Taxpayer Beware

How to Spot Tax Scams and Avoid Fraud

January 25, 2021 California Tax Education Council Season 1 Episode 1
Taxpayer Beware
How to Spot Tax Scams and Avoid Fraud
Show Notes Transcript

What is California doing about illegal tax preparers and tax scams? Quite a bit, actually. 

California is one of the few states to have set requirements for paid tax preparers. By law, anyone who prepares your tax return must be either an attorney, CPA, enrolled agent or a registered tax preparer with the California Tax Education Council (CTEC). 

CTEC partners with the Franchise Tax Board to go after tax preparers who are not one of those four professionals. 

CTEC Chair, Brandon Chanley, chats with Rebecca Landeros of the Franchise Tax Board's Tax Preparer Enforcement Team - she's the one who goes out and actually pays visits to questionable tax preparers throughout California.

Hear what state is doing to stop fraud and Rebecca's advice to taxpayers.

You can also find more tips on CTEC.org with links on how to find and verify a legal tax preparer.

Speaker 1:

Thank you for downloading taxpayer beware . This podcast was created by the California tax education council. A nonprofit organization required by the state of California to basically do one task and that's to protect you against fraud and help you find a legally qualified tax professional. Now here's your host, Brandon Chandley with special guests to Rebecca Len, Doris of the franchise tax board tax preparer enforcement team.

Speaker 2:

Hi, I'm Brandon Chandley chair of the California tax education council or C tech for short Ctech was created by the state to do basically one task protect taxpayers against fraudulent tax preparers. Anyone who prepares a tax return for you must be either Ctech registered. And if they're not, they must be an attorney, a CPA or an enrolled agent. So the good news is there are plenty of legally qualified tax preparers out there to help with your taxes. The bad news is unfortunately fraud still happens. And that's what we're here to talk about today in this episode of our taxpayer beware podcast. So Rebecca is with us today.

Speaker 1:

Hi Brandon, happy new year,

Speaker 2:

Happy new year to you. So for listeners, Rebecca is actually the one that pays visits during the tax season , uh , to questionable businesses to see if they are in fact legitimate or not. So if Rebecca can't verify that somebody's a Ctech registered prepare or the one or the other three legal tax pros, which again, just to remind you our attorneys CPAs or enrolled agents , um, her job then is to either, you know , get them registered with SciTech or get them to stop preparing tax returns all together again, because they're there to protect the tax payers in the state of California. So if they don't comply or register with a Ctech within 90 days, they could face up to a $2,500 penalty. So we take this pretty serious and we're out there looking for them. Um , if they still don't comply the following year, that penalty can go up to as much as $5,000 and can continue on year after year after year. Um, are there some that, you know, just continue to just pay that penalty rather than, than register?

Speaker 1:

Yes, definitely. We have prepares that have multiple penalties and it often makes me wonder, like, why would anyone want to pay this expensive penalty of $2,500 or $5,000 penalties and multiples. And rather than just come into compliance, the registration process is not as expensive as paying these penalties. So to complete the education, the bonding background checks and the registration fees, that's nowhere near as expensive as it is to pay for all of these multiple penalties. So it immediately makes me wonder why don't they want to come into compliance or is there something that's keeping them from legally coming into compliance? And if that's the case, then the legal reasons are most likely reasons that wouldn't allow them to be a tax professional in the first place. So this is the reasons why we need to make sure taxpayers know how to avoid prepares that don't have a credential is they're getting very precious information and that we provide to them , um, to prepare our returns.

Speaker 2:

That's right. I mean, it's yeah , the most , uh, most important in some situations , uh , economic or financial transaction of the year that the, these taxpayers have. And I think you brought up a good point just if my tax payer or prepare is not getting registered and doing the things they need, why, what are they trying to hide? You know, what are they trying to do and what are some of the things, you know, that can happen? So , um , that's, that's a good point. So let's talk about, you know, obviously you're out in the field and , and you're seeing things and , um, you have to go to some offices and , um , I'm sure you see some interesting things. What are kind of some of the offices you're seeing or what, is there anything common that you're noticing with a lot of these places that are not , um, coming into compliance or registering?

Speaker 1:

Well, we definitely find ourselves visiting tax pros and some odd places. Um, when we get to these odd places, we try to focus on whether or not the prepare has the necessary credentials and not necessarily where they're conducting business. Um, most of the offices are traditional offices. Um, but we have been to some non-traditional places, a couple of places that kind of stick out in my mind. Um, we went to a tire shop once and a corner liquor convenience store. So those are two that kind of stick out in my head. Uh, but again, w you know, we're there to find out why the tax preparer isn't in compliance and not necessarily why they're conducting business in these , uh, you know, unusual non-traditional offices.

