Tax Scams with Richard Gilbert

In this episode, we uncover the intricate web of tax-related scams that prey on unsuspecting individuals every year. From phishing emails promising tax refunds to elaborate identity theft schemes, join us as we expose tactics used by scammers to exploit fear and ignorance during tax season.

Today’s guest is Richard Gilbert. Richard is the Director of the Examination Division with the North Carolina Department of Revenue. He has been with the department for over 25 years. He is a licensed CPA and has received his Bachelor’s of Business Administration from North Carolina Central University.

Show Notes:

• [1:10] – Richard shares his background and what he does in the Examination Division at the North Carolina Department of Revenue.
• [2:38] – Taxes can get very complicated for a lot of people.
• [5:17] – The vast majority of tax professionals do their job well and serve their clients honestly. But there are some people who don’t focus on the right thing.
• [8:09] – Tax preparers who say they can get you the largest return, ask questions.
• [9:36] – Like any other business you employ, you should ask for references.
• [11:43] – If you can afford a CPA, hire one.
• [12:39] – Be wary of YouTube tutorials and advice. You are responsible for your taxes and if you are audited, it is all on you.
• [13:52] – Richard shares some of the things that a good tax preparer will ask for.
• [15:11] – There are scammers that will try to file someone else’s tax return before they do and direct their refund somewhere else. 
• [17:49] – There are things in place that slow down the process that can be frustrating, but are there to protect you.
• [19:29] – It is highly recommended to file your tax return as early as possible.
• [20:10] – You will never be contacted over the phone, via text, social media, or email by a legitimate tax collector. It will always begin through the mail.
• [21:28] – If someone is telling you there is only one way to make a payment, be suspicious.
• [24:33] – The biggest problem in mail correspondence is when people do not respond. Open your mail especially during tax season.
• [26:31] – There is a form of identity theft in which people use another person’s Social Security number to gain employment.
• [28:06] – Be sure that you have everything available to validate your identity when verification is asked for.

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Transcript:

Richard, thank you so much for coming on the Easy Prey Podcast today.

I appreciate it, Chris. Any opportunity to talk about taxes, I take full advantage of it.

I'm sure at parties, that is not the thing that people want to talk to you about.

No, I'm usually in the corner by myself when they find out I'm a tax collector.

Can you give us a little background about what you do for a living here?

My name is Richard Gilbert. I am the Director of Examination for the North Carolina Department of Revenue. The Examination Division pretty much takes care of all of your taxes that are handled by the state by the Department of Revenue. We do all your audit and compliance activities.

The division has right around 250 employees, a little bit over 250 employees. We're divided into about five sections. We have employees that are spread out across 11 service centers in North Carolina, and we also have a contingency at the headquarters here in Raleigh, North Carolina. We also have employees spread out in 16 states outside of North Carolina that handle all of our out-of-state taxpayers.

I've been with the department for a little bit over 25 years. Before I was with North Carolina, I spent about four years with the state of Missouri in their Chicago office with their DOR. I'm a licensed CPA with the state of North Carolina, and I received my Bachelor's of Business Administration from North Carolina Central University out of Durham, North Carolina.

Awesome. You know a lot about taxes.

I like to think I do, but I can get stumped sometimes.

Tax code is one of those things that's not simple, at least not in the United States. It's not like, “Here's the three pages that answers all of your questions.” It gets a little squirrelly at times.

Yeah. If you think about all the different areas that you have, you have 50 states, and I don't know how many different municipalities that you have; it can get complicated for a lot of people.

Consequently, I think most people when we're in high school, if we're working, we might be filing taxes, then hopefully we are working. In college, maybe we're working, maybe we're not. The online tax stuff gets easy. But once you start getting married, having kids, and houses and…

I will tell you, my wife doesn't know anything about taxes, but she assumes that I know everything about taxes, and I do taxes all day. It's tax season. I don't want to prepare taxes, so I want to hire someone to do it. She says, “No, you can't do that. You are our tax preparer. You have to prepare our taxes.”

I have to get in there and nail them out, break those things out of there. It's difficult, but it's something I do every year. Everyone has to do it, so you have to find the right tax preparer and someone that you can trust to do that job.

This episode, while we're recording it early before tax season for the most part, will be airing it a little bit closer to tax season. I think it's one of those things that very often, I don't think people are thinking in advance about their taxes.

It's coming up on tax days like, “Oh, I've got to find a preparer. I'm going to use this random person I found online, or the person that my family uses. He's been giving my dad lots of good deductions, so let me go with that guy.”

