IRS WARNS OF COMMON SCAMS (Here is 15 of them.)
African-Americans Get a Special Tax Refund. Thousands of African-Americans
have been misled by people offering to file for tax credits or refunds related
to reparations for slavery. There is no such provision in the tax law. Some
unscrupulous promoters have encouraged clients to pay them to prepare a claim
for this refund. But the claims are a waste of money. Promoters of reparations
tax schemes have been convicted and imprisoned. And taxpayers could face a $500
penalty for filing such claims if they do not withdraw the claim.
In early 2002, the slavery reparations scam ranked as the No. 1 scheme on the Dirty Dozen list. Following a sweeping public outreach campaign and assistance from members of the Congressional Black Caucus and other organizations, the number of reparation scam claims fell sharply. Tens of thousands of claims were received in 2001, but the claims fell to less than 50 per week in 2002.
"I Don't Pay Taxes – Why Should You?" Con artists may talk about
how they don’t file or pay taxes and then charge people a fee to share their
"secret." The real secret that these people don’t reveal is that
many of them actually do file and pay taxes -- they just won’t publicly admit
it. Again, the IRS reminds people that failure to file or pay taxes is subject
to civil and/or criminal tax penalties.
Pay the Tax, Then Get the Prize. The caller says you’ve won a prize,
and all you have to do to get it is to pay the income tax due. Don't believe it.
Someone who really wins a prize may need to make an estimated tax payment to
cover the taxes that will be due at the end of the year. But the payment goes to
the IRS – not the caller. Whether the prize is cash, a car or a trip, a
legitimate prize giver generally sends both the winner and the IRS a Form 1099
showing the total prize value that should be reported on the winner’s tax
Untax Yourself For $49.95. This one's as old as snake oil, but people
continue to be taken in. And now
it's on the Internet. The ads may
say that paying taxes is "voluntary," but it is absolutely wrong. The
U. S. courts have continuously rejected this and other similar arguments.
Unfortunately, hundreds of people across the country have bought "untax
packages" before finding out that following the advice contained in them
can result in civil and/or criminal tax penalties being assessed. Numerous
sellers of these bogus packages have been convicted on criminal tax charges. SOCIAL
SECURITY TAX SCHEME. Taxpayers shouldn’t fall victim to a scam offering them
refunds of the Social Security taxes they have paid during their lifetimes. The
scam works by the victim paying a "paperwork" fee of $100, plus a
percentage of any refund received, to file a refund claim with the IRS. This
hoax fleeces the victims for the up-front fee. The law does not allow such a
refund of Social Security taxes paid. The IRS processing centers are alert to
this hoax and have been stopping the false claims.
"I Can Get You a Big Refund ...for a
Fee!" Refund scheme operators may approach someone wanting to
"borrow" their Social Security number or give him or her a phony W-2
so it appears that the person qualifies for a big refund. They may promise to
split the refund with that person, but the IRS catches most of these false
refund claims before they go out. And when one does go out, the participant
usually ends up paying back the refund along with stiff penalties and interest.
Two lessons to remember: 1) Anyone who promises someone a bigger refund without
knowing their tax situation could be misleading them, and 2) Never sign a tax
return without looking it over to make sure it’s honest and correct.
6. Share/Borrow EITC Dependents.
Unscrupulous tax preparers "share" one client's qualifying children
with another client in order to allow both clients to claim the Earned Income
Tax Credit. For example, one client may have four children but only needs to
list two to get the maximum EITC. The preparer will list two children on the
first client’s return and the other two on another client’s tax return. The
preparer and the client "selling" the dependents split a fee. The IRS
prosecutes the preparers of such fraudulent claims, and participating taxpayers
could be subject to civil penalties.
7. IRS “Agent” Comes To Your
House To Collect. First, do not let anyone into your home unless they
identify themselves to your satisfaction. IRS special agents, field auditors and
collection officers carry picture IDs and will normally try to contact you
before they visit. If you think the person on your doorstep is an impostor, lock
your door and call the local police. To report IRS impostors, call the Treasury
Inspector General’s Hotline at 1-800-366-4484.
Identity Theft. Identity thieves use someone’s personal data to steal
his or her financial accounts, run up charges on the victim’s existing credit
cards, apply for new loans, credit cards, services or benefits in the victim’s
name and even file fraudulent tax returns.
The IRS is aware of at least two recent identity theft scams involving taxes or the IRS. In one, tax preparers allegedly used information, such as Social Security numbers and financial information, from their clients’ tax returns to commit identity theft. In another, fraudsters sent bank customers fictitious bank correspondence and IRS forms in an attempt to trick them into disclosing their personal and banking data.
For taxpayers, it pays to be choosy about disclosing personal and financial information. And the IRS encourages taxpayers to carefully select a reputable tax professional.
Frivolous Arguments. Frivolous arguments are false arguments that are
unsupported by law.When a scheme promoter says “I don’t pay taxes – why
should you” or urges you to “untax yourself for $49.95,” beware. These
scams are as old as snake oil, but people continue to be taken in. And now
they’re on the Internet. The ads may say that paying taxes is “voluntary,”
but that’s just plain wrong. The U.S. courts have continuously rejected this
and other frivolous arguments. Unfortunately, hundreds of people across the
country have paid for the “secret” of not paying taxes or have bought
“untax packages.” Then they find out that following the advice contained in
them can result in civil and/or criminal penalties. Numerous sellers of the
bogus schemes have been convicted on criminal tax charges.
Offshore Transactions. Some people use offshore transactions to avoid
paying United States income tax. Use of an offshore credit card, trust or other
arrangement to hide or underreport income or to claim false deductions on a
federal tax return is illegal.
"Put Your Money In A Trust And Never Pay Taxes Again."
Promoters of abusive trust schemes may charge $5,000 to $70,000 for
“trust” packages. The fee enables taxpayers to have trust documents
prepared, to utilize foreign and domestic trustees as offered by promoters and
to use foreign bank accounts and corporations.
Although these schemes give the appearance of the separation of
responsibility and control from the benefits of ownership, these schemes are in
fact controlled and directed by the taxpayer.
A legitimate trust is a form of ownership that completely separates
responsibility and control of assets from all of the benefits of ownership.
Improper Home-Based Business. This scheme purports to offer tax
“relief” but in reality is illegal tax avoidance. The promoters of this
scheme claim that individual taxpayers can deduct most, or all, of their
personal expenses as business expenses by setting up a bogus home-based
business. But the tax code firmly establishes that a clear business purpose and
profit motive must exist in order to generate and claim allowable business
Phony Tax Payment Checks. In this scheme, con artists sell fictitious
financial instruments that look like checks to pay a tax liability, mortgage and
other debts. The con artists may also counsel their clients to use a phony check
to overpay their taxes so they can receive a refund from the IRS for the
overpayment. The false checks, called sight drafts, are worthless and have no
financial value. It is illegal to use these sight drafts to pay a tax liability
or other debts.
Claim Disabled Access Credit For Pay Phones.
Con artists sell expensive coin-operated pay telephones to individuals,
contending they can claim a $5,000 Disabled Access Credit on their tax return
because the telephones have volume controls. In reality, the Disabled Access
Credit is limited to bona fide businesses that are coming into compliance with
the Americans with Disabilities Act.
No Taxes Withheld From Wages. Illegal schemes are being promoted that
instruct employers not to withhold federal income tax or employment taxes from
wages paid to their employees. These schemes are based on an incorrect
interpretation of tax law and have been refuted in court. A recent flurry of
court actions has been taken against promoters of these schemes. Taxpayers who
have concerns about their employer and employment taxes can get help by calling
the IRS at 1-800-829-1040.
Social Security Tax Scheme. Taxpayers shouldn’t fall victim to a scam
offering refunds of the Social Security taxes they have paid during their
lifetimes. The scam works by the victim paying a "paperwork" fee of
$100, plus a percentage of any refund received, to file a refund claim with the
IRS. This hoax fleeces the victims for the up-front fee. The law does not allow
such a refund of Social Security taxes paid. The IRS processing centers are
alert to this hoax and have been stopping the false claims.
IRS reminds taxpayers not to fall victim to a variety of tax scams. These
schemes take several shapes, ranging from promises of special tax refunds to
illegal ways of "untaxing" yourself. If people think something may be
unscrupulous, they can report suspected tax fraud to the IRS at 1-800-829-0433.
Three lessons to remember:
– Anyone who promises you a bigger refund without
knowing your tax situation could be misleading you, and
– Never sign a tax return without looking it over to make sure it’s honest and correct.
– Taxpayers are responsible for the accuracy of all entries made on their
tax returns, which include related schedules, forms and supporting
documentation. This remains true whether the return is prepared by the
taxpayer or by a return preparer.