McAvoy relates that a former client called him up months ago to ask him about a tax preparer they had contracted.
"The client had a small business and did not know much about taxes, preferring to have it done by professional accountants year after year. This time, however, it was different. The person they hired to do their taxes wanted to inflate their deductions by coming up with charitable donations they did not make and by exaggerating their business expenses. The bad news was they have already signed a blank tax form. Having read something about tax season fraud, they wanted to know what they could do. I had them check out the accounting guy's credentials and when they found out that the references he gave were bogus, they started worrying even more. So I told them to get in touch with the Canadian Anti-Fraud Centre," McAvoy said.
Tax season fraud is more prevalent than you think it is.
A recent Certified General Accountants - Canada report showed that 20% of all Canadians have experienced being scammed during the tax season.
Anthony Ariganello, CGA-Canada's president and CEO, explains that tax season is when most con artists work their "magic" and prey on unsuspecting Canadians. They target younger people more often because they are more inexperienced when it comes to tax matters.
What kinds of scam should you be wary of? Jim McAvoy, accountant and Victoria CGA, comments that scamming taxpayers takes a lot of forms. "There's tax preparer fraud, phishing, false charities and identity theft. And that is just the most prevalent!"
Do something, but what?
A sad revelation from the survey showed that more than half of Canadians did not even know how to deal with the situation. Those who were scammed did not know where to report it.
"There are things you should always keep in mind, common sense and a little fact checking never hurts," McAvoy adds.
So what do you do to avoid getting scammed? Know more about the different kinds of scams going around and learn how to prevent it.
According to data from the Canadian Anti-Fraud Centre, Candian individuals and businesses lost a total of more than $125,000 during the 2011 tax season due to phishing scams. In 2012, phishers were able to steal at least an additional $76,000.
Jim McAvoy, accountant, advises that you should be wary about any e-mail asking for personal information such as credit card details, bank account, social insurance and even passport numbers.
It does not matter if the e-mails seems to have come from trusted sources, phishers usually have a way to make it appear that the e-mail comes from a trusted source. Or they could hack into an e-mail account and hijack it.
Also be aware that e-mails could easily harbor malware and viruses, so be sure to install a trusty anti-virus software.
If you get a phishing e-mail from the Canada Revenue Agency, you should go to http://www.cra-arc.gc.ca/security/ to know about what you should do next.
Here is what most Canadians do not realize: their tax return has all the information that an identity thief needs in order to carry out his or her crime. McAvoy explains, "If the wrong people get hold of your tax return, they could easily steal from your online personal accounts and even apply for a credit card under your name."
If you suspect that you have been victimized, call the major credit bureaus and ask that they flag your files with a fraud alert. You should also get copies of credit reports immediately. Call Equifax at (866) 828-5961 and TransUnion at (800) 663-9980.
Tax preparer fraud
Who does not want to pay less taxes? It seems that everybody would like to see that amount they pay for taxes to be shaved to half, at least. This is what a tax preparer fraud artist is banking on. They will tell you that they would be able to help you get a higher return for your money at discounted rates. In fact, they will tell you that you only pay them a percentage of your refund, so the bigger refund you have, the bigger their payday is.
But what really happens is that a fraudulent tax preparer will try to get as many deductions as possible, sometimes illegally inflating your refunds without your knowledge. They get paid and you never hear from them again, but you will be liable for anything that comes with your tax return.
Or worse, they direct the refunds to themselves, leaving you with nothing.
According to Jim McAvoy, "An accountant can easily help you during tax season, which is why 41% of Canadians ask help from professional accountants. But you need to make sure that they have the proper credentials and everything they do is aboveboard."
"Get a Certified General Accountant to help you out. Always get referrals from people you trust to make sure that the person or company is legitimate. If they offer something that sounds too good to be true, then walk away."
You could see a list of CGAs in your area from the Public Practice Firms Directory at www.needanaccountant.org.
If you have been victimized, call the Canadian Anti-Fraud Centre at (888) 495-8501 or the Competition Bureau at (800) 348-5358.
Charitable donations are tax deductible. Unfortunately, con artists try to pose as people coming from charities you have never even heard of and try to get donations from you. Be sure that you are helping a legitimate charity by looking at the CRA Charities Listings at www.cra.gc.ca/donors.
What are the warning signs? check out the charity's name. Sometimes, fake charities use a name that is similar to a well-known charity. So, think twice before donating to the Read Cross or the Unichef.
Fake charities sometimes tell you that you could get a profit from donating to charity. They will tell you that you can get a higher tax savings than what you have donated.
Do not scoff, Canadians have a good heart, but $25,000 were lost to bogus charities in April 2012, according to the Canadian Anti-Fraud Centre. So check with the CRA Charities Listing first before donating and make sure that you make the cheque payable to the institution itself and not to a particular person.
Jim McAvoy, an accountant by profession, is co-founder of McAvoy Rule and Company.