Nobody wants to pay taxes. We all understand that in society we need to, but we understand that there are rules about taxes or things. We want to minimize our tax exposure, let's say. Let's use that phrase. Pay the minimum amount of tax that we can legally.

That leads to with any industry, there always are people who are going to over promise things. “Hey, I can get you more tax money back than anybody else can,” and they may or may not be doing something appropriate. Let's talk about some tax preparer stuff, and then we'll go on into some other taxes.

I will tell you, that is a big deal with us with tax season coming along. Fraudulent preparers are something that we have to deal with a lot at the Department of Revenue.

I will say this: The vast majority of tax preparers provide you with great service. They do what they're supposed to do for their clients. They make sure that they build those returns accurately.

There are a small few that deliberately try to cheat on your return, and those are the ones that are trying to sell you a bill of goods where they're trying to tell you, “I will get you the largest refund out there.”

I understand that most people are not trying to pay more taxes than what they should be. But if your selling point is, “I'm going to get you the largest tax…” you may want to run away from that, because they're not focusing on the actual, which is trying to be sure your return is reported accurately. You want to be sure that you steer away from those types of people.

For the ones that do that, for those fraudulent preparers, I need to warn them. That is tax fraud, and it is a felony punishable by fines and prison time. We have, over the years, made sure that we went after those fraudulent preparers to be sure that they understand that they cannot be out there committing fraud on our taxpayers. We do take steps to try to prevent that.

Is it a mix of preparers that are legitimate in terms of they're a CPA, and they've taken something that was maybe a gray area, and they've, “Well, we're just going to push it and we're going to report more. We’re going to inflate numbers. We’re just going to lie on our taxes”? Or is it people that are not qualified to be doing taxes, they're just trying to collect money and throw random numbers on forms?

I will tell you this: Maybe I'm just a little biased because I am a CPA, so I don't want to throw any shade on my counterparts. Most of them have different things that they are required to do every year to keep up to speed. You're safe if you're getting a good CPA. There's always going to be someone out there that doesn't meet those qualifications. I'm alright with that.

For the most part, tax preparers, people that are filing these small individual returns who do not want to pay a CPA $150 an hour, go to small preparers who actually can get registered with the IRS.

These people are not necessarily in the gray area, where we'll get into a lot with CPAs about how you interpret the statute. These are people who are actually saying, “If I gave $1000 in contributions,” they're probably upping your contributions to $10,000. Or they're saying that you have more expenses on your Schedule C.

I've had a taxpayer who once we looked at her return, and we pointed out to her that she had a Schedule C, she didn't even know what that was. She wasn't even aware that she had a business, more or less take deductions on a return from one.

There are people out there who are really just trying to almost branding for them, where they want you to go out and be the advertising for them. “Oh, I got this huge refund last year. You need to go see this person.” That's what they're trying to do.

Those are the ones you really need to watch out for. Be careful about those preparers. I will tell you, if you are picking a preparer, if they come to you talking about, “I can obtain the largest refund for you,” you might want to just step back a little and ask a little bit more questions about that preparer. If any preparer gives you a blank return and tells you just to sign it, run away. You are responsible for that return, so before you sign it, you need to know everything on it. If you find a tax preparer that's telling you, “I'll base my fee on a percentage of your refund,” again, that's a no-no for you. Do not engage with those types of people.

To me, that's always a warning sign. If they have more than just an hourly financial incentive, if they get a bonus for getting you more of a return, that starts to be…

That's a little shady there.

Yeah. Your intentions and their intentions may not align at that point.

What are some of the questions or qualifications that a person should be asking about a tax preparer? “Hey, before you do my taxes, I want to know more about your business and what you do.” What are the questions that they should be asking?

They should be really asking for references like you would do anyone. If you're going with any type of service provider, whether someone is building your house, you want to get references. You should do the same thing if you're engaging any type of tax preparer.

The tax preparer should have what we call a preparer’s tax identification number where they have to register with the IRS. They should be willing to give that to you, and they should also be willing to sign your return and provide you with a copy.

Again, you can always look online to see if there's anything in the Better Business Bureau about them. Talk to some friends, but I would always go with the references first to be sure that they are reputable based on their former customers.

Are there any state or federal clearinghouses or websites of less-than-reputable tax preparers to watch out for?

I'm not aware of any. Maybe the IRS has some that you should be on the lookout for. I know we do announcements whenever we prosecute a fraudulent tax preparer, but I'm not aware of a database that is out there.

Be nice if like, “Hey, this preparer, 90% of their clients get audited. Maybe you don't want to use them.”

