Though most people who prepare tax returns are professionals and render correct, honest, thoughtful and excellent service to their tax return clients, some DO occasionally make a basic math error of miss a deduction. Those aren’t the people you need to beware of. No, I’m talking about the fly-by-night types that engage in fraud and other illegal activities. These scammers set up shop one day and are gone a few weeks later. When the unsuspecting tax filer discovers their mistakes and fraud, these guys are no where to be found.

Dishonest tax return preparers can cause big trouble for taxpayers who fall victim to their ploys because regardless who prepared the tax return, the taxpayer is still responsible.

How do these tax scammers make their money?

1. Skimming a portion of their clients’ refunds by charging the client a percentage of their tax refund as a fee. The higher the refund, the higher the fee.
2. Charging inflated fees for less than stellar tax return preparation.
3. Flat out false promises of refunds or tax deductions.
4. Identity theft. These scammers have everything they need to steal and/or sell your identity (adding insult to injury).

Choose your tax professional carefully

Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against dozens of others. To increase taxpayer confidence in the tax system and improve compliance with the tax law, the IRS has implemented a number of requirements for paid tax preparers, including registration with the IRS, as well as competency tests and ongoing continuing professional education. The new regulations require paid tax preparers (including attorneys, CPAs, and enrolled agents) to apply for a Preparer Tax Identification Number (PTIN) before preparing any federal tax returns.

Start your taxes for FREE with TurboTax and pay only after you file!

While higher standards for the tax preparer community will result in greater compliance with tax laws, increase confidence in the tax system and ultimately lead to a better experience for taxpayers, it all comes at a cost and those costs are bound to be passed along to the tax filer.

Filing false or misleading tax forms

IRS personnel report cases where scam artists file false or misleading returns to claim refunds to which they themselves are not entitled. In one variation of this scheme, a taxpayer seeks a refund by fabricating an information return and falsely claiming the corresponding amount as withholding. Phony information returns, such as a Form 1099 Original Issue Discount (OID), which claims false withholding credits, are usually used to legitimize erroneous refund claims.

Another version of the scheme is based on the bogus theory that the federal government maintains secret accounts for its citizens and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS. The IRS continues to see cases where people file false or fraudulent tax returns to try to obtain improper tax refunds.

The IRS takes refund fraud seriously, has programs to aggressively combat it and stops the vast majority of incorrect refunds. Because scammers often use information from family or friends in filing false or fraudulent returns, beware of requests for such data. Don’t fall prey to people who encourage you to claim deductions or credits you are not entitled to or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even worse, face criminal prosecution.

How to avoid being scammed

First, make sure you thoroughly check out anyone you’re considering as a tax preparer. Ask them for their PTIN and ask about their testing and professional education.

Second, unless you have a severely complicated return, do your taxes yourself. TurboTax is my tax preparation software of choice and H&R Block is another one that’s very good as well (I used them for 14 years before switching to TurboTax). TurboTax is exceptionally easy and with the proper documentation, I believe my 12 year old son could do my taxes. The software is THAT EASY!

So give it a shot and try TurboTax. You don’t even have to pay anything unless you actually file!

Try TurboTax for FREE!

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Several years ago, my identity was stolen. It took several years to get everything straightened out but I still worry about it. When I changed banks to PerkStreet recently, for a short period of time, I didn’t have my identity theft protection in place because I forgot to change the debit card I used to set it up. When I realized I wasn’t protected –  honestly, I freaked out until I could get my ID theft protection back in place. I was bitten once and it forever changed the way I view identity theft protection.

How identity thieves use your personal information

Once someone has accessed your personal information, he or she can exploit that information in a wide variety of ways, ranging from simple fraud (intentional deception for personal gain) to criminal impersonation to illegally using benefits that are rightfully yours. Knowing how identity thieves might use your information is an important step toward defending yourself.