Speaker 2:

That's yeah, I've, I've seen that my travels in the state as well. Um, you know, it's like, Oh, all of a sudden it's tax season. Okay. Let's put my, my tax shingle out on, on my business that also does 10 other different businesses. And I'll just throw taxes into the mix for this year as well. So

Speaker 1:

Yeah, exactly. There's, there's families that are actually very resourceful too . They it's a whole family and they have like a one-stop shop where taxes and , uh, uh, travel and insurance and, you know , uh, skincare , um, you know, that's great. They all kind of work out of one brick and mortar. And so we go in there just to find out what's keeping them from being in compliance.

Speaker 2:

Yeah. And I think what we're saying too , and what you're saying as well is , you know , just because they're in one of those doesn't mean it's bad that , you know, it doesn't mean they're doing some shady stuff. I mean, we all know rinse can be pretty expensive than the state of California, in some instances in some cities. So, you know, people are being re resourceful, resourceful. Um, you know, we just want to warn , you know, all the taxpayers listening out there just to make sure you're, you're doing your due diligence before you're , you're sitting down to complete the, you know, big financial transaction potentially , um, where you're sharing a lot of sensitive information with someone, just make sure they've, they've gone through the steps, you know, to be able to do your tax return. That's what we're saying through . Um, so how do you know when you go to visit these stores or locations and you walk into one that, you know, or at least things that you've seen that, Hey, they're doing returns, but they're not, you know, one of the three CPAs attorneys or yeas, or they're not Ctech registered. Um, how do they react when you, when you come in?

Speaker 1:

No, actually they're very positive. Uh , we get a good positive response , um, might sound surprising. Um , but we come in and most of them are happy to see us because , um, you know, they have questions. So certainly they're surprised like, Oh my goodness, you traveled so many miles just to see me. And it's like, no, not just to see you. We have other prepares we're also visiting. Um, and, and don't get me wrong. We've had definitely had doors shut in my face, or I've been quickly escorted out of an office. Um, and that's fine. My job is to be there to provide information. But if someone isn't willing to accept that information, then you know , they're missing out on an opportunity to ask questions and to have them help me. But as I mentioned, most people are happy to see us and they take advantage of the fact that we're there to ask them, you know , so they can ask their questions. Uh, we don't have a set schedule. So we, you know, we give them the time that they need, we sit with them, we walk them through the steps on their computer. Um, we've, you know , even been involved in phone calls with their corporate offices, their managers, now we do whatever it takes to get the registration started or completed. Cause there are preparers who have started the process, they've actually completed their education, but they just didn't complete the registration. So there's, you know, many different variables. Um, so the site visit is very beneficial for us to have that one-on-one face-to-face time , um, to get this situation resolved.

Speaker 2:

And, you know, I mean, I think something I just thought of, as you were saying that to you, you have to assume there's, there's people moving into the state that, that have done taxes and other States, you know, for example, if they moving from Arizona to California, Arizona doesn't require someone to be registered to do Arizona returns. So, you know, I think there's probably those scenarios too , where you may have somebody that just pops in and they started a tax business knowing, Oh yeah, I have other steps that I need to do because I'm in California. So I'm sure , I'm sure, like you said, an education is what you're doing too , and you're educating them on what needs to be done.

Speaker 1:

Exactly. And you bring up a great point, Brandon , because that's something that I have, you know, try to figure out how do I get this information to the education providers that provide education nationally? Um, I would love for these education providers to put like some type of disclaimer flag at the beginning and, or, you know, and at the end of their education that says, please check with your local, you know , and state officials to determine what laws are, you know, you're required to , uh , work on because you're right in certain States , um, it's not, they don't have requirements, but in California we do. So if an education provider could do that, it would be an amazing help.

Speaker 2:

Yeah. And I mean, even to , yeah, I guess it's, yeah . I guess it'd be an interesting thing that I can take back to SciTech as well, but us to be able to do some kind of outreach to, you know, if we see somebody set up a new business name or something, the state, I don't know if we could get that information to let them know, Hey, by the way, you know, you just wonder what kind of pieces we could take to be proactive on that as well, rather than just a reactive stance.

