Save for College Tax-Free

College tuition and fees are on the rise. Shockingly, the cost for 4-year private schools now tops $36,000 per year on average.

But the investment is well worth it. According to the U.S. Census Bureau, individuals with a bachelor’s degree earn more than double those with just a high school diploma.

The two most popular college savings programs are 529 plans and Coverdell Education Savings Accounts. Whichever you choose, be sure to start when your child is young. The sooner you begin, the less money you will have to put away each year.

Example: Suppose you have one child, age six months, and you estimate that you’ll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you’ll need to save $3,500 per year for 18 years (assuming an after-tax return of 7%). On the other hand, if you put off saving until your son is six years old, you’ll have to save almost double that amount every year for twelve years.

Financial Calculator: College Savings Planner
Use this calculator to help develop and fine-tune your child’s college education savings plan.

Based on the survey completed for the 2010 Trends in College Pricing, the average cost for tuition, fees, and room and board for 2010-11 was:

$16,140 per year for 4-year public (in state) colleges and universities.
This is an increase of 6.1% from 2009-10 findings.
$36,993 per year for 4-year private colleges and universities.
This is an increase of 4.3% from 2009-10 findings.

It should be noted that, on average, full-time students receive $16,000 of financial aid per year in the form of grants and tax benefits for private 4-year institutions, $6,100/yr for public 4-year institutions, and $3,400/yr for public 2-year institutions.

Section 529 plans, also known as Qualified Tuition Programs, are the best choice for many families.

Every state now has a program allowing persons to prepay for future higher education, with tax relief. There are two basic plan types, with many variations:

1. The Prepaid Education Arrangement. You essentially buy future education at today’s costs, by buying education credits or certificates. This is the older type of program, and it tends to limit the student’s choice of schools within the state.
2. Education Savings Accounts. You contribute to an account earmarked for future higher education.

Tip: When approaching state programs, one must distinguish between what the federal tax law allows and what an individual state’s program may impose.

You may open a Section 529 plan in any state. But when buying prepaid tuition credits (less popular than savings accounts), you often need to apply the credits to a specific college or group of colleges.

Unlike certain other tax-favored higher education programs, such as the Hope and Lifetime Learning Credits, federal tax law doesn’t limit the benefit only to tuition. Room, board, lab fees, books, and supplies can be purchased with funds from your 529 Savings Account. (Individual state programs could be narrower.)

The key parties to the program are the Designated Beneficiary, the student-to-be, and the Account Owner, who is entitled to choose and change the beneficiary and who is normally the principal contributor to the program.

There are no income limits on who may be an account owner. There’s only one designated beneficiary per account. Thus, a parent with three college-bound children might set up three accounts. (Some state programs don’t allow the same person to be both beneficiary and account owner.)

Tax Rules Relating to 529 College Savings Plans

Income Tax. Contributions made by the account owner or other contributor are not deductible for federal income tax purposes. Earnings on contributions grow tax-free while in the program.

Distributions from the fund are tax-free to the extent used for qualified higher education expenses. Qualified expenses include tuition, required fees, books, supplies, equipment, and special needs services. For someone who is at least a half-time student, room and board also qualify.

In 2009, the American Recovery and Reinvestment Act (ARRA) added expenses for computer technology/equipment or Internet access to the list of qualifying expenses. Software designed for sports, games, or hobbies does not qualify, unless it is predominantly educational in nature. In general, however, expenses for computer technology are not qualified expenses for the American Opportunity Credit, Hope Credit, Lifetime Learning Credit, or tuition and fees deduction.

Gift Tax. For gift tax purposes, contributions are treated as completed gifts even though the account owner has the right to withdraw them – thus they qualify for the up-to-$13,000 annual gift tax exclusion. One contributing more than $13,000 may elect to treat the gift as made in equal installments over that year and the following 4 years, so that up to $65,000 can be given tax-free in the first year.

Estate Tax. Funds in the account at the designated beneficiary’s death are included in the beneficiary’s estate – an odd result, since those funds may not be available to pay the tax.

Funds in the account at the account owner’s death are not included in the owner’s estate, except for a portion thereof where the gift tax exclusion installment election is made for gifts over $13,000. For example, if the account owner made the election for a gift of $65,000 in 2011, a part of that gift is included in the estate if he or she dies within 5 years.