ID thieves can use your information in at least TEN ways:

1. Make purchases
2. Withdraw funds
3. Change the address on file with your creditors
4. Open new credit accounts
5. Obtain medical services
6. Get services like utilities or cell phones
7. Create false identification
8. Get a job
9. Use your name if they’re arrested
10. Receive your benefits

Make purchases or withdrawals

With even the smallest amount of information in hand, a thief can exploit your existing bank accounts, run up debt, or living the high life at your (and your credit card company’s) expense. These fraudulent buying sprees may include expensive high-end items such as computers and other electronics, which the thief can quickly and easily re-sell for cash.

Withdraw your cash

With the proper credentials or information, a thief can withdraw money from your savings, checking, or investment accounts via ATMs, checks, online payments, or an electronic transfers. This money can then be used to do everything from buy drugs to finance illegal arms shipments to make the thief’s mortgage payment. How does THAT grab you?

Change your address

A thief can change your credit card billing or home mailing address by calling your credit card company or filling out a change of address form at the post office. Once your address has been changed, the thief can:

• Prevent you from learning of fraudulent purchases and accounts right away
• Collect the abundant personal information contained in your daily mail
• Receive and respond to preapproved credit card offers
• Receive new credit cards and checks that have been sent to you
• Receive your tax refund, social security checks, or any other mailed income

Be vigilant about your mail. Know what you should receive and when each month.

Don’t wait until you’re a victim. Stop ID theft today. Right now. Click HERE.

Open new accounts

An identity thief can use your Social Security number and other identifying information to apply for and open new credit accounts in your name. Types of accounts thieves tend to open are:

• Credit card accounts
• Checking accounts
• Car loan or other loan accounts

Thieves typically make account applications using a fraudulent address, preventing you from learning of the accounts’ existence right away. When these accounts go unpaid and become delinquent, a collection or repossession agency might be notified, and the delinquency will be recorded on YOUR credit report, damaging YOUR credit score.

Obtain medical services

Thieves have been known to use your information to obtain medical services at emergency rooms. They typically will use your medical insurance card to run up huge bills for fraudulent injuries or use your insurance to obtain prescription medications which can then be sold … or used. These huge bills can have a very detrimental effect on your employer, who usually handles your medical insurance. How? One of the determining factors for insurance premiums is the group’s claims history. If an ID thief ran up a $50,000 medical bill using your information, you, your employer, and your employees could be paying for it through higher premiums next year.

Establish services

Thieves can use your name, a fake mailing address, and other personal information to set up service accounts, including:

• Utilities (gas, electric, oil, water, etc.)
• Cable or satellite television
• Telephone or cell phone
• Internet service

When the thief fails to pay, guess who’s credit is damaged?

Create false identification

The manufacture and sale of false identification is a thriving underground business. Thieves who want to create false driver’s licenses and IDs try to get access to what is called “breeder documents” — documents containing personal information that can be used to create a variety of different types of false ID. The most sought-after breeder documents are:

• Social Security cards
• Birth certificates
• Passports

Thieves can use these documents to commit various types of fraud, such as:

• Altering or selling existing identification – Stealing your driver’s license or passport and then attempting to alter it, or selling it to someone who will alter it.
• Creating counterfeit identification – Using the information in your documents to create authentic-looking identification using readily available technology, such as scanners and personal computers. These fake IDs probably wouldn’t hold up to the scrutiny of most law enforcement officers but will easily get by a busy cashier, typically untrained in security issues.
• Obtaining fraudulent identification through a legitimate venue – Using your personal information and documentation to obtain a driver’s license or passport that shows the thief’s picture but your name. These will get past law enforcement.

Get a job

Thieves who cannot secure employment with their own identity (due to a criminal record, residency status, etc.) may try to secure employment using your name and SSN. When the employer reports the thief’s earnings to the IRS on your SSN, the government may think you’ve failed to report all your income. If the thief files a tax return to obtain a refund, it will appear as though you’ve filed twice. Talk about a fiasco. Then guess who would be expected to show up at the IRS audit?

Use your name when arrested

In the most insidious cases, a thief may use your identity when stopped, questioned, or arrested by law enforcement. If the thief’s scam is successful, the consequences of the thief’s actions can affect you personally. For instance, if the thief receives a traffic ticket, the points will accrue on your license. Or worse, if the thief fails to show up for a court date, an arrest warrant could be issued for YOU.

