Tax Preparation

There are many ways to file your annual income tax return -- more than ever this year, in fact. But virtually all of them have a cost or catch. The best way for you to file is going to depend on your income, the complexity of your situation and how good you are at following directions.

The Internal Revenue Service said Thursday that it was considering curbing tax refund loans offered by tax preparers such as H&R Block Inc. and Jackson Hewitt Tax Service Inc. More than 12 million people take out such loans each year to in effect get advances against their refunds, according to a study by consumer groups, which have long criticized the fees on the loans as excessive. The IRS suspects that some preparers may be inflating refunds to increase the size of the loans they make.

IRS criminal investigators this week conducted raids in Riverside and six other cities to shut down tax preparation businesses suspected of abusing a one-time telephone tax refund. The Internal Revenue Service said Friday that some tax-return preparers were requesting thousands of dollars of refunds for clients despite IRS pronouncements that the tax break should be in the $30 to $60 range.

Pity the taxpayer who tries to go it alone this year. What with stealthy deductions, rule changes and the usual stultifying complexity, taxpayer error rates are climbing. And if you make a mistake, it's likely to be in the government's favor, not yours. There are plenty of pitfalls. Three specialized breaks aren't printed on the 1040 form, making them easy to overlook.

Joe and Melody Sheridan had no idea that the federal government would help them finance their 21-year-old daughter's college education until a few weeks ago, when a tax-savvy friend happened to mention it. "This means that we may be able to save a little -- and not deplete our savings account so much," said Joe. The fact that he would have completely missed a $4,000 deduction if not for this coincidence is tragically common, tax experts say. The U.S.

The federal government has sued the operators of more than 125 Jackson Hewitt Tax Service Inc. tax preparation offices, accusing them of cheating the U.S. Treasury out of more than $70 million through a "pervasive and massive series of tax-fraud schemes." The complaints target five franchises that operate offices in the Atlanta, Chicago, Detroit and Raleigh-Durham, N.C., areas, as well as 24 individuals. Parsippany, N.J.-based Jackson Hewitt is the second-largest U.S.

The federal government has widened its probe into whether the nation's No. 2 tax-return preparer helped customers file fraudulent returns to get bigger refunds. One large franchisee of Jackson Hewitt Tax Services Inc. was accused of fraud two months ago, and the company hired a former Internal Revenue Service commissioner to review the allegations.

Two final defendants in a tax fraud scheme that cost the federal government about $40 million were convicted Wednesday of conspiracy to prepare fraudulent tax returns. Kelly Agbonmoba David, 29, of Irvine and Anthony Todd Stefani, 42, of Chino Hills were found guilty by a jury in Santa Ana after a day of deliberation following a four-week trial.

Tax return preparers at commercial chains made mistakes on virtually every tax return prepared at the request of undercover congressional investigators, the auditors said Tuesday. In 19 visits, the Government Accountability Office asked for assistance from preparers to file returns for two hypothetical families. Only two of 19 tax returns showed the correct refund amount, but both of those returns included errors.

Haven't filed your tax return? You're not alone. Internal Revenue Service statistics indicate that more than one-third of individual taxpayers hadn't filed as of April 7 and might be waiting until the final days before Monday's deadline. (This year's deadline is extended two days because the 15th, today, is a Saturday.) If you're among the tax procrastinators, be careful. Last-minute filers are prone to errors that can be costly and can single out returns for audit.