A Section 529 program can be an especially attractive estate-planning move for grandparents. There are no income limits, and the account owner giving up to $65,000 avoids gift tax and estate tax by living 5 years after the gift, yet has the power to change the beneficiary.

State Tax. State tax rules are all over the map. Some reflect the federal rules, some quite different rules. For specifics of each state’s program, see http://www.collegesavings.org.

The total contributions for the beneficiary of a Coverdell Education Savings Account (ESA) cannot be more than $2,000 in any year, no matter how many accounts have been established. (A beneficiary is someone who is under age 18 or is a special needs beneficiary.)

The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses.

Here are some things to remember about distributions from Coverdell accounts:

• Distributions are tax-free as long as they are used for qualified education expenses, such as tuition, books, and fees.

• There is no tax on distributions if they are for an eligible educational institution. This includes any public, private, or religious school that provides elementary or secondary education as determined under state law.

• The Hope and Lifetime Learning Credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.

• If the distribution exceeds education expenses, a portion will be taxable to the beneficiary and will be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.

Considering the wide differences among state plans, federal and state tax issues, and the dollar amounts at stake, please call us before getting started with any type of college savings plan.

After I Do - Best Filing Status for Married Couples

Summer is wedding season. If you are getting married this summer, remember to give some attention to your 2011 tax filing status.

You have two filing status options: married filing jointly, or married filing separately.

Married Filing Jointly

You can choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. On a joint return, you report your combined income and deduct your combined allowable expenses. You can file a joint return even if one of you had no income or deductions.

According to the IRS, if you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses.

We recommend that if you and your spouse each have income, you figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). You can choose the method that gives you the lower combined tax.

Joint Responsibility. Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse.

Married Filing Separately

You can choose married filing separately as your filing status if you are married. This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return.

We Can Help

Drop us a line if you're unsure of which status to file under.

Retirement: It's Not All a Crapshoot

by Glenn Ruffenach
Thursday, July 14, 2011

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 Want to hear some good news about retirement? You have more control over your future than you think.
So much about retirement planning today is marked by doubt: We don't know whether our savings will see us through old age. We don't know what might happen to Social Security and Medicare. We don't know whether we'll be able to continue to work for as long as we wish to (or need to). And so we fret — a lot. In its most recent "retirement confidence" survey, the Washington, D.C.-based Employee Benefit Research Institute found that 27 percent of workers are "not at all confident" about having sufficient funds to live comfortably in later life — the highest level of gloom in the study's 21-year history.
At their worst, such anxieties can leave people paralyzed. Clark Randall, who heads Financial Enlightenment, a planning firm in Dallas, says he often sees this with his clients: "It's easy to focus on threats they can't control." And that's the point. If you're caught up in issues that are out of your hands — interest rates, changes in government programs, the markets — you're more likely to overlook those parts of retirement planning where you do have control.
So, "pop quiz": How many of the following steps — for which you're the boss — have you taken?
Setting a budget. It's among the most important steps in planning for later life, but less than half of workers have put pencil to paper, according to the Employee Benefit Research Institute. Why are budgets so critical? Projecting expenses and income can help you pin down your "number," the amount of money you need to save for retirement. You could be pleasantly surprised. "Many people who have been diligent about building a nest egg find they spend less on themselves than they realize," says Brent R. Brodeski, a managing director at Savant Capital Management in Rockford, Ill. Any number of work sheets can simplify the process. (See the Department of Labor's "Taking the Mystery out of Retirement Planning" or T. Rowe Price's "Retirement Readiness Guide.")
Timing Social Security. If you're married, the timing of exactly when each spouse first files for benefits can translate into thousands of dollars gained — or lost — in retirement. Rather than simply jumping in the pool at age 62 (the earliest point at which you can grab a check) or trying to sort through a dozen different scenarios, take advantage of a service that can run the numbers for you. One good bet: SocialSecuritySolutions.com.
Reducing debt. Between 2000 and 2008, the average debt for households headed by a person age 55-plus almost doubled to $66,000, according to Strategic Business Insights, a research firm in Menlo Park, Calif. Again, here's where would-be retirees can take the reins. Marsha and Chris Blair, 63 and 65, both educators, were saddled with a monthly mortgage of $5,300 on their house just south of San Francisco. Knowing they wanted to travel in retirement, they recently sold it (admittedly, not an easy feat in some markets these days) and moved to a $142,500 home in Yountville, Calif. Their new monthly payment for the land lease, insurance, taxes and cable: under $800. "You have no idea how freeing that is," Marsha says. "The first thing my husband says every time we enter the house is, 'Home, sweet unmortgaged home.'"
Creating a pension. If nothing else, the recent financial meltdown underscores the need for investments that throw off income, regardless of what's happening in the markets. If you're fortunate enough to have an employer pension, great. If not, there's no excuse for failing to buy and hold products — annuities, dividend-paying stocks, bond funds — that generate cash.
Managing taxes. No, you can't control tax rates, but you can practice "tax diversification," says Randall, of Financial Enlightenment. Ask yourself: Will virtually all your money in retirement come from your 401(k) or IRA? If so, those withdrawals will be taxed as ordinary income, and you could be paying as much as 35 percent to Uncle Sam. But if you divide your dollars among more buckets — Roth IRAs, municipal bonds, even real estate — you have the flexibility to pull funds from different sources at different times. "You don't know what your effective tax rate will be in retirement," Randall says. "That's why you should diversify."
Planning for long-term care. Yes, this is a tough one. But it's also an area where failing to act could prove devastating. Among your options: self-insuring, if you can set aside sufficient funds. Long-term-care insurance, which is complicated and expensive, is another possibility, as are so-called hybrid policies that provide some long-term-care benefits and some life insurance (but perhaps not enough of either). Finally, there's the Community Living Assistance Services and Support Act, the federal government's new insurance program for long-term care (the details are still being ironed out). While it could be a case of picking your poison, just choosing means you've taken control.
I know: The invariable response is, "But I don't have time." Please. It never fails to amaze me how people will spend weeks planning a visit to Disneyland with the grandchildren but won't take a few hours to assemble a retirement budget that could easily last 30 years. Believe me: You can find time. Take control of what you can control — and take the anxiety out of your retirement planning.

