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March 2, 2015

Tax preparers say they may help prevent fraud

John Dubois, owner, D & D Enterprises
Kevin Sullivan, Commissioner, State Department of Revenue Services
By Sheena Butler-Young

Tax preparers are always looking for an edge this time of year to win new customers and they might have found one in the recent Anthem data breach and the flood of bogus tax returns recently filed through TurboTax.

Both incidents, said John Dubois, owner of Hartford-based tax-accounting firm D & D Enterprises, reinforce the necessity of tax preparers as gatekeepers — professionals who are trained and up to speed on the latest tax laws and regulations — for the IRS.

“Tax preparers are conduits,” Dubois said. “The IRS trusts us to be informed and honest; TurboTax doesn't have preparers.”

While TurboTax's program — which was used by 29 million individuals and businesses last year to file returns — may display all of the relevant tax-related rules and disclaimers, individuals may overlook or ignore certain pieces of information.

That's were tax preparers like Dubois try to boast a competitive advantage.

Dubois said that while TurboTax is not to blame for people who use its online tax filing program for fraud, tax preparers play an important role in ensuring that filers, who often “want as much money back as possible”, submit accurate returns.

As far as Anthem's cyber breach — which compromised data for 1.7 million Connecticut customers — Dubois said there isn't a lot businesses can do to prevent hackers from filing false returns based on stolen social security numbers.

Brenden Healy, tax director for Hartford accounting firm Whittlesey and Hadley, said he agrees.

“Even though we're the tax gatekeeper, we can't stop the bad guys from filing fraudulent returns or hacking into business' systems,” said Healy.

Once a breach has occurred, Dubois said it's a waiting game to determine whether someone will be the victim of identity theft or income tax fraud. If any of his clients — many of whom he has retained for years — find themselves fraud victims, Dubois said he encourages them to go through the steps of filing documents with the IRS and contacting local police.

Healy says he thinks taxpayers should be proactive and file for an IRS Identity Protection PIN — a unique six-digit number assigned annually to victims of identity theft to use when filing their federal tax return as proof of identity.

“Filers have to provide additional documentation to the IRS — such as a passport — in order to receive the PIN, but they can sleep better knowing that the IRS will not release their refund without verifying it with the PIN,” said Healy.

A tax preparer's knowledge of identity protection steps reinforces their important role in fraud prevention, Healy said.

State Department of Revenue Services Commissioner Kevin Sullivan said the recent Anthem data breach and TurboTax incident have provided a learning experience for his department and other state tax offices across the country because “identity thieves are getting smarter.”

Among DRS' strategies for mitigating identity theft, Sullivan said the state has slowed down the process for filing returns to allow more time to detect bogus claims.

He is also encouraging filers — particularly those with simple returns — to file taxes as soon as they can.

“In recent years, we said 'if you e-file and choose direct deposit, we'll get you your refund in three to five days,'” said Sullivan. “Now, in order to slow things down, we're not allowing first time filers to receive direct deposit — they must receive a paper check.”

It's a lot harder, Sullivan said, to rectify a situation in which fraud has occurred after a direct deposit has been issued.

“That money is already gone,” said Sullivan.

Forcing at least one group of filers — first timers — to receive their returns in the mail has already helped the state detect fraud cases, Sullivan said.

“In some cases, people whose identities have been stolen will call us and say 'Hey, I just received a return in the mail and I haven't filed my taxes yet,'” Sullivan explained.

Early filing is also a healthy strategy to prevent fraud, Sullivan said.n

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