The 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.
The IRS urges people to avoid these
common schemes:
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. The IRS reminds taxpayers that they could face up to a $500 penalty
for filing such claims if they do not back away from the claim.
NO TAXES WITHHELD FROM YOUR 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. If you have concerns about your employer and employment taxes,
you can get help by calling the IRS at 1-800-829-1040.
"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 pay the
income tax due. Don't believe it. If you really won a prize, you 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 you’ve won cash, a car, or a
trip, the prize giver generally sends you and the IRS a Form 1099 showing the total
prize value that should be reported on your tax return.
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 upfront
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 you wanting to "borrow" your
Social Security Number or give you a phony W-2 so it appears that you qualify
for a big refund. They may promise to split the refund with you, 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.
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, if one client has four children, they only need to list two for EITC purposes to
get the maximum credit. The preparer will list two children on the first client’s
return and list 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.
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.
"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 these schemes 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
expenses.
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.
Two lessons to remember:
