Why Reporting Fraudulent Activity to the IRS Matters

Tips for spotting red flags for your business and reporting tax fraud to the IRS.

The Tax Industry’s Version of “If you see something, say something”.

In the modern world, we live in, we have information at our fingertips at all times. While this is an amazing thing, it, unfortunately, lends power to those that seek to spread misinformation. 

As a small business owner, there is a lot to keep up with when it comes to meeting your IRS tax filing requirements. Sometimes it is absolutely necessary to consult a professional and delegate tasks to them to ensure accuracy. 

This seems like a given, right? It should be, but sadly, not all tax professionals are created equally. While there are many professionals and third parties out there offering excellent, legitimate services to their clients, some are looking to make a quick buck. 

So, who can you trust with your business information, and what can you do if you encounter a provider that is less than requitable? Keep reading, we’re covering the importance of reporting fraudulent activity and the IRS process for doing so.

With the Rise of the ERC comes a Rise in Fraudulent Scams

The Employee Retention Credit was created in 2020 and introduced in the CARES Act. The purpose of this credit was to assist businesses during the hardest points of the pandemic financially. The credit could be claimed for qualified wages and enabled many businesses to keep employees on their payroll despite the harsh economic downturn. 

Sounds great, right? It is, this helped many businesses keep their doors “open” even when they had to be closed. It also helped families keep food on the table when they were unable to work their normal jobs and hours.

While the ERC can no longer be claimed for current quarters, it can be claimed for previous quarters. Employers that are eligible can claim the credit for qualified wages paid between March 12, 2020, and January 1, 2022. As long as employers use the IRS guidelines to ensure their eligibility, claiming this credit correctly can be a great benefit for their business. The claim can be made using quarterly Form 941, or its amendment Form 941-X. 

However, some companies have found that this is a great way to generate revenue, and they don’t have their client’s best interests in mind…just their own. 

Red Flags Businesses Need to be Aware of

Some companies are legitimately offering a service that will help eligible businesses claim the ERC funds that they are owed. However, these companies rarely do the following. 

  • Offer to give your business money up-front for the ERC refund.
  • Offer a quick turnaround on claiming the refund and receiving it.
  • Require large up-front payments for their services. 
  • Advertise that “all you need to apply is an EIN”. 

Any provider that approaches your business with these selling points should trigger major red flags for you. 

The IRS Process for Reporting Fraudulent Activity

If you have been approached by or done business with a third-party provider or tax professional that has engaged in seemingly fraudulent activity, you have the right to report this. Reporting fraudulent activity is really the best way to address it. By reporting a scam, you can lead the IRS to take action so that another business doesn’t have the same negative experience. 

Since it’s the IRS we’re discussing, of course, you can report this activity on a tax form. That’s right, the IRS has a form for everything!

Form 3949-A: Information Referral

If you are suspicious that a business or individual is not complying with tax laws, you can complete and submit this form. While the IRS doesn’t take this information over the phone, they will review your form and investigate the potential tax fraud. The IRS considers some examples of fraud to be false exemptions, false or altered documents, unreported income, and more. 

Additional Forms Available for Reporting Fraud

In addition to Form 3449-A, there are several other forms designed by the IRS for reporting suspected fraud and suspicious activity when it comes to tax filing. These include:

  • Report Suspected Abusive Tax Promotions or Preparers – Form 14242
    • This form is used mainly to report overly aggressive, abusive tax promotions by preparers.
  • Return Preparer Complaint – Form 14157
    • If you’ve experienced fraudulent activity or abusive schemes when dealing with a tax preparer or a tax preparation company. 
  • Tax Return Preparer Fraud or Misconduct Affidavit – Form 14157-A
    • This form goes one step further if you have knowledge that a tax preparer has altered a tax form or filed it without your consent, you should complete this form in addition to Form 14157.
  • Tax-Exempt Organization Complaint (Referral) – Form 13909
    • This form is used to report misconduct related to tax-exempt organizations. 

IRS Guidance on Properly Vetting Tax Preparers

The IRS has resources to help you choose a tax preparer that is not only requitable, by highly qualified to complete your business’s tax returns. There is an IRS database dedicated to this called the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. 

This database allows you to find qualified tax professionals in your area, you can even add the credentials that are important to you (Certified Public Accountant, Enrolled Agent, Attorney, etc.). The IRS also reminds businesses that in addition to this database, they should ask the professional for their state board or bar certification during the vetting process. 

TaxBandits: Data Security and Fraud Prevention are our Top Priority

The TaxBandits team is aware that tax fraud is increasing in severity,  and our team is dedicated to combating this in every possible way. This is why we have layers of data security measures in place. TaxBandits is always on the lookout for new ways to enhance the usability and security of our application and we will continue to add security measures as needed!

Need to start e-filing today? Just create your free TaxBandits account to file Forms 1099, W-2, ACA 1095, 941, 940, and more!

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