Tax Scam Victims Avoidance

Tax scam victims have become a targeted work for tax fraud.  Paying taxes is a fact of life, it always has been, and it always will be. For years the IRS has warned taxpayers about tax fraud, tax schemes, and plain old individual dishonesty. In many cases the dishonesty can result in stiff financial penalties and the fraud can result in jail. But still, this warning continues to evade some taxpayers. So be for warned.

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This evening on our nightly news one of the potential tax victim was rescued by a tax cab driver. An elderly lady told the tax cab driver she needed to go to her bank. She was not aware that she owed the IRS 25 thousand dollars. He ask her several questions and found out someone called her on the phone and told her to wire money to pay off her taxes.

He convinced her that he did not think it was the IRS, there are several tax fraud calls and he would take her to the police station. They informed her that it was not the IRS who called her. Creating tax scam victims continues in the year 2020, but thanks to an aware taxi cab driver she was rescued.

The IRS wants you to know many tax scams and schemes still exist and is heavily promoted as legal by con artist, and individual taxpayer dishonesty is not an option.

1. Tax Scam Victims

As per the IRS, they look shady. They lurk in the shadows. They try to entice you with promises of bigger refunds, audit-proof tax breaks or sure ways to beat the IRS. But the only sure thing about them is that they can cause you trouble … a lot of trouble. If you are aware of this you can avoid becoming a tax scam victim.

Defend yourself by reviewing the IRS update of the Dirty Dozen – 12 schemes and tax scams prowling for victims during tax season.

Check out what IRS agents are finding in their criminal investigations of crooked tax preparers – and their tips for avoiding these characters.

 The IRS urges people to avoid these common schemes targeted to making you a tax scam victim:

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2. 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.

Through April 15, the IRS is offering people with improper offshore financial arrangements a chance to make things right. Eligible taxpayers who step forward will not face civil fraud and information return penalties. A taxpayer involved in these schemes who does not come forward now, however, will be subject to payment of taxes, interest, penalties and potential criminal prosecution.

People interested in participating in the program, called the Offshore Voluntary Compliance Initiative, can contact the IRS by calling 215-516-3537 (not toll-free).

3. 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.

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4. 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.

5. African-Americans Get a Special Tax Refund

Thousands of African-Americans have become tax scam victims and 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.

6. 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.

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7. 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 expenses.

8. 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 return.

Since tax scam victims appear to not be doing their research and reading news reports they are particularly vulnerable, so please pass these tax scams on to the elderly and underinformed.

9. 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 many have become tax scam victims. 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.

10. 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.

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11. “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.

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.

12. 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.

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13. 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.

Beyond the “Dirty Dozen,” the IRS sees many more tax schemes. Some examples include home-based business scams, disabled access credit for pay phones and a variety of improper abusive trusts.

“The best advice for taxpayers is to remember the concept of ‘buyer beware,’” Wenzel said. “Think carefully before paying for services or signing important documents.

And don’t be fooled by outrageous promises. If something sounds too good to be true, it probably is.” Don’t help a con person make you one of many tax scam victims.

These times are taxing, state taxes, federal taxes, do your taxes

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Lois Center-Shabazz is an award-winning author and winner of the Pinnacle Book Achievement award for personal finance. She is a Personal Finance Blogger, Course Creator and Money Strategist, who is also a successful Mutual Fund Investor. Click "Let's Chat" in the top toolbar and schedule a meeting with Lois to discover your top level personal finance abilities.

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