Tips For Avoiding Tax Scams

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Watch out for scams when preparing and filing your income taxes. (Photo by Kimberly Dijkstra)

Governor Andrew M. Cuomo warns New York taxpayers about the tactics some unscrupulous tax preparers will use to extract more of their hard-earned money now that personal income tax filing season is underway. Consumers should be wary of preparers who offer “instant refunds” or “no up-front cost” for tax preparation. To avoid potential scams, the New York State Tax Department has opened free tax assistance sites, assisting eligible taxpayers with free electronic filing options online and at numerous high-need locations throughout the state.

“I urge all New Yorkers to be extra cautious and wary of the promises made by these dishonest tax preparers,” Governor Cuomo said. “Many of these ‘too good to be true’ offers are just that, masking increased costs and hidden fees that will do nothing to speed up your return.” 

Be cautious if you hire a tax preparer. 

Before you hire a tax preparer, you should ensure that he or she is registered with the IRS and New York State. You should also review a list of fees, and make sure the preparer will sign your return. Don’t hire a tax preparer who asks you to sign a blank return, and be wary of high interest rates if you are offered a loan in advance of your refund.

Examples of tactics used by some dishonest tax preparers can be seen below:

  • Refund anticipation checks or “refund transfers” involve the use of temporary bank accounts set up by tax preparers to receive the tax refunds due to their clients. This allows customers to pay for tax preparation services out of their refund. Once the tax preparer fees are deducted from the federal and New York State refund, what’s left is then deposited into a bank account the preparer creates or onto a prepaid card.
  • Refund anticipation loans or “advances” are loans against taxpayers’ refunds that may come with additional fees and costs.

Free Tax Assistance Sites

The New York State Department of Tax has opened free tax assistance sites throughout New York State to help eligible taxpayers e-file their income taxes and claim valuable credits. Tax Department experts will be available to assist low and middle-income New Yorkers through the filing process at no charge. A schedule of dates, times, and locations is available online at www.tax.ny.gov/fsa.

Taxpayers with adjusted gross household incomes of $66,000 or less in 2017 may use free, user-friendly software at these sites to electronically prepare and e-file both their state and federal tax returns. Tax Department experts are also able, at certain locations, to assist taxpayers in multiple languages, including Arabic, Bengali, Chinese, Haitian Creole, Italian, Japanese, Korean, Russian, Spanish and Urdu. 

Taxpayers with adjusted gross household incomes of $66,000 or less who can’t attend a free-filing event can access free software at www.tax.ny.gov to e-file both their federal and state tax returns for free (search: freefile2017). The tax preparation software helps reduce filing errors that can delay return processing and refunds. It also prevents valuable credits from being overlooked.

E-filing is safer and more efficient than sending paper returns through the mail. About 92 percent of all personal income tax returns in New York are electronically prepared and filed. All returns, whether filed electronically or on paper, undergo the same systematic review.

Tips to Avoid Tax Scams

Don’t be fooled by threatening phone calls. 

Thieves posing as IRS agents use high-pressure tactics to prey on taxpayers. Only give your personal information, including your social security number, to someone you trust. Remember, the NYS Tax Department and the IRS will always send you a letter before contacting you by phone or email.

Beware of phishing emails. 

Taxpayers are receiving emails with the IRS logo offering assistance in settling fake tax issues. The NYS Tax Department and IRS will never request personal or financial information by email.

Avoid identity theft. 

Your tax return contains an abundance of personal information, including your social security number. To prevent your sensitive information from being compromised, provide it only to a tax preparer you trust and regularly monitor your bank account for suspicious activity.

Question inflated refund claims. 

Beware if your tax preparer offers you an inflated refund, especially if he or she hasn’t even looked at your information yet. You should also be wary of paying fees based on a percentage of the refund.

Know your rights

Despite the free options available, approximately 70 percent of all New York taxpayers still decide to use a paid tax preparer. If you decide to hire a preparer:

Read the fine print. 

Make sure you understand how you will receive your refund, including bank account information.

Ask for a written disclosure. 

Preparers are required by law to provide a written disclosure statement explaining that you’re not required to take a refund anticipation check or refund anticipation loan to receive your refund. They must also disclose the amount of fees you’ll have to pay.

Ask for a fee schedule.

This should clearly state all tax preparation and third-party fees. For example, some refund transfer fees are almost $45 on top of the cost of hiring a preparer. Also, by law, preparers cannot charge to e-file in NYS. Hidden fees can be labeled as:

  • document prep fee;
  • transmission fee;
  • disbursement fee;
  • service bureau fee;
  • software fee;
  • technology fee; and
  • data and document storage fee.

Have your refund electronically deposited into your bank account. 

A refund should never be deposited into a preparer’s bank account. The safest way to receive any refund is to have it directly deposited into your bank account.

Beware of prepaid cards or gift cards. 

Some preparers offer to put all or some of your refund on a prepaid card. Ask for a listing of all fees associated with using the card.

Get a copy of your tax returns. 

Review the information on your return and ask questions before it’s filed. You are legally responsible for what’s reported on your return.

Acting Commissioner of Taxation and Finance Nonie Manion said, “My message this filing season is simple: take advantage of the free and easy to use e-filing options available online at www.tax.ny.gov or at our Facilitated Self-Assisted locations statewide. If you decide to hire a preparer, please do your homework and know your rights to protect your hard-earned money.”

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