Editorial: Beware tax fraud, protect assets
The holiday season is followed by the tax season and it's a good idea to be as prepared for the latter as for the former.
Fraudsters know people are looking forward to tax refunds, and will use that knowledge to steal refunds and trick consumers into giving up personal financial information, the Wisconsin Departments of Justice, Revenue, and Agriculture, Trade and Consumer Protection report. While many tax preparation services and lenders will legitimately help consumers file tax returns and obtain refunds, others may hide their true purpose and get personal financial information under false pretenses, file a tax return without consent and keep all or part of any refund.
In one version of the scheme, taxpayers who thought they were applying for a short-term loan at a tax preparation business were surprised to learn the company, without their consent, had filed a return on their behalf. The company then charged exorbitant fees, which it took from the taxpayers' refunds.
The departments ask consumers to notify the state when they see questionable practices. They also offer some tips to avoid becoming the victim of tax preparation fraud:
--Be careful providing personal financial information to a tax preparation business unless wanting the preparer to file the taxes. Make sure to provide clear direction and the preparer specifically advises on whether he or she intends to file a tax return on an individual's behalf.
--Never sign an authorization permitting a company to file taxes if not wanting the company to do so.
--Never sign a document without first reading and understanding what it says.
--Always insist upon receiving copies of all documents required to be signed or which identify the terms of a transaction and the charges required to be paid. Confirm, before signing, copies will be received. If a business doesn't agree to provide copies, don't sign.
--Before choosing a tax preparer, do research and try to get references from other clients, if possible.
--Be alert to promotions such as "holiday loans" or other short-term loans that can be used to gain the personal financial information needed to file an individual's tax return.
Meantime, Hillel Presser, author of "Financial Self-Defense (Revised Edition)," warns litigation is America's fastest growing business because plaintiffs have everything to gain and nothing but a few hours' time to lose. Presser urges people to take steps to protect their assets, suggesting the following resolutions for safeguarding wealth in the event of a lawsuit:
--Inventory personal assets. Figure out how much assets there really are (most people have more than they think). Take stock of valuable domain names, phone numbers, intellectual property, potential inheritances, and other liquid and non-liquid assets. That way, work can be done on actions to cost effectively keep them safe.
--Set a goal. Setting a 2013 asset protection goal is the first step to becoming protected in the New Year. Decide what assets deserve protection in the New Year and a realistic timeline for implementation. Then, and most importantly, stick to the plan. Asset protection works only if there's a follow-through.
--Protect the home. Find out how much of the home is protected by the state's homestead laws, then encumber the remaining equity. Encumbering a home's equity can be accomplished by recording a mortgage against it, refinancing a current mortgage or even taking out a line of credit using the home as collateral. Another great strategy to protect the home is to transfer the title to a protective entity such as a limited liability company, trust, limited partnership, etc.
--Get everything out of the individual's name. In 2013, work on moving assets out of a personal name and into the name of protective entities such as limited liability companies, trusts, limited partnerships, etc.
--Buy adequate insurance. Protect loved ones. Make sure to have adequate insurance coverage in the event of a job loss, natural disaster or even a tragic loss of life. Those include--but aren't limited to--a car, the home and other valuables.