That's right because that's really what happens. If we find a tax return that comes across, and we're seeing that they're overstating any deductions like contributions or business expenses, we look to see who that preparer is, and we go pull those other returns to see if there's something going on just to be sure that that preparer is doing it correctly.

Got you. As far as experience, obviously if people are new in the industry, they don't necessarily have a lot of experience, but what background for the preparer should you be looking for? Someone that has a CPA, that has worked in finances somewhere else?

If you can afford a CPA, I would, by all means, go with it. But I understand that if you are making about $50,000 a year, and you're probably only paying taxes, a small percentage of that, you may not be able to afford $150 an hour. That preparer should be able to show you where they learned to prepare. There are a lot of schools that different preparers can go to, where they picked up their skill from.

I want to say the IRS requires them to register and maybe even take some classes before they can actually prepare returns. You should get a clear understanding of their background and where they were able to obtain their skills to complete returns, and not just take anyone off the web or anyone from YouTube telling you how to do things.

Yeah, you definitely want to be cautious about YouTube tax professionals and taking their advice when they're not signing on your file.

They're not going to be there when the auditor shows up. You want somebody that you can rely on to actually defend your return if you are ever audited. If you're taking YouTube advice, understand that YouTuber's not going to come and help you out when the auditor shows up.

What should you be looking for on the paperwork to know that that person's actually going to be with you in the audit as opposed to the state or the federal government saying, “The paperwork says you filed it yourself”?

If they are actually a preparer, they should have a preparer’s tax identification number, which they should put on the bottom of the return, and they should also be signing the return. But even with that, I will caution people that in the end, no matter who prepares the return, even if they put their PTIN on it and sign it, you are the person responsible for that.

I will be careful and thoroughly review any return that someone prepares for you. Before you put your signature at the bottom, make sure you're asking questions about anything that may look out of place. I talked about overstated contributions, business expenses documentation. Make sure you're questioning everything, and those numbers are actually what you told the taxpayer.

Anytime that you're talking to a tax preparer, your first contact with them, they should be asking you some relevant questions about your history, about your tax return, if you own a business, what you do. They should be requesting documentation on your taxes. If that person is not doing that, that's probably not a good preparer that you want to hang around with.

Got you. When you say contribution, are you referring to a charitable giving?

That's just one item on the tax return that we see overstated a lot. We've had situations where a person who made $50,000 a year, but had contributions of $10,000 or medical expenses of $30,000, something that they probably could not actually survive on if it really did. There are people that have those things. We understand that, but those are things that if we see it, we're going to ask questions about it.

It's the stuff that you always want to make sure that you have the backup paperwork to support what you're putting on your taxes. Any reputable charitable organization—I think the number is 250, don't quote me on it, audience; you could probably answer this better than I can—over a certain threshold, that charitable organization should provide you a receipt of that that you would then turn around and provide your tax preparer.

That is correct. Yes, they will. Yup.

What are some of the scams that you see going on around tax preparation?

One of the biggest things, and this just happened to us this year, where we have a unit, we call it our discovery unit. Every individual return that is filed has to go through a check where we try to match it up to criteria to be sure it is the actual return filed by the actual taxpayer.

There are a lot of scammers out there that will try to file your return before you file it and get your refund sent to some place, and you won't even know about it until you actually try to file your return. Once you file your return, we'll let you know that we've already received the return from you, and then there's a process that you have to go through.

This year alone, I want to say our discovery unit prevented right around $400 million in fraudulent refunds from going out. There's a lot of stuff going on out there that people need to be aware of and they need to protect. Not only pick the right preparer, but also protect your personal information so that people cannot use it to prepare your return before you get a chance to prepare it and send it into the department. You need to be very aware of that.

Does North Carolina and does the federal government have a program where you can register online or provide a PIN code that without these things, your return won't be accepted or that they will proactively alert you to say, “Hey, we've received a return”?

I'm pretty sure the IRS does because I have a PIN code that I use when I file my return. We do not have it with North Carolina, but a lot of electronic returns that are filed go through the same process with the IRS. If you file electronically, you probably will file it at the same time as you file your federal return. That's probably a good way to make sure that they all go in at the same time.

I can imagine a day where states have systems in place such that we know in advance that “We just received a return from you.” “I haven't even talked to my tax preparer yet.”

That is the thing. We get a lot of returns. As I stated earlier, they go through a criteria where we try to match up different things to ensure that the person that actually filed a return is the person requesting the refund.