Speaker 1:

Exactly. That's always my hope. And the job that I do is trying to be proactive, seeing if there's a way for me to help the tax prepare community because it ends up resulting in actually helping the taxpayer community

Speaker 2:

For sure. And that , you know, that's the thing I've tried to stress on all these podcasts too, is, you know, this, this is for the taxpayers' benefit, you know, w we're not, we're not doing these steps and doing these things just to try to catch somebody in the act of, Oh, you're, you're doing something fraudulent or you're, you know , you're, you're representing yourself wrong or whatever that scenario may be. You know, it's , it's to make sure that you, as a tax payer know that if you're having anyone in the state of California, do your tax return, they're up to speed on the trainings. They have continuing education, they're doing the things necessary to do the best possible tax return for you.

Speaker 1:

Exactly . And

Speaker 2:

So let's, I'm sure you encounter this obviously, but , um, you know, fraud, things like that are always hot topics around round taxes in general. Uh, you know, and we hear it a lot about, you know, help help with the risk of fraud and help, you know , prevent fraud and things like that. What type of fraud is most common? What are you seeing, you know , during your visits and the state, is there a common theme or common thread with the types of fraud that's happening potentially?

Speaker 1:

Well, what I , uh, what I witnessed is , uh, mostly tax preparers who indicate they weren't aware. So when we deal with fraud , uh , for example, it's no someone has reported that individual. And so then we look to see right away, is that person credentialed. And then , um, in regards to the fraud, we refer them to another group at the franchise tax board who has the tools and the resources to look even deeper into the tax returns that that individual has prepared so that they can determine if there , in fact is fraud, identity theft , um, you know, maybe they've added additional deductions exemptions that , uh, the person didn't actually qualify for.

Speaker 2:

Those are big, big things for people to look out for, for sure. You know, and we do a lot of enforcement. I mean, you , you do a lot of visits, right? I mean, is it,

Speaker 1:

We do, we do a lot of visits and , um, there are a lot of great tax professionals in California. And so that's what we really want to focus on is getting the taxpayers to be able to recognize who a good professional is and who they should avoid. So the first thing I would tell taxpayers is take the time to know your tax professional, because this is the person who's going to have very important information about you and your family. Things like social security numbers. So a social security number in the wrong hands can end up in fraud. Definitely. So don't be afraid to ask questions. Um, all tax pros have to have an active credential in good standing. So when I say active and in good standing, that's important because CPAs attorneys enrolled agents to tech registrants . There's a way for anyone to be able to verify these credentials, there's websites and phone numbers, where you can call and confirm that the tax professionals credential is active and in good standing, because if a tax professionals , uh , license or registration has been suspended or revoked, you may not know that unless you actually check. And some of these tax professionals, unfortunately they'll continue to work. So unless you take the time to know whether or not that tax professional is actually , um , supposed to be working, you could end up working with a tax pro who legally shouldn't be working because possibly they lost their credential due to a conviction, which was most likely due to fraud. So you want to be able to avoid them. Definitely.

Speaker 2:

So from that standpoint, if you know, it is tax time, right. And people are going to be looking for somebody to do their taxes right now. And , um, you know, we, we encourage everyone to do that for sure, but, you know , should they, you know, if you're, if what would your advice be? So if I was brand new to the state of California and I had never had someone do my taxes in the state of California, where should I start? Is it, you know , with the C type website? You know, when I, when I'm looking around for prepares , where's a good start.

Speaker 1:

Uh , a lot of people will start with , um, you know, a referral, someone will say, you know, I have a great preparer and they've been preparing my tax returns for years, and then they just think, Oh, that's great. They've been doing it for years. They don't have a problem. And they move on. We'll go one step further and actually go to, you know, all the websites and try to find this preparer by name , um, the CPA, the CPA board , um, board of accountancy website, the California state bar website. Um, then you can go to the IRS enrolled agent website so that you can call and verify that they are actually an enrolled agent , um, C tech.org website to see if they're SciTech registered. These are all websites that you need to go check to make sure that they're , um, actually, you know , uh, supposed to be a tax preparer, working as a tax person .

Speaker 2:

That's a good tip. Yeah. Start, start there.

Speaker 1:

Yeah, definitely start there. And then from there, you, you know, once you meet with the tax professional , um, then there's other things that you want to also , um, checked on with them. Um, definitely you want to avoid anyone when you talk with them, if you are going to make an appointment, anyone that says, Oh, you know what I guarantee, I'm going to give you X amount of dollars and, you know,

Speaker 2:

Yeah,

Speaker 1:

Yeah. That's red flag, you know, avoid that because no one knows what you're actually going to get until they get dive into your return and all your documents.