If you later apply for a job, your application could appear to have conveniently omitted the felony “you” had, should a background check be performed.

Your reputation is at stake. Protect it with GoIdentityProtect.com today.

Get your benefits

Identity thieves can use your information to obtain your Social Security benefits, pension monies, or other benefits that are rightfully yours to obtain. In one case I read about, an identity thief filed for, and received an elderly widow’s Social Security benefits. The scam was so successful that the district attorney believed the thief was the true owner! Only after the widow used a lawyer to fight back was the case resolved and the thief jailed.

How can you deter identity thieves?

1. Never give out personally identifiable information unless you know who you’re giving it to, how they’ll use it, and how they’ll protect it.
2. Guard your identity, treating it as a precious asset. It is.
3. Join me in signing up for identity theft protection. For my money, nothing beats that peace of mind.

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It can, if you know how to do a few tricks with algebra. Why point this out? If you aren’t paying attention, you can be tricked into believing all sorts of crazy things, from financial scams like the one that Bernie Madoff pulled to the latest conspiracy theory. In the end however, logic and reason usually prevail. In the meantime, brush up on your high school math skills for a moment and examine the following:

Given that a = b

1. 3a = 3b and 11a = 11b
2. Multiply by a on both sides, 3a^2 = 3ab
3. Multiply by b on both sides, 11ab = 11b^2
4. Subtract the above equation from the one in step 2, 3a^2 – 11ab = 3ab – 11b^2
5. Subtract 3ab and add 11ab to both sides, 3a^2 – 3ab = 11ab – 11b^2
6. Add ab and subtract b^2 from both sides, 3a2 – 3ab + ab – b^2 = 12ab – 12b^2
7. Factor out common factors, 3a(a-b) + b(a-b) = 12b(a-b)
8. Divide both sides by a-b, 3a + b = 12b
9. Subtract b from both sides, 3a = 11b
10. Substitute a for b, remembering that they are equal, 3b = 11b
11. Remove common terms and 3 = 11

Did you see that? Three DOES equal eleven? … Ha ha! It really didn’t matter which numbers I used so long as they were different. I could just as easily made $12 equal $300 million. Where does this simple equation go wrong? When we “factor out the common items” in step 7, we’re actually dividing by zero and any one who passed 5th grade math can tell you that dividing by zero is a big mathematical NO-NO.

But it’s easy to get caught up in the moment and overlook that step because the rules violation is hidden. What’s always odd is that sometimes the most important, most common sense rule can get obscured by technical mumbo-jumbo, quickly glossed over, and ignored by someone who should know better.

Such is the case with most scams. They lure us in with an outrageous claim (“make $50,000/yr stuffing envelopes at home!”) just like the 3 = 11 title. Then they convince us that we really can “buy a home with no money down,” or “join this multi-level marketing ‘business’ and become rich in 12 months,” or even “I am a Nigerian prince who needs to hide $700 million in your bank account for a few days.”

But, if you’ll take your time, examine the claims slowly and with a discriminating eye for detail, you will usually find that one fatal flaw. Or you could use the old pessimist’s rule: if it sounds too good to be true, it probably is.

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Have you ever fallen for a multi-level marketing pitch? Today it may be called network marketing, direct marketing, direct sales, or some other name to hide what it is.  I fell for a pitch a long time ago but the bitter taste is still there. No matter whether you’re selling juice from some tropical berry, washing detergent, long distance services, cosmetics, vitamins, vacations, or even miracle chocolate, I will always recommend that everyone steer clear of any and all multi-level network marketing companies.

Today I’m getting Facebook messages (admittedly some of these are spam messages) and emails from people who want me to “join their network,” and they use everything from our past relationship to our shared faith as a way to sneak in a plug for their favorite scam. Yes. I said scam.