Fly for Free Thanks to the U.S. Mint

by John Giuffo
Thursday, July 14, 2011

For some people, racking up frequent flier miles can border on obsession. Supermarket purchases, restaurant meals, clothing, entertainment -- if it can go on the frequent flier card, it does. But racking up thousands of frequent flier miles for free? That's a trick that all but the truly dedicated can only dream about.
But it's possible, and best of all, it's legal.
Not exactly ethical, but it's not a crime -- at least not yet. The trick (it feels more like a scam) is to use a government program meant for promoting the circulation of dollar coins for everyday use. And it's not new: travel hackers have been doing it for years, and it's only recently that the federal government has caught on and done something about it.
It goes something like this: The U.S. Mint, through a 2005 act of Congress, is required to place $1 billion worth of the golden presidential and Sacagewea dollars into circulation in an effort to stimulate general use. The only problem is, the coins haven't really caught on with the general public. But there is one group of people that have enthusiastically embraced their use: travel hackers, so called because they aggressively look for loopholes in promotional programs and for tips on travel websites for ways in which to make the best use of their travel dollars. Much of this "hacking" involves taking advantage of frequent flier programs in unique and innovative ways.
[Click here to check savings products and rates in your area.]
The dollar coin trick involves purchasing large amounts of coins with a frequent flier card, waiting for the Mint to ship the coins (free shipping!), and then taking the coins to the bank, where they are deposited and the money is used to pay the credit card charges. No money is lost, the frequent flier miles rack up, and travelers can use them for upgrades or completely free flights whenever they want. According to NPR's Planet Money, which broadcast a story about the scheme on Wednesday morning, the Mint caught on when some customers started buying hundreds of thousands of dollars worth of free coins, so it has since limited purchases to $1,000 every ten days. But 3,000 free frequent fliers miles per month still isn't a bad deal. NPR quotes Mint spokesman Tom Jurkowsky about the ways in which the Mint has tried to curb the practice: "Do we feel a little bit violated? Yes, and that's why we aggressively sought measures to eliminate what we called an abuse."
One site, TravelHacking.org, promotes these methods as a way to gain money through membership through its website, but it's not really necessary to pay any money at all to learn some of the best ways to travel hack -- in fact, many of these methods are enthusiastically promoted on various travel sites. Popular travel website Gadling wrote about the tactic in April, discussing the trick's growing popularity, how it resembles a cash advance, and how the IRS doesn't consider it a cash advance for tax purposes. For many with the financial flexibility to have $3,000 a month in circulation, it seems like too good an opportunity to pass up. As stated above, it's not a new phenomenon: The Wall Street Journal wrote about the coin trick in 2009, which ultimately may have played a role in the Mint's crackdown.
Contrary to some reports, the practice hasn't ended since the Mint enacted the new rules; it's only slowed down. You can find the web page for the Mint's coin program here.
And until frequent flier miles card issuers catch on and do something about the practice, it seems likely to attract the sort of customers who are looking at the fine print of their rewards programs for any and all ways in which to maximize their mileage.

