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Our mission at CFED is to make

it possible for millions of people to

achieve financial security and

contribute to an opportunity economy.

Who We Are

How do we do it

We push to expand innovative practical solutions that empower low- and moderate-income people to build wealth.

We drive policy change at all levels of government.

We support the efforts of community leaders across the

country to advance economic opportunity for all.

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Introduction to Fraud.org

Presented by: John Breyault

Vice President, Public Policy, Telecommunications, and Fraud

●Who is NCL?

●What is Fraud.org?

●How do we handle consumer

complaints?

●How do we analyze complaint

trends?

●How can you get involved?

What Are We Going to Talk About?

The National Consumers

League is the nation’s

pioneering consumer

organization. Founded in 1899,

our non-profit mission is to

advocate for social and

economic justice for

consumers and workers in the

United States and abroad

Who Is NCL?

WWW.FRAUD.ORG

What is Fraud.org?

A clearinghouse for consumer education

materials related to frauds and scams of all

kinds

A hub for sharing consumer fraud

complaints with law enforcement

An early-warning service to alert consumers

about emerging scams

A Clearinghouse for Consumer

Education

More than 100 articles about common scams,

with tips for spotting and avoiding

A special “Data Breach HQ” to help consumers

about reducing their risk, find information about

recent breaches and a step-by-step guide for

recovering from identity fraud

A Hub for Sharing Fraud Complaints

Network of more than 200 law enforcement

and consumer protection agency partners

Processed 7,000 complaints in 2016

Provide direct counseling to consumers in

imminent danger of falling victim

An Early Warning Service to Alert

Consumers

Complaint analysis powers monthly fraud

alerts to our email list of press, law

enforcement and individual consumers

Detected growth of iTunes gift card scams,

tax ID fraud, ransomware

Fraud Trends

Yearly Top Ten

Scams report

Analyzes changes

year-by-year,

payment methods,

victim age, etc.

How Can You Get Involved?

Send your clients to Fraud.org for

education, counseling and to file complaints

Tell us about scams you’re seeing with

clients

Sign up for Fraud Alerts

Join our Alliance Against Fraud

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Tax Preparer Misconduct

IRS Efforts To Reduce Tax Preparer Misconduct

• IRS is Committed to Investigating Paid Tax

Return Preparers Who Act Improperly

• Two Major Types of Misconduct

• Conduct Directly Impacts a Taxpayers Return

and/or Refund

• Conduct or Practices That Did Not Impact the

Individuals Return or Refund

• Different Reporting Requirements

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Tax Preparer Misconduct

How To Report Tax Preparer Misconduct

• Examples of Preparer Misconduct That Directly

Impacts Taxpayer’s Return and/or Refund

o Embezzling a Refund

o Altering Tax Return Documents

o Filing a Return Without Taxpayer’s Consent

o Generating Larger Refunds By:

Creating or Omitting Income

Creating False Exemptions or Dependents

Creating False Expenses, Deductions or

Credits

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Tax Preparer Misconduct

How To Report Tax Preparer Misconduct

• Reporting of Preparer Misconduct That Directly

Impacts Taxpayer’s Return and/or Refund

Requires Completion Of Two Forms:

• Form 14157-A, Tax Return Preparer Fraud or

Misconduct Affidavit

• Form 14157, Complaint: Tax Return Preparer

• In Addition to the Completion of Forms,

Taxpayer Should Submit Other Support

Documentation

• Copy of Tax Return

• Evidence Corroborating Misconduct

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Tax Preparer Misconduct

How To Report Tax Preparer Misconduct

• Where to File Information of Preparer

Misconduct That Directly Impacts Taxpayer’s

Return and/or Refund Depends on Taxpayer’s

Status With IRS

• If Taxpayer Has Received a Letter or Notice

from IRS About Their Tax Return

• Mail Forms (14157-A and 14157) and

Supporting Documentation to Address

Contained In Letter or Notice

• If Taxpayer Has NOT Received Letter/Notice

• Mail Forms to Address Taxpayer Would Mail

Their Original 1040 Return

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Tax Preparer Misconduct

How To Report Tax Preparer Misconduct

• Examples of Preparer Misconduct or Practices

To Report That Did NOT Directly Impact The

Taxpayer’s Return and/or Refund

o Failing to Enter a Preparer Tax Identification

Number (PTIN) on a Tax Return

o Refusing to Provide Copy of Tax Return

o Failing to Sign Tax Returns They Prepare and File

o Failing to Return Taxpayer’s Records and/or

Holding the Records Until Preparation Fee is Paid

o Using Off the Shelf Tax Software or IRS Free File

Both Intended to be Used by Individuals

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Tax Preparer Misconduct

How To Report Tax Preparer Misconduct

• Reporting of Preparer Misconduct That Does

NOT Directly Impacts Taxpayer’s Return and/or

Refund Requires Completion Of One Form:

• Form 14157, Complaint: Tax Return Preparer

• In Addition to the Completion of Forms,

Taxpayer Should Submit Other Support

Documentation

• Evidence Corroborating Misconduct

• Mail Information to:IRS

Attn: Return Preparer Office

401 W. Peachtree St, NW – STOP 421-D

Atlanta, GA 30308

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Taxpayer Identity Theft or Fraud

Requires Different Reporting Procedures

• Report Possible Identity Theft or Fraud By

Filing:

• Form 14039, Identity Theft Affidavit

• Where to Mail Form 14039

• If Return Has Been Filed

• Mail to IRS Location Where You File

• If Taxpayer Has IRS Letter or Notice

• Mail to Address on Letter or Notice

• No Current Tax Related Issues

• Mail to IRS, Fresno, CA 93888-0025

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IRS Resources

IRS.gov Page on Preparer Misconduct:

https://www.irs.gov/tax-professionals/make-a-

complaint-about-a-tax-return-preparer

Form 14157-A - Affidavit

https://www.irs.gov/pub/irs-pdf/f14157a.pdf

Form 14157 – Complaint

https://www.irs.gov/pub/irs-pdf/f14157.pdf

IRS.gov Page on Identity Theft

https://www.irs.gov/individuals/identity-protection

Form 3949-A – Affidavit

https://www.irs.gov/pub/irs-pdf/f3949a.pdf

Senior Analyst Eulonda LeaIRS Criminal Investigation Office of Refund Crimes

Return Preparer FraudCriminal Perspective

Internal Revenue ServiceCriminal Investigation Mission

Criminal Investigation serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.

Office of Refund Crimes

• Refund Fraud

– Return Preparer Program

– Questionable Refund Program

– Identity Theft

• Information Security Evolving Threats

– Data Breaches

– EFINS/PTINS

– False/fraudulent ITINs

Return Preparer Fraud

• Generally the orchestrated preparation and filing of false income tax returns (paper or electronic form) by unscrupulous preparers who may claim:

– inflated personal or business expenses, – false deductions, or

– unallowable credits or excessive exemptions, fraudulent tax credits, such as the Earned Income Tax Credit (EITC)

• Preparers' clients may or may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns.

Warning Signs of Potential Fraud

• Income insufficient to cover claimed expenses

• Claiming false dependents

• Inflated itemized deductions including: charitable contributions, medical or dental expenses

• Claiming tax credits based on false income/expenses

• False business expenses created to offset income

Scheme Development Centers

• 8 SDCs• Andover

• Atlanta

• Austin

• Cincinnati

• Fresno

• Kansas City

• Ogden

• Memphis

How IRS-CI Identifies Fraud

• Scheme Development Centers

– Financial Forensics Tools

• Referrals/Complaints from the Return Preparer Office

• Public and Other Law Enforcement Tips

• Referrals from Civil Counterparts

• Special Agent Observation

Return Preparer FraudInvestigative Steps

• Review and Analyze Client Returns

• Surveillance

• Law Enforcement Database Checks

• Public Database Checks

• Undercover shopping (best evidence)

• Interview Clients (Witnesses)

Return Preparer FraudInvestigative Steps (Cont.)

• Request Audits of Client Returns

• Search Warrant

• Prepare and Submit Special Agent Report Recommending Prosecution to DOJ-Tax

• Assist U.S. Attorney assigned to Prosecute

• Testify at Criminal Trial

Criminal Violations

• Title 26 USC Section 7206(2) - Aiding in the Preparation of a False Return

• 18 USC 286 – Conspiracy to File False Claims (Tax-related)

• 18 USC 287 – Filing False Claims (Tax-related)

• 18 USC 641 - Theft of Government Funds

• 18 USC 510 – Treasury Check Charge

• 18 USC 1029 – Access Device Fraud

• 18 USC 1708 – Mail Theft

• 18 USC 1028 – Identity Theft

Return Preparer Program (RPP) Statistics

Item FY 2014 FY2015 FY2016

Investigations Initiated 305 266 252

Prosecution Recommendations 261 238 174

Indictments/ Informations 230 224 204

Convictions 193 210 216

Sentenced 183 204 202

Incarceration Rate 86.3% 80.4% 72.8%

Avg. Months to Serve 28 27 22

Return Preparer FraudInvestigative Results

“Tax King”

• Preparers were trained and instructed to increase customers’ refunds by falsifying:

– False Business Income and Schedules Cs.

– False wages, which again caused the clients to qualify for larger EICs.

– False education expenses. False information regarding fuel tax credits.

• Investigation focused on witness interviews.

“Family Tree Taxes”

• Preparers had a co-conspirator worked at a hospital and stole patient PII for the scheme.

• Stolen PII used to file returns with false W-2s and claiming fraudulent earned income credits.

• Investigation worked jointly with HSI and USPS.

• False claims, wire fraud, identity theft among the violations.

“Josiah Larkin dba Colbert Ball Tax Service”

• Preparer/Subject had no franchise or licensing agreement with national Colbert/Ball chain although he used the name.

• Preparer filed at least 31 fraudulent claims.

• Claimed client had no income yet paid $4,000 in educational college expenses.

IDENTIFYING QUESTIONABLE PREPARERS AND BLOCKING THEM FROM FILING

ELECTRONICALLY

Kathy Henry, Assistant DirectorComptroller of Maryland/Revenue Administration Division410-260-7451 khenry@comp.state.md.us

Identifying Suspicious Returns by Tax Preparers- How does this happen?

• As returns are downloaded (MEF process), they are being scored in our Data Warehouse, behind the scenes one of our Budget Analysts and two staff members are monitoring the aggregate data and provide us with a list of EFIN and/or PTIN’s that have large volumes of returns that are being flagged as suspicious

• Liberty Tax #1(TY14)– On the first day of processing, we started seeing returns from a homeless shelter address in our Fraudulent Address Model, at the same time our Budget Analyst noticed that on the first day of filing approximately 25% off all returns processed were identified by the model as suspicious. Commonalities were identified, findings were confirmed with ASR and the information was passed on to us which led to our first time blocking a preparer from filing electronic returns

• Collaborations continued last filing season with our Budget Analyst, ASR and QRDT to confirm findings and suspicions.

Blocking Process for Suspicious Preparers – Cont’d

• Notification is sent to DLLR for the tax preparer’s that are being blocked, they report back on the licensing and registration status for each preparer

Department of Labor, Licensing and Regulation (DLLR) is responsible for the licensing and regulation of Tax Preparers:The State Board of Individual Tax Preparers qualifies and registers persons who prepare tax return for members of the public. An individual is required to be properly registered by the board before providing individual tax preparation services in Maryland. To qualify, an individual must be at least age 18, a high school graduate, and pass the Maryland Tax Preparers Examination. The board is authorized to deny registration, reprimand a registered individual, or suspend or revoke a registration.

Blocked Tax Preparation Services

• Last year 61 EFIN’s were blocked, 68 locations (23 Liberty Tax)• January 2016 – we first identified 151 returns from Liberty Tax (1 preparer at five

different locations) that were flagged by our Fraud Model, recommendations began to place blocks

• January 23 – blocked 5 Liberty Tax • January 26 – blocked 2 Liberty Tax • February 2 - blocked 16 Liberty Tax and 5 private preparers• February 8 – blocked 11 private preparers• February 23 – found some of the blocked Liberty preparers were using our Ifile

system and not providing their preparer info (used similar email addresses and same IPA’s)

• February 25 – blocked 18 private preparers• April 4 – blocked 4 private preparers• January 22 – made first contact with DLLR to provide information on preparers

that were going to be blocked• February 2 – IRS Governmental Liason was contacted and a call was scheduled• February 4 – IRS/COM call regarding Liberty Tax

Scheme Characteristics

• Questionable Schedule C business income and/or expenses

• Common Schedule C businesses– Hairdresser– Barber– Daycare– Nursing– Drivers

• Questionable Schedule A charitable deductions and unreimbursed employee business expenses

• Blocks of numbers for income and/or expenses

Blocked Preparers – Current Status

• 27 tax preparation services did not responded to our request to schedule face-to-face audits (Liberty Tax is not included as they are being handled by the AG’s office) several do have legal representation and are not cooperating with the Administrative Review Process

• 11 tax preparation services have responded and scheduled face-to-face audits, 72 face-to-face audits have been requested by us – 18 taxpayers have appeared and only 2 have passed the audit (1 passed by providing supporting documentation and 1 passed as we expected (due to only having wage income

• Currently have 10 tax preparation services identified to refer to the Office of the Attorney General for prosecution as well as a case report to be submitted to DLLR for the suspension or revocation of license or non-issuance for those not licensed

• 10 additional tax preparation services are under the current investigation process for case reports to be submitted to DLLR and referral to the Office of the Attorney General for criminal prosecution as well as a case report to be submitted to DLLR for the suspension or revocation of license or non-issuance for those not licensed

• 4 tax preparation services have records that are still being reviewed (last batch that were blocked)• Over 16,000 returns were assigned for audit from these preparers and others• 17 Tax Preparers have been assessed civil penalties by DLLR for preparing returns while not

properly licenses/registered – 1 preparer was assessed $24,000.

Other Efforts ?

• We attended a meeting with the United States Attorney, FBI, Homeland Security, Postal Inspector, IRS and Secret Service to discuss where we can partner up enforcement and prosecution efforts since the Comptroller’s Field Enforcement investigatory powers are limited when it comes to investigating Individual Income Tax crimes

• We are continuing our Administrative Review and will determined the appropriate disposition for each blocked Tax Preparation Service

• Continue to improve our Fraud Model and processes

Audit Updates

• From the blocked preparers we audited 5,454 returns– 1,566 were treated as fraudulent (either did not

respond, or responded and had no documentation)

– 2,405 returns were adjusted to increase FAGI, decrease FAGI or reduce Sch. A deductions by >$100

– Several preparers have been referred to the IRS or are being investigated by the Office of the Attorney General

– DLLR continues to hold administrative hearings against unlicensed/unregistered Tax Preparers

Indictments

• State of Maryland vs. Darwin Acosta – grand jury indictment against Darwin Acosta for preparing fraudulent returns – charged with one count of felony theft scheme between $10,000-$100,000 and one count of identity fraud

• Sate of Maryland vs. Rochelle Cunningham – grand jury returned an 11-count indictment – Cunningham obtained the personal identifying information of numerous victims and used the information to file fraudulent returns and deposited over $80,000 of tax refunds into various bank accounts she controlled – charged with one count of felony theft scheme between $10,000 and $100,000, and 10 counts of identity fraud

Indictments Cont’d.

• State of Maryland vs. Scott Jacobson – grand jury returned a 16-count indictment- operated a tax return preparation business through which he prepared and filed fraudulent federal and state tax returns for his clients, claiming fraudulently inflated tax refunds, through filing these returns unlawfully obtained more than $10,000 in State tax refunds- charged with 13 counts of false return preparation, theft and attempted theft, and one count of filing a false personal income tax return.

Indictments Cont’d.

• Vanessa Kone Dickens (Liberty Tax TY14) and eight of her Tax Preparers were indicted and charged with conspiracy to steal, as part of a scheme over $100,000 from the State of Maryland, conspiracy to prepare false income tax returns. The charges were in connection with a fraud scheme which involved enticing homeless people and others to file false returns to generate preparation fees for their company.

Criminal Investigation Filed

• State of Maryland vs. Evelyn Thompson-Attorney General filed a criminal investigation- not registered as licensed tax preparer, prepared and filed fraudulent tax returns on behalf of numerous MD residents including false information to fraudulently increase the tax refund. Charged fees for tax preparation but did not claim the fees received on her personal returns, also included false information on her personal returns to fraudulently inflate her tax refunds- charged with one count of felony theft scheme between $10,000-$100,000

What’s happening now

• Two weeks ago we blocked 20 new Tax Preparation locations and18 more are scheduled to be blocked this week, many more are being monitored and we will continue to block as necessary

• Several Liberty Tax locations have signed Consent Agreements and 12 have had their blocks released, others are attempting to come into compliance with the Consent Agreement in order to be released

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