I firmly believe all multi-level marketing companies are scams. If that little tidbit upsets you, just realize that you are not “CEO of your own distribution network” – you are a commission-based salesperson relying on the liquidation of your social capital (i.e. alienating your friends and family) what will inevitably be a failed attempt to make money … and 99% of people in multi-level marketing companies lose money. The only profit you can ever make is by turning what would be called “customers” into “distributors” and then taking the money from the 99.995% that lose money in the organization and giving it to the 0.005% at the top (the people who started the whole “business” in the first place).

If you’re currently “in”, I know, I know, you’re different. You’re hardcore. You “have the dream.”

Randomly select 10,000 of your fellow “independent business operators “ and follow them for five years. Guess what? There will be only a precious few left of the original group. That’s right. Only a few out of of a group of 10,000 will renew after five years. What I’d like to know is how much money the non-renewing 9,900 spend before leaving the business. My educated guess (based on personal experience) would be somewhere in the neighborhood of $4,000 to $8,000  per year when you include their overpriced “tools to build the business”, books, seminars,overpriced products you’re required (or pressured) to buy and use, etc.

Beyond the almost impossibility of anything resembling success. Beyond the scam. Here are a few reasons I loathe multi level marketing:

Everyone is your prospect

Grandma, grandpa, co-workers, friends, neighbors, people you meet in line at Target, the restaurant waiter, your boss (really?), your boss’s boss, people at church. Are you excited yet? You get to be the person everyone wants to avoid.

When everyone you meet is a prospect, you tend to look at people as things you can use for your own purposes.

Their “system” is just a way to get cash from you

There are no secrets to building wealth. Did you catch that? THERE ARE NO SECRETS TO BUILDING WEALTH. Anyone who claims to have a sure-fire system simply has a sure-fire system to scam you out of your cash.

Do you know how much it costs to produce a cassette tape or a CD? Less than 25 cents. So why does your “helpful” upline sell them to you for $7.50 each? Because they make 85% or more of their money from these sales … not from the company or its products and services.

The products aren’t any better and they cost a LOT more

The biggest joke for me was realizing that I was paying $9.99 to buy shampoo “from myself” and that it was no better than the 99 cent bottle of Suave from WalMart. What you’re constantly told is that you should always buy from yourself. “If you owned a gas station, where would you buy gas?”

Multi-level marketing products tend to cost a lot more than the comparable products because the revenue must support the commissions for the downline.  The typical markup for their products is around 8 times the cost to produce it.  So the end consumer pays $24 for a $3 bottle of fruit juice or $48 for a bottle of “natural and organic” vitamins that are really worth about $6. But hey, you’re supporting your own business, right? Right?

You’re given faith healer pitches at every turn

Everywhere I went, when I was “in the business,” I met people who seem genuinely concerned about my financial situation. Actually, they’re only concerned about their own. They will told me about the couple just three levels up that was making $500,000 per month. They’ll tell you that all you need is belief and that if you aren’t becoming successful, it’s all because you don’t believe.

What isn’t a faith healer pitch is usually massive hype

More than a few companies are being sued by the FDA and FTC for their illegal product claims (“this product cures X,Y, and Z”) being made by their distributors.  Even though the multi-level marketing companies can’t exert total control over what all their independent dealers say in one-on-one sales presentations, they’re still responsible. But few, if any, actually offer realistic training to their “distributors.”  Many of the customer testimonials promoting these products are from the distributors themselves who stand to make financial gain.  But this is rarely disclosed. So the multi-level marketing model itself basically encourages deceptive practices and false claims because of the way it’s set up.

The materialism is rampant and encouraged

I was taken on “dream building” sessions where we would visit car dealerships, RV dealerships, homes for sale in the swanky subdivisions, marinas with massive yachts, and even an airport to look at a private jet. At many seminars, merchants were invited to show their most expensive wares, fur coats, diamonds, and other jewelry. I was told that “if my dream was big enough, all this could be yours.”

Hogwash.

The way to build wealth is to provide value. Value that other people desire and are willing to pay for. My beef with multi-level marketing is that it provides very little value, a lot of hype, is sparsely regulated, and winds up “stealing more dreams” than it actually builds.