Speaker 2:

Um , and I mean, is there, is there some kind of credentials that, for example, if I'm Ctech registered, what kind of credentials should I look for when I get to the office?

Speaker 1:

So you're going to want to, every prepare has to have it posted on the wall or on their desk. And it's a , for the C tech certificates, it's a green certificate. It will have , um, the current year on it. So some prepares like to put all of the years that they've been registered for all their certificates on there, and that's great. It's not necessary what you want to look for this season. You want to look for their certificate that says 20, 21. And , um, if they have that on there, you know, then that in, it matches their name and that's what your C tech registration. Then you can also go online to make sure that it is still active because unfortunately things do happen. And so when a credential is issued, a CPA attorney, enrolled agent, even tech registered, they may have been in good standing when they first received the credential, but things may have happened in the meantime and their credential may have been revoked or suspended. So you want to take that information and do the next check of actually going to the website, which is , um , up-to-date information to make sure that it is still in good standing,

Speaker 2:

That you just brought up something that I , you know, and I apologize. I don't know if we mentioned this on other podcasts, but you all bring it up here too, just for our audience. So you guys know as well , um, somebody that's C tech registered . So what that means is they took 60 hours of a qualifying education class for one of our approved providers in the state. So they did 60 hours of initial training to learn how to do taxes and know how to do taxes. Um, every single year that they keep their Ctech registration number in active, good, active state status, they have to do, what's called a continuing education. So they do another 20 hours of continuing education every single year to come up to speed, be up to speed on new tax laws. So, you know, rest assure if you're going to someone that's a Ctech registered or EA that's in good standing CPA, those sorts as well. You know , it's because they're doing continuing education every year to stay sharp on the taxes. You know, some of the, some of your tax preparers may or may not tell you all that because it's just what they do, but it's something for them to be proud of. I mean , they're , they're doing education to make sure they're doing a good, good job for you.

Speaker 1:

Yes. And, and they're doing what they need to do in order to have that credential. So they're taking the time. That means that they are being responsible. Um, but in addition to that, you know, even if someone has a credential, you still want to make sure that , um, they're not telling you, you know, Hey, I know you're really busy. Um, I can save you a trip if you just sign the tax return, now I'll complete it. And then that way I can just send it without you having to come back. No, definitely. That's another red flag. You want to make sure that you see everything that, that prepare has put on the tax return. Um, before you sign it, you want to make sure that they have , uh , included their prepared tax identification number. And, you know, we know that is the PTEN that's , uh , issued by the IRS for each , um, prepare. So you want to make sure that they've included their P 10 and that the , uh, they've included their name and that their name matches the name of the person you're working with because the person you're working with has to have their own P 10 and their own credential. So I have heard that where someone indicates, Oh, well, I worked with Sue . Um , but then we look on the return and it's not signed, or it's signed by another individual. And so , um, it's important for you that pay now you've checked their credentials. You've checked that it's active in good standing. Now, the next thing is to check that the return was prepared correctly, they've put in the correct dollar that they're supposed to, the correct information is all the way through the tax return.

Speaker 2:

Yeah. And you know , we all know taxes change every single year and things can, can be different, but you know, don't just get in that, you know, don't just get in the habit of, well, you know, this is the way I file, and this is what I get back. And this is what I've always got back. If something looks odd on the tax return, when they're doing it, as far as something's changed, drastically ask the questions, don't be scared to ask the question to prepare of, Hey, you know , why is this different? You know, it , hasn't looked like this in years past, and it may be a scenario of, Oh, well, you know , you didn't, you weren't able to take advantage of this , uh , tax credit. Now you can. So, you know , they ask those questions, have that open dialogue with them because this is, you know, between you and your preparer, you are presenting this information to the IRS. Nobody, nobody wants to have the IRS knocking on their door now.

