-902-01 for one of your clients, this indicates the Social Security number was already used in a previous return.
2. The IRS reports that your client has a balance due, refund offset or a collection action taken for a year in which they did not file.
3. IRS records indicate that your client received wages from an unknown employer.
4. Your business client receives an IRS notice about an amended return, fake employees, or about a bogus business. (Note: The IRS will only communicate with your clients by postal mail. They will never use e-mail or phone!)
5. Lastly, I directed all employees to closely examine all tax forms (i.e., W-2s, 1099s and so on) for physical tampering or alterations, excessive income or federal income tax withheld.

For actual reporting, I took these actions:

1. Instructed employees and clients to never ignore any IRS notice they receive in the mail, and to bring it to the office as soon as possible for action.
2. Assisted employees and clients in completing Form 14039, Identity Theft Affidavit, and faxing or mailing it to the IRS.
3. Requested clients provide a power of attorney on file so I may speak directly to the IRS on their behalf. (I’m working on my Enrolled Agent certification, as this will remove the necessity for this step.)

The last couple of tax seasons have shown that these actions are a win-win for my clients, my tax preparers and my business. Employees are empowered to get real help to our clients on a topic we were not previously prepared for.

I have applied these steps not only to my employees and clients, but to their families, friends and people I’m just meeting for the first time.

These aggressive and direct steps show how much we care, and knowing that someone cares goes a long way in keeping employees and clients reassured during a stressful situation and eventually getting them the help they need. This makes all involved happier and has shown a growth in returning customers.

Establishing identity theft protection and recovery action plans for my employees and clients certainly worked for me. It went a long way to establishing and maintaining positive and trusting relationships.

Make a plan and protect your internal and external interests. Doing so could go a long way in securing your business growth, but most importantly guard against this industry threat.

Additional resources for business accounting tips are available here.

The Southbourne Tax Group: Beware the Latest Tax-Season Spear-Phishing Scam

You may have heard of the CEO scam: that’s where spear-phishers impersonate a CEO to hit up a company for sensitive information.

That’s what happened to Snapchat, when an email came in to its payroll department, masked as an email from CEO Evan Spiegel and asking for employee payroll information.

Snapchat’s payroll department fell for it. Ouch.

Here’s a turn of that same type of screw: the Internal Revenue Service (IRS) last week sent out an urgent warning about a new tax season scam that wraps the CEO fraud in with a W-2 scam, then adds a dollop of wire fraud on top.

A W-2 is a US federal tax form, issued by employers, that has a wealth of personal financial information, including taxpayer ID and how much an employee was paid in a year.

This new and nasty dual-phishing scam has moved beyond the corporate world to target nonprofits such as school districts, healthcare organizations, chain restaurants, temporary staffing agencies and tribal organizations.

As with earlier CEO spoofing scams, the crooks are doctoring emails to make the messages look like they’re coming from an organization’s executive. Sending the phishing messages to employees in payroll or human resources departments, the criminals request a list of all employees and their W-2 forms.

The scam, sometimes referred to as business email compromise (BEC) or business email spoofing (BES), first appeared last year. This year, it’s not only being sent to a broader set of intended victims; it’s also being sent out earlier in the tax season than last year.

In a new twist, this year’s spam scamwich also features a followup email from that “executive”, sent to payroll or the comptroller, asking for a wire transfer to a certain account.

The wire transfer scam isn’t tax-related: it’s just hitching a ride on the tax-related W-2 scam. Some companies have been swindled twice: they’ve lost both employees’ W-2s and thousands of dollars sent out via the wire transfers.

The IRS is telling organizations that receive the W-2 scam emails to forward them to Phishing IRS, with the subject line of “W2 Scam”.

If your business has already fallen for the scam, it can file a complaint with the Internet Crime Complaint Center (IC3), operated by the FBI. Employees whose W-2 forms have been stolen should review the recommended actions by the Federal Trade Commission or the IRS identity theft.

The IRS says that employees should also file a Form 14039 Identity Theft Affidavit (PDF) if their own tax returns get rejected because of a duplicate Social Security number or if instructed to do so by the IRS.

How to sidestep the scam

But before you even get to the sad state of having to file a report about getting ripped off, it’s better to avoid falling for the bait in the first place.

Unfortunately, that’s getting tougher as crooks get more and more cunning. Case in point: the carefully crafted, well-disguised attack that led to the hacking of Clinton campaign chair John Podesta’s Gmail account. The attack relied on a shortened Bitly link to mask nefarious HTML code.

