Tax season is in its final weeks. If you have not yet filed, now is the time. The Internal Revenue Service recently issued several warnings.
First, the Service stressed that you are responsible for providing accurate information on your tax return. You need to be cautious and take this into consideration when selecting a tax professional. You can review some tips in our January 27 post on the topic.
Even after paying a professional for assistance, you must review your tax return for accuracy before signing it. If asked to sign a blank document to speed processing, say no.
Second, the Service provided examples from the 2.1 million fraudulent returns caught in 2014. Here is a sampling of some issues.
Don’t mischaracterize expenses
This can occur when personal expenses are improperly characterized as deductible expenses. In one California tax court case, the court disallowed expenses for purchases at Tiffany & Co and Royal Caribbean Cruise Lines that had been labeled “medical expenses.”
In that case the preparer was barred from providing future tax advice, but the taxpayer was still on the hook for the unpaid tax liability related to the mischaracterized expenses.
Don’t fall for financial sleight-of-hand schemes
One example comes from a November case out of Utah. The Tax Division shut down a scheme related to solar energy generation. The defendants in the case told customers they could claim credits. Unfortunately, their energy facility did not produce solar energy meeting Internal Revenue Code requirements necessary to claim the credits.
Another example was timeshare donations. The Tax Division alleged that appraisals grossly overvalued donations.
The moral: Question any offer of tax savings that seems too good to be true, it probably is.