Speaker 1:

Exactly. Or the franchise tax board, because if the IRS comes knocking, the FTB is right behind them. So, you know, remember that, whatever you sign and agree to, you're going to be legally responsible for all of that information, right. Wrong, or even fraudulent that's on you. You've signed it and declared that the information is correct. And so then if you end up getting a refund , um , or an amount that you shouldn't have received, then later on when IRS and then the franchise tax board come along, they're going to want all that money back and most likely interest in penalties. And it's just, it would be really bad

Speaker 2:

If it seems too good to be true, it might be

Speaker 1:

Exactly. So don't be afraid to ask the questions. And like you said, a lot of people , um, just figure, Oh, that's about what I always get editing way. Or, you know, I trust this person. No, really sit those few minutes of you sitting and doing the research of who you're working with and then taking the time to see what's on the tax return. Those few minutes could end up saving you a lot of heartache later on.

Speaker 2:

Yeah , for sure. And it's, you know, you , you want to get, you want to get the max back and you can, you don't, nobody wants to pay more taxes. We all know that let's not be naive. Right. And I will tell you that the tax pros that are out there, they enjoy doing taxes and they would love to have the conversation with you of why your tax return is different or why you're in a better spot than you were last year. Um , those are great conversations for tax preparers to have with you. So don't be scared to ask.

Speaker 1:

Yeah. They're just waiting for that conversation of , you know , full of information and they just want to share it with you. And if they don't want to share it, then that's definitely prepare you shouldn't be working with,

Speaker 2:

Then that may be a scenario that brings me to my next question. If, if you feel something's questionable or a little bit shady, whatever, what should somebody do? You know, if you just get that feeling of, huh ? I don't know. I don't know about this tax repairer . I don't know about this place, which I did

Speaker 1:

Well, definitely report them. And there's multiple ways to make a report. You know, I want to stress how many times I've heard. Well, you know, I'm just so afraid to tell you who I am or to provide you my information, because I'm afraid that the person I'm going to report , um , will find out that it was me. Um, unfortunately, sometimes they're preparing, I'm sorry, they're reporting , um, friends , uh, acquaintances that they know, or someone that you know, was referred to them by a family member. And so they just, they just feel uncomfortable reporting it. But I want to stress that all of the information that's provided to us is confidential. So there's no way that anyone's going to find out unless you tell them , um, because of security and disclosure laws, we can't share with either party. So the person who's doing the reporting is not going to know. And the person who got reported is not going to know either , um, it is all confidential. So what I, what is important to understand is that if we don't have enough information, I have to be able to reach out to the person who is filing the complaint to ask the questions, to get more information. And if there isn't enough information, then I have to close the case because there's no way for me to find someone that I don't know who, you know, how to find. Um, and so if I have enough information, then I can reach, you know , uh , I can reach out to the person, get the additional information that I need. Um, and we can put that person out of business or we can get them to come into compliance. But , uh , again, if I don't have enough information that person could possibly continue to work , um, you know, do the fraud or , uh, you know, unscrupulous things that they're doing, that someone is reporting about. And there's nothing that I'll be able to do if I can't find them. So please , um , take the time to report them. You can go to scitech.org to report , uh, the tax professional. Uh, all the information comes directly to us at the franchise tax board. You can also go to the IRS website , um , to report fraud. So there's a form one, four, one five, and that is to report tax preparers. Um , then there's one, four, one five, seven a and that's to report fraud on the tax returns. So , um, you know, you can go to the board of accountancy report , uh, state bar, you know, I, I don't work as closely with those two groups, but there are multiple ways for you to report a prepared. Don't be afraid. Exactly. Yeah .

Speaker 2:

It's an important topic and you want to make sure everybody's out there doing it the right way, and you want to protect yourself because like we said, at the end of the day, this information is going to the IRS and your names on the return and that you weren't information. You need to be able to back it up. So , uh , Rebecca, thank you so much. This was, this was good.

Speaker 1:

Thank you, Brandon. Um , thank you so much for the opportunity. I, like I said, I love to be able to help the tax professionals and the taxpayers and , um, we're here to help. So I hope that this information is , um , able to reach everyone who needs it. And , uh , thank you so much.

Speaker 2:

Yeah, definitely. And thank you from SciTech to FTB. You guys, you guys are great partners and you guys have always been really good helping out and trying to get the word out. So we appreciate that. So thanks . Thanks so much for chatting with us. Uh, you can hear more from Rebecca. She was actually on another podcast that we had called the scary truth about ghosts tax repairs, episode one. So if you haven't listened to that one, please make sure that you do, you can hear our other podcasts and topics. You can find all those on our website. So C T E c.org, C tech.org . You can also verify see tech Ridge through register . It's a legal status. Like we mentioned there on the website as well. Um, you know, make sure that they are registered and doing things the correct way. So thank you very much and hope you have a great day.