Sometimes that slows down the process, and I hear a lot of taxpayers out there that talk about, “Oh, why can’t I get my refund sooner?” That's because we are actually trying to protect your identity. We're trying to protect your refund. It does slow down the process a little bit. We do have a process where you can call in or even go to our website and check on the status of your refund, but there are things in place that do slow down the process.

I'm a North Carolina resident, which I'm not, but assuming I was and I filed my taxes, and someone else had filed fraudulent taxes on my behalf, is there now a process for easily proving that that other return isn't really me?

We do have a process. We take information from a lot of places. It's not something that we like to put out there in the environment because we do not want fraudsters finding a way around how we check and validate returns, but we do have a process for sure.

Our process is there to try to protect you, but the best way to protect yourself is to take the proper precautions of safeguarding your personal information, making sure your Social Security number is not out there anywhere.

I would even say make sure your personal computer is updated with the latest antivirus and firewall, keeping your password secure, checking your credit report.

Finally, I would just tell you if you want to beat the fraudster to the point, file your tax return as early as possible.

That's always a good solution, be the first one there. I've gotten these phone calls, and probably everybody on the planet, even if they're not even in the US has gotten the phone call saying, “Hey, this is agent Smith with the federal government. I'm a marshal and a sheriff with your local police department. You haven't paid your federal income taxes, or there's been a fraud on your tax account. We need money from you now.” How do we navigate when we're getting phone calls or correspondence to know whether they're legit or not?

For the North Carolina Department of Revenue, we will rarely contact you via phone first. There are instances when we're dealing with larger corporations where that happens, but if we're talking about individual taxpayers, you are going to receive something in the mail from us first before anything. You're going to receive some type of notification from us letting you know that your taxes are under review or even letting you know that your taxes, we found them to be underpaid.

We will never call a person and tell them, “You have to pay, and pay now.” You always will have the opportunity to question or appeal any amount owed. If you have someone calling you saying they're a tax collector and you need to pay now, no, that's not us. You always have the opportunity to question or appeal.

We do not contact you through any text messages or social media. It's going to be through the mail. The only time we really will contact you through email is after we've made that contact with you and we've set it up. You can verify that, yes, this is the Department of Revenue, and we have an issue with your tax return.

The email would only be as a follow-up to an existing case that you've already initiated contact via postal service.

That is correct.

Are there any pay methods that people should be suspicious about? I've always written checks or done electronic transfers. What should people be suspicious about if they're being asked to pay in certain ways?

If someone actually tells you that you can pay a specific method and that is the only method you can pay, that's not the Department of Revenue. I can tell you right now, there are numerous payment options that we present to you in order to pay your bill.

You can pay electronically using credit cards. There's also a payment plan that you can set up. If they're not giving you those options, you might want to be very suspicious about who's on the phone with you.

You definitely don't accept gift cards, right?

No.

Google Play cards?

I'm not aware that we started accepting Google Play cards. I have never heard of it. I don't think that's going to happen with us. Even cryptocurrency, that's not something that we use either.

Those are the giveaways when they're telling you to go down to 7-Eleven and pick up a Target card that you could pay your income tax with Target cards.

That's not going to happen with the Department of Revenue.

We're joking. We’re laughing about it, but the unfortunate thing is that…

It’s difficult, especially if you don't have to deal with this on a regular basis. If you're dealing with the tax department, you're dealing with us maybe once a year if you're having that many problems.

I've worked for the tax department. I really have never actually had to deal with our collection part of it. It's not something that you know about that you wake up in the morning thinking, “Oh, the tax collector is going to call me today. I need to know what to do.” We understand.

I think it's one of those things that it is a significantly scary enough experience for someone to receive correspondence from the state or the federal government.

I've been using a preparer for decades now. But anytime I see a correspondence come in the mail that says the State of California is sending me a letter or the federal government is sending me a letter, even before I open it, I can already feel the hair on the back of my neck standing up, the anxiety welling up inside of me.

It's understandable that the scammers are exploiting that to try to get our money because none of us want to get that letter. We're scared out of our mind when we get that correspondence.

Yeah. If I can touch on something else that is a problem for us, I talked about our security measures that we have in place and how sometimes when a return comes through, if it does not match up with what we believe to be the actual taxpayer, we will put that return to the side, we will assign it to an auditor, and an auditor will make contact with that taxpayer.

Again, this is something that we will send through the mail. We're using either the address on your return or the address that we believe to be the latest address per our system. There are a lot of times when people move, and they'll update their address with the DMV, but not necessarily have that on their return. We will look to see what is the latest address and then send it to that address.