Beer Today, Gone Tomorrow

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And dying in your beds, many years from now, would you be willin’ to trade ALL the days, from this day to that, for one chance, just one chance, to come back here and tell our enemies that they may take our lives, but they’ll never take… OUR BEER!

Okay, that was really from Braveheart. And I might have changed it a little bit. But said with a Minnesotan accent, you can imagine exactly how folks in Minnesota are feeling just about now.
You see, Minnesota is in the 14th day of a government shutdown. There’s simply no agreement on a budget. So, Gov. Mark Dayton (D) and the GOP-controlled legislature continue to hammer away at each other.
But that’s about that’s going on in the state. Twenty two thousand state employees have been furloughed. State parks are closed. Road construction projects have stopped. In fact, most non-emergency services are closing up shop. Those services considered critical, such as state police, prisons and nursing homes, remain open only by court order.
It’s dire.
And just when you thought it couldn’t get any worse, the state might be running out of beer.
Horrors!
The first nail in the beer coffin involves MillerCoors brewing company. The beer giant, which is as it sounds, a venture between SABMiller and Molson Coors, will be required to pull its beers from every restaurant, bar and liquor store in the state because they did not renew their brand label registration before the shutdown. Without a registration, they may not legally distribute or sell beer in the state.
For its part, the company claims they made an attempt to renew their registration but overpaid their fees. By the time they tried to make the correction, the shutdown had already started. The result? The application wasn’t processed.
What does that mean for beer drinkers in the state? MillerCoors claims a whopping 38% share of the beer market in the state. That’s a lot of empty shelves in the next few weeks if the government doesn’t re-open for business.
Fellow beer manufacturer Anheuser-Busch faces a similar fate in a few months if the shutdown rolls on.
And it’s not just brewers that have this problem:  bars and restaurants across the state did not get their paperwork processed before the shutdown. Without the proper papers, they can’t buy beer and hard liquor from wholesalers. The result? Empty coolers. And consequently, empty seats.
It gets worse. The state is no longer issuing tax stamps which allow for the retail sale of cigarettes. Without the stamps, retailers may not sell cigarettes.
No more beer and cigarettes? Is it just me or are you suddenly very afraid of the state of Minnesota?
I’m not a smoker but I am partial to an occasional beer (unless you’re my mother in which case, I’d like to reiterate that the beer that was in my fridge was, as I explained, simply for washing my hair), so I feel for the folks in the state. I think this is a classic example of those in government forgetting how their actions affect taxpayers.
As the shutdown continues, it’s easy for those in suits in the capital to talk a big talk about what’s best for the state. But what about the little things? It’s summer. What happened to cracking open a cold beer during a Twins game (see, I didn’t even gloat about my first place Phillies)? Or having a cigarette after a good meal if that’s your thing? Nope. You can’t wander down to the park. Heck, until a few days ago, you couldn’t even go to the zoo.
What makes it okay for the Governor and the legislature to hold its own state hostage?
The irony of the whole mess is that this is the equivalent of shooting yourself in the foot. All this talk about how best to raise revenue? How about keeping businesses open? The state is losing dollars by the day with the shutdown.
How much exactly? Minnesota takes in more than $600 million per year in state sales tax from the leisure and hospitality industry alone. Additionally, the industry employs more than 235,000 workers, which works out to nearly 5% of the population – not a number you want to see on the unemployment rolls.
And although a summer shutdown seems like a safe bet for those fighting over the budget in St. Paul, consider this: the number of tourists who travel to the Land of 10,000 Lakes is nearly five times the total population of the state. Tourism generates more than $25 million in gross receipts/sales per day in the state. But with no parks open and restaurants and bars shutting down by the day, Minnesota’s appeal as a tourist destination may be dwindling. The financial impact could be significant for the long term.
I get that there are some difficult choices to be made. But allowing the state to lose services by the day as a result of refusing to act is simply disgraceful. The people of Minnesota deserve better. Quick, someone pass them a beer!

With Job Losses Soaring, Ten Tax Tips for the Unemployed

The Department of Labor released its jobs report for June this week and the results weren’t pretty. Only 18,000 new jobs were created in June, representing 7,000 fewer jobs than detailed in a disappointing May report. The unemployment rate continued to climb, hitting a whopping 9.2%, giving June the undesirable distinction of the month with the weakest job performance in nearly a year.
Of course, numbers just tell half of the story. The folks who are without jobs know the real story. And it’s a tough one. There’s a lot to consider including how to pay the bills, getting a new job and figuring out your unemployment benefits.
The last thing that you’d need to worry about is taxes. Here are ten tax-related tips to help you sort it out:

1. For federal income tax purposes, unemployment compensation is taxable. Also taxable? Any separation package or other payments or benefits (including accumulated vacation or sick time) that you might collect when you leave your job.
2. Be sure and check any withholding reflected on your final check. If you’ve opted out of federal income tax withholding from your benefits during the year, you may have to pay more at tax time. If you think that might apply to you, consider making estimated payments during the year to avoid a potential penalty.
3. Generally, withdrawals from your pension or retirement plan are taxable unless they are transferred to a qualified plan like an IRA. The treatment of retirement income or accrued benefits can be tricky so check with a tax professional, your financial advisor and/or your benefits administrator to find out the details ahead of time. Some actions – like not rolling a plan over to an IRA within 60 days – are irreversible for federal income tax purposes and penalties may apply.
4. If you made a contribution to your IRA during the year – but now you need the money back – you’re in luck. Contributions returned before the due date of your tax return can be withdrawn without penalty. You’ll need to take out the contribution as well as any interest or dividend earned. Of course, if you take it back, you can’t claim a deduction for the initial contribution on your return.
5. Food stamps and other forms of public assistance which might be available to you are generally not taxable. Don’t be afraid or embarrassed to ask about benefits. Temporary programs like food stamps, WIC (Women, Infants and Children) and those offered through  TANF (Temporary Assistance for Needy Families) can help put food on the table for your children while you continue to look for work.
6. Don’t forget to take advantage of deductions which might be available to you, including a deduction for expenses incurred while looking for a new job. Those expenses would be reported on your Schedule A, assuming you itemize your deductions, as miscellaneous expenses that exceed 2% of your adjusted gross income (AGI). You may not deduct the cost of looking for your first job in a particular profession (sorry new grads) or the cost of looking for a job in a new profession. If you’ve decided to pursue your dream job as a chef, that’s terrific, but if you were formerly an attorney, you can’t deduct the cost trying to get Bobby Flay to pick you as the Next Food Network Star. You also can’t deduct job expenses if there has been a “substantial break” between leaving your last job and starting to look for new job. There isn’t a magic number of days that qualifies as a “substantial break” but you must be reasonable. Taking a few months off to travel and find yourself a la Julia Roberts in Eat, Pray, Love is likely considered a substantial break as would taking a few years off to have children, though clearly not as much fun as traveling around the world, it’s more work, more expensive and it feels longer.
7. If you move for work-related reasons, you may be able to deduct your moving expenses on your federal income tax return – and you don’t have to itemize to do it. Under the rules, you can deduct reasonable moving expenses so long as the move is “closely related” to the start of a new job for your trade or business; your new main job location is at least 50 miles farther from your former home than your old main job location was from your former home; and you work full time for at least 39 weeks during the first 12 months after you arrive at your new job location (the rules for the self-employed are a bit more complicated). The IRS doesn’t consider going to school a job – even if it feels like it sometimes – so moving for your education won’t qualify; similarly, you may not claim a moving expense for a move for an unpaid internship.
8. If you’re responsible for paying your own health care insurance now, you may be able to deduct the cost of those premiums as medical expenses. You would include the costs of those premiums along with your other eligible medical expenses on Schedule A if you itemize. Keep in mind that those expenses are only deductible to the extent that they exceed 7.5% of your adjusted gross income. Here’s a quick example: Your medical expenses total $4,000 and your AGI is $20,000. You can deduct $2,500 of medical expenses: $4,000 (total expenses) less $1,500 (7.5% of $20,000).
9. Don’t overlook available credits that you didn’t qualify for when you were working. Even though your income may have exceeded the threshold for the Earned Income Tax Credit (EITC or EIC) in prior years, you may be eligible for the credit this year. For 2011, your earned income and AGI must each be less than: $43,998 ($49,078 married filing jointly) with three or more qualifying children;$40,964 ($46,044 married filing jointly) with two qualifying children; $36,052 ($41,132 married filing jointly) with one qualifying child; and $13,660 ($18,740 married filing jointly) with no qualifying children. Additionally, your investment income must be $3,150 or less for the year. Assuming you meet those income restrictions and other criteria, you may qualify for the credit. Bonus: it’s refundable.
10. If you’re relying on the kindness of strangers – or friends and family – to get through this tough time, those gifts probably aren’t taxable to you. As a rule, the person making the gift – not the recipient – is responsible for any applicable federal gift taxes. With respect to federal income taxes, the mere receipt of the gift is not a taxable event. Just keep in mind that the underlying gift keeps its taxable character, so if it’s throwing off interest, for example, that interest would be taxable to you.

If all of this seems a bit overwhelming, remember that help is available. Don’t be afraid to ask questions about benefits, deductions and credits that can help reduce your tax burden at tax time. Ask your tax professional for specifics (remember that it’s deductible). You can also call the us at 865-984-6329 for more information.

IRS Urges Taxpayers to Avoid Becoming Victims of Tax Scams

IR-2011-73, July 11, 2011 WASHINGTON — The Internal Revenue Service today encouraged taxpayers to guard against being misled by unscrupulous individuals trying to persuade them to file false claims for tax credits or rebates. The IRS has noted an increase in tax-return-related scams, frequently involving unsuspecting taxpayers who normally do not have a filing requirement in the first place. These taxpayers are led to believe they should file a return with the IRS for tax credits, refunds or rebates for which they are not really entitled. Many of these recent scams have been targeted in the South and Midwest. Most paid tax return preparers provide honest and professional service, but there are some who engage in fraud and other illegal activities.   Unscrupulous promoters deceive people into paying for advice on how to file false claims. Some promoters may charge unreasonable amounts for preparing legitimate returns that could have been prepared for free by the IRS or IRS sponsored Volunteer Income Tax Assistance partners. In other situations, identity theft is involved. Taxpayers should be wary of any of the following: Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits. Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS. Unfamiliar for-profit tax services teaming up with local churches. Home-made flyers and brochures implying credits or refunds are available without proof of eligibility. Offers of free money with no documentation required. Promises of refunds for “Low Income – No Documents Tax Returns.” Claims for the expired Economic Recovery Credit Program or Recovery Rebate Credit. Advice on claiming the Earned Income Tax Credit based on exaggerated reports of self-employment income. In some cases non-existent Social Security refunds or rebates have been the bait used by the con artists.  In other situations, taxpayers deserve the tax credits they are promised but the preparer uses fictitious or inflated information on the return which results in a fraudulent return. Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file with little or no documentation, have been appearing in community churches around the country. Promoters are targeting church congregations, exploiting their good intentions and credibility. These schemes also often spread by word of mouth among unsuspecting and well-intentioned people telling their friends and relatives. Promoters of these scams often prey upon low income individuals and the elderly. They build false hopes and charge people good money for bad advice.  In the end, the victims discover their claims are rejected or the refund barely exceeds what they paid the promoter.  Meanwhile, their money and the promoters are long gone. Unsuspecting individuals are most likely to get caught up in scams and the IRS is warning all taxpayers, and those that help others prepare returns, to remain vigilant. If it sounds too good to be true, it probably is.