The Discerning Investor

A question often considered in financial literacy circles is: "What makes people vulnerable to being scammed?"

A new financial capability study recently released by the FINRA Investor Education Foundation (which included researchers from the University of Minnesota and RTI International, a nonprofit research institute) addressed this question. The study sought to get a better understanding of "which social and behavioral factors are tied to fraud victimization," especially when it involves scammers who target older adults (tinyurl.com/36ffub2x).

For the study, researchers used data on 905 known fraud victims (mean age of 75) identified by the U.S. Postal Inspection Service.

The victims were asked about mass-marketing solicitations that involved "promises of positive financial opportunities or social rewards." These are known as opportunity-based scams (as opposed to threat-based scams). Forty-nine percent of the victims self-reported a prize or grant fraud, 43% reported a product or services fraud, and 31% reported an investment fraud.

The study found that "engaging in activities that increase fraud exposure -- such as opening junk mail, entering sweepstakes drawings to win prizes, answering unknown calls and interacting with telemarketers -- was tied to a greater number of different fraud victimization experiences."

The study used the Routine Activities Theory (RAT), an approach to analyzing crime that involves "likely offenders, suitable targets and the absence of capable guardians against crime," as detailed in a paper published by the American Sociological Review in August 1979 (tinyurl.com/2nkwc94p).

What makes a target "suitable"? The FINRA study focused on several possible characteristics and behaviors:

-- Older age.

-- Risky activities (things like entering sweepstakes drawings, not hanging up on telemarketers and answering unknown calls).

-- Financial risk preferences and behaviors (such as playing lottery games).

-- Loneliness (those who might have "unmet needs for social stimulation, emotional validation and companionship").

-- Financial fragility (people who indicated they would struggle to cover a $2,000 emergency expense).

There were two surprises discovered during the study: "[E]ngaging in more regular online activity (e.g., active internet use, online shopping and social media use) was associated with a lower number of unique fraud victimization incidents." Also, "Unlike the theoretical framework of RAT, the absence of capable guardians was unrelated to the number of victimization incidents." In both cases, FINRA concluded that more research in these areas was needed.

As for combating elderly fraud efforts, the results "indicate that certain factors might make individuals more susceptible to financial predators who use persuasive messages promising to address unmet needs," adding that consumer education programs "may want to focus on certain risk factors and characteristics, as scammers often exploit these vulnerabilities with promises of financial gains, social connection or emotional support."

FINRA recommended these educational topics:

-- Address loneliness.

-- Enhance financial knowledge so that older individuals know "how to make informed financial decisions and identify scam messages."

-- Provide education to reduce exposure to pitches contained in telemarketing offers and junk mail.

-- Assist older people with budgeting and debt management.

-- Reduce risky financial behaviors. "Educational efforts should teach consumers how to distinguish between legitimate and fake lotteries and sweepstakes and highlight the risks of entering competitions and prize drawings, particularly those that involve an upfront fee or that collect personal information."

Fraud won't be eradicated. Consumers reported losing more than $10 billion to fraud in 2023, according to Federal Trade Commission data based on reports from 2.6 million consumers (tinyurl.com/ydx5r3es). The monetary loss was a 14% increase over the previous year and the first time that fraud losses reached that benchmark. The top two categories for financial loss were investment scams (more than $4.6 billion) and imposter scams (nearly $2.7 billion).

Can fraud be controlled or lessened? Education is essential, and resources are available.

The Office for Victims of Crime, part of the U.S. Department of Justice, has a section on elder fraud and abuse at tinyurl.com/mr25dxrs. Among the resources is the National Elder Fraud Hotline (833-372-8311), which is available Monday through Friday.

The FBI's elder fraud section (tinyurl.com/55yzyswe) lists common elder fraud schemes and provides a link for filing reports about elder fraud to the Internet Crime Complaint Center at ic3.gov.

In the end, it's all about awareness of potential traps.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

It is nearing the end of February, and you'd like to file your tax return, but you're missing a few forms you need to do your taxes. What should you do?

This is not an unusual situation, but waiting is probably not a good idea. It's better to reach out to the entity or person responsible for the missing form (1099 or W-2).

Many Form 1099s are scheduled to be sent out by the end of January, but not all. As an example, the website for Fidelity Investments includes a Tax Form Schedule with the "approximate availability of tax forms" (tinyurl.com/2s49x58z). Form 1099-R has a Jan. 31, 2025, reporting deadline, while Form 1099-DIV and Form 1099-B each have a reporting deadline of Feb. 17, 2025.

The issuer may have an extension beyond these dates. The website for Merrill, an investment and wealth management division of Bank of America, notes it has a "regulatory due date with extension," along with an explanation that "Merrill requests an extension with the IRS so that we can validate the information that we're providing. Due dates shown reflect the regulatory deadline as a result of this extension" (tinyurl.com/564rf3wm). For Form 1099-R, it is March 3, while the Consolidated 1099 Tax Statement has a deadline of March 20.

Also, the 2024 Tax Guide for BNY Pershing, a financial services company, indicates that Form 1099-DIV and Form 1099-MISC are due to the recipient on Feb. 15, adding that the due date applies when "the forms are included in a 'composite form recipient statement' as defined by the IRS" (tinyurl.com/2ks3swrt).

What's behind the various dates? An IRS spokesperson explained that payors "can and sometimes do request extensions of time to furnish statements to recipients, but extensions are not automatic and, when granted, are normally for no more than 30 days."

