IRS to Low-Income Taxpayers: Watch Your Wallet

Last week, the IRS reported an increase in tax return scams by tax preparers. The scams take many forms, including overcharging tax filers for legitimate return preparations; charging tax filers to claim credits they aren’t eligible for; and advising tax filers to include false information on their returns.

These scams risk making already economically vulnerable women and their families worse off. For example, the Earned Income Tax Credit (EITC) is an important tax benefit that boosts the income of many low-income families. The rules that apply to claiming this benefit are complex, difficult to interpret, and inconsistent with the requirements for claiming other related credits (e.g., the Child Tax Credit). Given these difficulties, it is not surprising that the EITC Office of the IRS reports that 70 percent of the recipients of the EITC use paid preparers to file their tax returns. But when EITC claimants use paid tax preparers, the value of their EITC is reduced by the amount of the fee paid to the tax preparer. And when preparers engage in unlawful behavior, as in the tax scams described above, eligible families not only lose out on benefits to which they would otherwise be entitled, but they may be opened up to future audits or be barred from receiving the credit in the future.

Families and community service organizations need to be vigilant about tax scams. They can consult the IRS with questions using the IRS toll-free number (800-829-1040), the IRS website at www.irs.gov, or their local IRS Taxpayer Assistance Center (which can be located online using the Taxpayer Assistance Center Office Locator). Families earning around $49,000 or less can seek free tax preparation services through the IRS-sponsored VITA program or Tax Counseling for the Elderly.

It is in everyone’s interest, especially in these economically troubled times, to make sure that working families receive the full tax benefits for which they are eligible.

For more information about tax credits for which working families may be eligible, check back with the National Women’s Law Center in the fall when our tax credits outreach campaign kicks into full swing.