Multi-level marketing builds expectations in the minds of its recruits, expectations that are rarely, if ever, realized (statistically zero). Life is full of disappointments to be sure, but to intentionally farm cash from recruits that don’t know their chances of success with a multi-level marketing business is just shy of criminal in my opinion.

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Fantasies aren’t necessarily bad, but when they begin to negatively affect your decision making process, it’s time to wake up and smell the coffee. Going through life expecting a large windfall is really a sad way to live. It gives you a false hope and can give you an excuse to make bad financial decisions. After all, if you expect to “one day” hit it big, you can rationalize all sorts of bad decisions.

Here are six typical financial fantasies:

• I’ll win the lottery and get rich!
• I’ll flip houses and get rich!
• I’ll receive an inheritance and get rich!
• I’ll pick stocks and get rich!
• I’ll start a blog and get rich!
• I’ll start an eBay business and get rich!

I’ll win the lottery and get rich!

My 10 year old son has started asking questions about lottery billboards, and thought it would be easy to guess the numbers, so I gave him a shot at guessing which 6 numbers I had written on a piece of paper. He tried over and over, but never got close. After many, many tries, he came to realize how difficult it would be to guess correctly. Finally, he wondered aloud why anyone would waste money on the lottery. It was a proud moment for this Dad!

You won’t win the lottery. Focus instead on learning to manage what you have by creating and living by a budget.

I’ll flip houses and get rich!

Flipping this or flipping that can possibly make you a lot of cash but first, how much real estate experience do you have and buying a personal home doesn’t count. How much design experience do you have? How much cash in reserve do you have. What happens if the house doesn’t sell for 12 to 24 months? Can you handle it?

Flipping houses isn’t easy. Focus instead on finding legitimate ways to make extra money and learning to manage what you make.

I’ll receive an inheritance and get rich!

I’ll skip the part about how distasteful I find it that some people are waiting on a relative to die so they don’t have to learn to manage their own finances. Even if your parents or grandparents have some money, there’s a great chance that their money will be used to pay for their end of life health care and final expenses. Add the fact that any inheritance will be split several ways and probably challenged in court if it isn’t divided equally and hopefully you’ll see that waiting on an inheritance to materialize is a pitiful fantasy.

Don’t count on an inheritance. Even if you do receive on, probate will probably cause it to be much smaller than you think

I’ll pick the right stocks and get rich!

Picking stocks is only for experts and unless you plan to study portfolio management and become intensely knowledgeable about a company or an industry. In How A Second Grader Beats Wall Street, author Alan Roth outlined how 95 percent of stock pickers lose money. What should you do? Read the book and invest in broad based ETFs or mutual funds with low fees.

You won’t be able to pick the next winning stock consistently. Sure you may have a success or two, but you need to match the market’s return over the long haul.

I’ll start a blog and get rich!

No you won’t. It will be a minimum of six months before you get your first check and that’s IF you’ve written about 200 articles and managed to get some strong social media support and links from a lot of other bloggers. It isn’t impossible, but it requires much more work that the average dreamer is willing to do. Blogging is hard work and requires research, a web host, the ability to write, edit, and proofread, as well as the ability to generate buzz.

Building a blog or website is a legitimate way to make extra money, but it takes a lot more work that most people think, and much more work than the sellers of books, ebooks, seminars, or “training programs” will ever admit.

I’ll start an eBay business and get rich!

Yep, you can make money on eBay, but probably not the mega millions promised by shady hucksters hawking seminars and DVDs. The fact is that eBay has made the value of many items more readily accessible and as a result, the prices of everything from baseball cards to antiques have dropped. To make money on eBay, you need to be extremely well versed in your product and know its value. The reality is, with shows like American Pickers and the proliferation of online auctions, making serious money has become much more difficult.

Selling a few personal items here and there on eBay is a great way to clean out the attic, but to make serious money by starting an eBay business is more about creating another job than about getting rich quickly and living life in your pajamas.

Photo by St_A_Sh

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