The spokesperson noted that the deadline for items such as brokerage statements, "especially where the payor has elected consolidated reporting," was Feb. 15, although this year, with Feb. 15 falling on a Saturday, followed by the Presidents Day holiday on Feb. 17, the deadline was Tuesday, Feb. 18.

If you are expecting Schedule K-1s from trusts, estates, partnerships and S corporations, the wait will likely be longer, and for good reason. "These respective pass-through entities need to prepare their own returns before they can properly determine what to put on the K-1," the IRS spokesperson explained.

In short, there is some variation to when the forms will arrive. That's a good reason to start with contacting the firm issuing the form.

If, after contacting the firm, you still do not receive a copy of the needed form by the end of February, you can reach out to the IRS for help by calling 800-829-1040 (tinyurl.com/4eezy4dd). You will need to provide your name, address (including ZIP code) and taxpayer identification number (for example, your Social Security number or individual taxpayer identification number). In addition, you will also need the employer's or payor's name and address (including ZIP code).

The IRS will contact the payor to request the missing (or corrected) form.

The IRS will also send you Form 4852, which has the lengthy title of "Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc." (tinyurl.com/mpfbmeu2). In addition, there will be a letter that contains instructions on how to use the form to provide the IRS with an estimate that will allow you to file your tax return before April 15 (or Oct. 15, if you request and receive an extension -- see tinyurl.com/yuud33y6).

Note that if you do receive the missing or corrected form after filing your return and the information is different from your estimated numbers, you will need to file Form 1040-X, Amended U.S. Individual Income Tax Return (tinyurl.com/52rut8ts).

A final caution from the IRS spokesperson: "Even after getting any of these forms, check them over carefully. If there are errors or if something doesn't seem right, contact the payor and get it corrected.

"Correcting mistakes up front can help avoid possible IRS correspondence down the road, or the need to possibly file an amended return later."

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

Are you looking for a tax professional to help you do your taxes this year?

First things first. Avoid scam artists.

In its "Dirty Dozen" list of common scams, the IRS warns about "ghost preparers," who can disappear after the tax return is prepared, charge a large percentage fee of the refund or steal the entire tax refund, and get taxpayers to take advantage of tax credits and benefits for which they don't qualify (tinyurl.com/msemaess).

If you are scammed, file a police report and fill out IRS Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit (tinyurl.com/yxxxvzf6), detailing your complaint. That's the advice of The Taxpayer Advocate Service, an independent IRS organization that serves as the "voice" of taxpayers (tinyurl.com/y389h2xx).

Second, consider the guidance offered by the IRS on how to find someone to work with by reading "Need someone to prepare your tax return?" at tinyurl.com/bddzbj5b.

From there, you can explore the IRS search engine at "Directory of Federal Tax Return Preparers with Credentials and Select Qualifications" (tinyurl.com/5aes58zn). The National Association of Tax Professionals recommends the IRS database to "search for the perfect preparer" (tinyurl.com/vbff635u).

You'll be able to find tax preparers in your area who either currently hold professional credentials that are recognized by the IRS or who have an Annual Filing Season Program -- Record of Completion, which is issued by the IRS to those who "obtain a certain number of continuing education hours in preparation for a specific tax year," according to the IRS webpage "Understanding tax return preparer credentials and qualifications" (tinyurl.com/yeyjd5en).

As to credentials, anyone can be a paid tax return preparer provided the person has an IRS preparer tax identification number (PTIN). That includes certified public accountants, enrolled agents and attorneys -- but it also can be someone who does not have a credential in one of those areas. Paid preparers are required to include their PTINs on the tax returns they process.

Another element to consider is "representation rights." If the tax professional has unlimited representation rights, that means the person can represent a client on any matter, including an audit or a payment/collection issue. Those professionals include enrolled agents, CPAs and attorneys.

If a tax preparer has limited representation rights, the person cannot represent clients regarding appeals or collection issues. See "Understanding tax return preparer credentials and qualifications" for more details.

Third, consider these IRS tips:

-- Find a tax preparer who is available throughout the year, in case you have questions after the filing season.

-- Make sure you understand the preparer's credentials and fees.

-- The preparer should ask to see your records and receipts.

-- The preparer should offer IRS e-file (tinyurl.com/bde2ux4e), which can mean a quicker refund provided a taxpayer files electronically and chooses direct deposit. Be sure that the routing and bank account numbers on the tax return are accurate.

-- It is your responsibility to review the return before you sign it, and to ask questions if something does not appear to be correct. Be sure to get a copy of the complete tax return, signed by you and the preparer.

-- Qualified individuals can take advantage of Volunteer Income Tax Assistance and Tax Counseling for the Elderly, two IRS programs that offer free tax preparation. See tinyurl.com/wcfxxvd3.

Considering what is at stake -- the relationship between you and the IRS when it comes to taxes -- be sure to take the time to find a qualified tax preparer (if you need one). But don't take too long -- the federal filing deadline for taxes this year is April 15, and the IRS expects more than 140 million individual tax returns to be filed before then, with more than half of all returns projected to be filed with the help of a tax professional (tinyurl.com/49k8hh76).

Don't forget: No matter who you decide to work with, "[t]axpayers are ultimately responsible for all the information on their federal tax return, regardless of who prepares the return," quoting the IRS (tinyurl.com/3styb7h2).

On another note, help me decide whether to give presentations (live or online) on the topics we talk about in this column. Email me at readers@juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION