Tax Credit Fraud Investigation Saves The State Millions
Highlights The Need For Taxpayers To Check The Credentials Of Their Preparer
FOR RELEASE:
IMMEDIATE, Thursday
December 16, 2010
New York State Department of Taxation and Finance Acting Commissioner Jamie Woodward today issued a warning to taxpayers about a scheme involving a growing number of tax preparers filing claims for the Special Additional Mortgage Recording Tax credit on behalf of taxpayers who are not entitled to the credit.
The Department, through its audit processes has disallowed more than 3,600 claims for this tax credit, which has resulted in $28.5 million in savings to the state. The Department has an ongoing criminal investigation regarding the alleged fraud.

"Claims of fraudulent credits are growing significantly," Acting Commissioner Woodward said. "This case, and others we have investigated, highlights the need for taxpayers to perform their due diligence when choosing a preparer and to scrutinize their returns for accuracy."

The investigation concerns taxpayers who have claimed this credit for residential properties using Form IT-256, "Claim for Special Additional Mortgage Recording Tax Credit." In general, very few taxpayers are legitimately entitled to this credit, which generally involves large commercial properties. Typically the personal income tax claims come from partners in a real estate investment partnership.

The scheme generally involves reporting all costs associated with a residential property closing as Special Additional Mortgage Recording Tax. Unscrupulous preparers are reportedly charging fees in the range of 25-40 percent of the credit.

Acting Commissioner Woodward advises taxpayers that caution should be exercised when choosing a preparer and that they should be especially wary of refund scams or fraud when using a preparer for their tax returns.

The taxpayer is the responsible party when the Department disallows fraudulently claimed credits or deductions. The taxpayer is responsible not only for the actual tax obligation, but may face additional interest, penalties and possible criminal sanctions associated with fraudulent activity.

The Tax Department has published a Consumer Bill of Rights brochure which provides helpful information on choosing a preparer.

The brochure can be found at the Department's web site: http://ping.fm/N51ta

The Tax Department advises those seeking a preparer to:

•obtain references from the preparer's clients;
•ask about service fees in advance and avoid preparers who guarantee a refund or base their fees on a percentage of the refund or credit;
•make sure they can contact the preparer after the return is filed; and
•research the preparer's credentials through the Better Business Bureau, State Bar Association, or licensing authority for CPAs.