The biggest problem we have is people don't respond. They'll call us after about 60 days asking about a refund. We'll say, “We sent you a letter. We need additional information.” “Oh, I'm sorry. I just never opened that letter.” Open that letter. It may be something in there that you need to deal with immediately.

Another thing, make sure you're updating your address. I remember when I was a kid, especially when I was in college, I would move every year. I still had the same address that I first had on my driver's license. If someone was trying to contact me, they couldn't do it through my driver's license. It's very important that you update that address information so we have the latest, so when we reach out to you that there's a problem with your tax return, you can get a quick response.

I know we've talked a little bit about identity theft. Are there any other identity theft issues that come up through tax returns, where if someone has been working fraudulently under my Social Security number and committing identity theft, if they've got a different address and they've submitted a pseudo-fake return with a fake address, that's not necessarily going to come back to me. Is that something that will eventually get picked up in the system when there are two returns from different addresses, different employers?

If we see two returns come in, it'll definitely be something that we will reach out and try to find the actual taxpayer in that situation. There are situations that are separate situations from this, where we have what we call ITIN users that sometimes use Social Security numbers when they go in, and they really have an ITIN number they should be using, where we look at it and we find out, “Well, this person over here is not representative of who's working at this specific location.”

There are situations like that that we run into. It's still identity theft, I guess, but it's more of a situation where a person is just trying to be employed. They're just using a Social Security number just to get that job. They aren't actually filing any tax returns. It may be that that Social Security number will show up with some FICA payments or state employment tax payments, and the person never worked that job.

There are situations that will come out when we try to compare returns, and we'll try to inform people that that's what's going on. The person that's not working probably would never even know that someone's using their Social Security number fraudulently. They would just probably find out, if we say, “Well, you owe some taxes based on this Social Security number,” then that's when that would come up. There are two different subjects, but still identity theft, though.

Are either of those things that might get discovered through monitoring your credit that all of a sudden, a different name shows up on your credit or some other address?

If something pops up where some credit or a loan that you did not have, you can probably be sure that someone probably has your identity and uses your Social Security number. You probably want to be sure that they have not used it to file tax returns, because they will try to take advantage of you any way they can. Just to get free money by filing a fraudulent refund is a quick way to do it.

Anything else that you have to add as we wrap up here?

Be sure that if you get information from us requesting additional information that you have everything that you have to secure and validate your ID, like state driver's license, passport, employee identification, your Social Security, and a copy of your wage and tax returns. Make sure you have all that stuff when we request it. It will help you go through the process a lot quicker, and that's what usually slows a lot of people down when they're getting their refund.

We're just trying to verify that your refund is actually due to the person that's requesting it. We don't want to pay anyone else. Any way that you can help us out in securing that information as quickly as possible will help you out in the long run.

Are there resources that the Department of Revenue in North Carolina provides to the public?

There are a host of things on our website. It goes into a lot more detail than what I went into today. If you go to ncdor.gov and you hit that website, you'll see a bunch of things that will help you navigate through the tax world, especially if you are trying to find out where your refund is.

There's an actual page on there where it says, “Where's my refund?” You can click on that, enter your information, and we will give you the status of your refund, where it is. It usually goes through about three stages through the refund process. We'll let you know which stage it's in.

If it's in a stage where it's been there for over 60 days, more than likely it's because we have found that that return does not match our criteria, and we're sending you requesting additional information on that return. In that situation, definitely reach out to us. There's usually an auditor assigned, and we can help you out with that.

If you do not have access to the Internet, you can always call us. 1-877-252-3052, and we will direct you to the right person. Again, there are going to be some prompts on there if you're requesting information about a notice that you received, a letter requesting information, or even information about where's my refund. All can be found there also. We have a team of people that are just waiting on the phone to help you out and try to get you through this process as quickly as possible.

That is specific to taxpayers in North Carolina. That's not federal tax, not the people in California unless you're filing in North Carolina.

We get a lot of phone calls. Even when I'm out in public, I tell people I work for the North Carolina Department of Revenue. Someone else wants to introduce me, they'll say, “Yeah, he works for the IRS.” I have to tell them, “I never said that. I don't know how you got NCDOR out of the IRS.”

We have a ton of people calling us. They'll get notices from the IRS, and they'll call us to ask about the notices. We have to refer them back to the IRS because we do taxes but we are separate. We are state taxes, not federal taxes. A lot of people get that mixed up. But if you have an IRS question, it'll say irs.gov at the top, and you need to reach out to them.

Awesome. Richard, thank you so much for coming on the Easy Prey Podcast today.

I appreciate it. Anytime you need help, just give me a call. I'm here for you.