Screenshots of the Bitly link used against Podesta show that even the longer links hiding behind rigged Bitly links can be made to look, to an untrained eye, like they’re legitimate.

One step that can protect against phishing attacks is to pick proper passwords. Even though strong passwords don’t help if you’re phished (the crooks get the strong password anyway), they make it much harder for crooks to guess their way in.

Use two-factor authentication whenever you can. That way, even if the crooks phish your password once, they can’t keep logging back into your email account.

Also, consider using Sophos Home. The free security software for Mac and Windows blocks malware and keeps you away from risky web links and phishing sites.

The Southbourne Tax Group: IRS Offers Tips on Choosing a Tax Preparer

The Internal Revenue Service is cautioning taxpayers to be on the lookout for unscrupulous return preparers, one of the most common “Dirty Dozen” tax scams seen during tax season.

The vast majority of tax professionals provide honest, high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. That's why unscrupulous preparers who prey on unsuspecting taxpayers with outlandish promises of overly large refunds make the Dirty Dozen list every year.

"Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected," said IRS Commissioner John Koskinen. "Most preparers provide high-quality service but we run across cases each year where unscrupulous preparers steal from their clients and misfile their taxes." 

Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

Choosing Return Preparers Carefully

It is important to choose carefully when hiring an individual or firm to prepare a tax return. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to in order to increase their fee. Every year, these types of tax preparers face everything from penalties to jail time for defrauding their clients.

Here are a few tips when choosing a tax preparer:

• Ask if the preparer has an IRS Preparer Tax Identification Number (PTIN). Paid tax return preparers are required to register with the IRS, have a PTIN and include it on tax returns.
• Inquire whether the tax return preparer has a professional credential (enrolled agent, certified public accountant or attorney), belongs to a professional organization or attends continuing education classes. A number of tax law changes can be complex. A competent tax professional needs to be up-to-date in these matters. Tax return preparers aren’t required to have a professional credential. The IRS website has more information regarding the national tax professional organizations.
• Check the preparer’s qualifications. Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool can help locate a tax return preparer with the preferred qualifications
• The Directory is a searchable and sortable listing of certain preparers registered with the IRS. It includes the name, city, state and zip code of:

o    Attorneys

o    CPAs

o    Enrolled Agents

o    Enrolled Retirement Plan Agents

o    Enrolled Actuaries

o    Annual Filing Season Program participants

• Check the preparer’s history. Ask the Better Business Bureau about the preparer. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to IRS.gov and search for “verify enrolled agent status” or check the Directory.
• Ask about service fees. Avoid preparers who base fees on a percentage of their client’s refund or boast bigger refunds than their competition. Don’t give your tax documents, SSNs, and other information to a preparer when only inquiring about their services and fees. Unfortunately, some preparers have improperly filed returns without the taxpayer’s permission once the records were obtained.
• Ask to e-file your return. Make sure your preparer offers IRS e-file. Paid preparers who do taxes for more than 10 clients generally must file electronically. The IRS has processed more than 1.5 billion e-filed tax returns. It’s the safest and most accurate way to file a return.
• Provide records and receipts. Good preparers will ask to see your records and receipts. They’ll ask questions to determine your total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.
• Make sure the preparer is available. In the event questions come up about your tax return, you may need to contact your preparer after the return is filed. Avoid fly-by-night preparers.
• Understand who can represent you. Attorneys, CPAs, and enrolled agents can represent any client before the IRS in any situation. Annual Filing Season Program participants may represent you in limited situations if they prepared and signed your return. However, non-credentialed preparers who do not participate in the Annual Filing Season Program may only represent clients before the IRS on returns they prepared and signed on or before Dec. 31, 2015.
• Never sign a blank return. Don’t use a tax preparer that asks you to sign an incomplete or blank tax form.
• Review your return before signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it and that your refund goes directly to you – not into the preparer’s bank account. Reviewing the routing and bank account number on the completed return is always a good idea.
• Report abusive tax preparers to the IRS. You can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on IRS.gov.

To find other tips about choosing a preparer, understanding the differences in credentials and qualifications, researching the IRS preparer directory, and learning how to submit a complaint regarding a tax return preparer.

Taxpayers are legally responsible for what is on their tax return even if someone else prepares it.