IRS Targets Preparers in Fraud Cases : Finance: The agency is keeping an eye out for those making bogus earned income credit claims electronically for taxpayers and then keeping part of the refund.

By MARK PLATTE

April 14, 1994 12 AM PT

TIMES STAFF WRITER

LAGUNA NIGUEL —

As the deadline for filing tax returns approaches Friday, the Internal Revenue Service is lying in wait for a growing number of unscrupulous tax preparers who appear to be preying on low-income and non-English-speaking taxpayers--making electronic claims for fraudulent refunds and then keeping part for themselves.

The IRS discovered last year that in several areas of the country--most notably Southern California, Chicago and Florida--a number of people were falsely claiming to qualify for the earned income tax credit, a tax break intended for the working poor.

Nationwide, about one in four such claims were rejected because of error or fraud, IRS officials said. Bogus earned income credit claims are expected to total $5 billion for the 1993 tax year, up from $3.4 billion the year before.

The problem was so severe in Southern California that the Laguna Niguel district, which encompasses Orange County and four other counties, formed a task force last fall to look at the problem.

After its review, it found that most of those who falsely claimed the credit also were filing by electronic means to get a refund more quickly.

Fraudulent electronic filing throughout the United States doubled last year over the previous year, according to the General Accounting Office.

Upon further examination of the situation here, the IRS in Laguna Niguel found that a majority of those fraudulent cases involved the same groupings of people.

“We’re talking about those with low incomes, those who don’t speak English and the low educated,” IRS spokeswoman Judith A. Golden said. “Those are the people who are being victimized.”

Early this year, the local IRS began looking more closely at the earned income credit, freezing numerous refunds that relied on the credit in order to have money returned. Those tax preparers who filed more than 10 returns on behalf of clients in which the credit was claimed were sent letters warning them of new scrutiny to come.

Some tax preparers were suspended and told they could not file returns for two years. Others received “educational visits” by IRS officials explaining the regulations for taking the credit.

IRS officials refused to say how many refunds were frozen or how many preparers were suspended, but said they can be liable for up to $1,000 in civil penalties for each false return if the IRS can prove a pattern of willful neglect.

An earned income credit can be taken if all of the following apply: a individual earned less than $23,050; had a job; and was single, widowed or married and filing a joint tax return. A child also must have lived with the taxpayer in the United States for more than six months of the year, and must be younger than 19, a full-time student younger than 24, or permanently disabled.

Fraud involving earned income credit usually occurs when someone falsely claims to have children or has understated a child’s age, has falsely claimed to have a job, or when married couples who make too much money claim to be divorced to qualify for the credit.

The credit can translate into a refund of up to $2,364 per return, even if someone paid no federal income tax.

Golden says the IRS has a new computer program that allows it to find out whether someone has children or a job. Less effective, officials say, is the means to check marital status. With its computer, the IRS can check the ages and Social Security numbers of dependents claimed on earned income forms.

“This is one of our biggest problems and it’s a big chunk of money,” Golden said. “Some of these returns have fallen into the ‘abusive’ category.”

Tax Time Tribulations

Taxpayers wanting an extension on filing their income tax returns can pick up the needed forms at the following locations:

Internal Revenue Service

* Federal Building, 34 Civic Center Plaza, Santa Ana

* Federal Building, 24000 Avila Road, Laguna Niguel

Offices are open 8 a.m.-4:30 p.m., but forms will be available outside after hours.

Various public librariesxu Make sure to call for hours, as many libraries are now closed on Fridays.

THE LAST MINUTE

Here’s the lineup of post offices that will be open late Friday to accept returns from last-minute filers:

Open until 8 p.m.

* Irvine Post Office, 15642 Sand Canyon Ave.