IRS Notes Tax Scams That Cost All of Us Millions

By phone, many scammers are using threats to intimidate and bully you into paying “a tax bill.” They may even threaten to arrest you, deport you, or revoke your driver’s license if they don’t get the money they demand. 

Scam artists are masquerading as being from the IRS, a tax company and perhaps a state revenue department. By e-mail, they will try to entice you to click on links on official-looking messages containing questions related to their tax refund. Report these emails to phishing@irs.gov. Scammers will call payroll and human resources professionals soliciting W-2 information (see IR-2016-34).  They will request that you verify your tax return information over the phone (see IR-2016-40).  Or pretend to be a tax preparer (see IR-2016-28).

PLEASE!  DON’T BE SUCKERED INTO ANY OF THESE SCAMS!  The following are just some of the scams that made the IRS Annual “Dirty Dozen” List of Tax Scams to Avoid:

Identity Theft:  Criminals will attempt to file fraudulent returns by stealing and using your Social Security number and then filing a tax return and claiming your tax return.  

What to do or not do: Be extremely careful with your personal information.  Be cautious when viewing and opening e-mails from people or organizations you don’t recognize, receiving telephone calls or getting advice on tax issues. Keep your personal information secure by protecting your computers and only giving out your Social Security numbers when absolutely necessary.

Phone Scams:  You may receive a phone call from a criminal who claims he/she’s an IRS agent. The scam artist may threaten you with police arrest, deportation and license revocation.  Or the caller may claim you are entitled to a large refund that you know you are not entitled to. You can tell it’s a phone scam when the caller demands immediate payment, or calls about taxes you owe without first having mailed you a bill.  It’s a scam if the caller demands that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.  And you know it’s a scam if the caller requires you to use a specific payment method for your taxes, such as a prepaid debit card or asks for your credit or debit card numbers over the phone. And it’s certainly a scam if the caller threatens to bring in local police or other law-enforcement groups to have you arrested for not paying.

What to do or not do:  Do not give out any information!  Get the “agent’s” name and a phone number to call back.  Then call your local IRS office and ask to be connected to the person who called.  If there is no such person, report the attempted scam. Call 800-366-4484 or go to  “IRS Impersonation Scam Reporting” web page. You can also report an attempted scam to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. (Put “IRS Telephone Scam” in the notes.)

Phishing:  Not a fun sport – unless you are the shark!  Seriously, you need to be on guard not to fall for fake e-mails or websites looking to steal your social security number, passwords, or other personal information. Criminals will pose as a person or organization you might recognize and trust. For instance, they may hack into the e-mail account of a friend or charity and send mass e-mails under another person’s or charity’s name. They may pose as a bank, credit card company, tax software provider or government agency. Criminals sometimes create websites that appear legitimate but contain phony log-in pages. These criminals hope you will take the bait to get your money, passwords, Social Security number and other key information. NOTE: The IRS will never send you an e-mail about a bill or refund out of the blue.

What to do – or not do: Don’t click on an e-mail claiming to be from the IRS. Be wary of strange e-mails and websites that may be nothing more than scams to steal your personal information. 

Inflated Refund Claims:  We’d all like to pay as little in tax as possible. But you need to be wary of unscrupulous tax preparers or others promising inflated refunds. 

What to do – or not do:  Walk away from anyone who asks you to sign a blank return, promises you a big refund before looking at your records, or charges you fees based on a percentage of the refund. Don’t fall for flyers, advertisements, or phony store fronts. Be very careful about “too good to be true” arrangements you hear about through word of mouth.  To find victims, scammers often work through community or religious or other affinity groups where trust is high and promise inflated refunds based on fictitious Social Security Benefits and false claims for education credits, the Earned Income Tax Credit or American Opportunity Tax Credit – or prey on non-English speaking persons.  You’ll always receive a copy of the tax return an honest preparer has filed on your behalf but victims of scams frequently are not given a copy of what was filed. Victims also report that the fraudulent refund is deposited into the scammer’s bank account. The scammers deduct a large “fee” before paying victims, a practice not used by legitimate tax preparers.

Padding or Falsifying Deductions on Returns: Avoid the temptation of falsely inflating deductions or expenses on your return in an attempt to under pay what you owe or receive a larger refund. 

What to do – or not do: Don’t overstate deductions such as charitable contributions and business expenses. Don’t improperly claim credits such as the Earned Income Tax Credit or Child Tax Credit. Use recognized tax software. That’s one of the best ways to ensure you file an accurate return and claim only the tax benefits you are eligible to receive. IRS Free File is an option to use online software programs to prepare and e-file tax returns for free. Community-based volunteers at locations around the country also provide free face-to-face tax assistance to qualifying taxpayers helping make sure they file their taxes correctly, claiming only the credits and deductions for which they’re entitled by law.

Frivolous Tax Arguments: For decades, snake-oil vendors turned tax avoidance promoters have claimed dozens of arguments why you should not have to pay any tax. They employ frivolous schemes to encourage you to make unreasonable and outlandish claims – which have no hope of succeeding. 

Some of their ludicrous ploys include these outrageous claims: 

• Compliance with the internal revenue laws is voluntary or optional and not required by law. 
• The Internal Revenue Code is not law. 
• A taxpayer’s income is excluded from taxation when the taxpayer rejects or renounces United States citizenship because the taxpayer is a citizen exclusively of a State that is claimed to be a separate country or otherwise not subject to the laws of the United States. 
• Wages, tips, and other compensation received for the performance of personal services are not taxable income or are offset by an equivalent deduction for the personal services rendered. 
• United States citizens and residents are not subject to tax on their wages or other income derived from sources within the United States, as only foreign-based income or income received by nonresident aliens and foreign corporations from sources within the United States is taxable. 
• Only certain types of taxpayers are subject to income and employment taxes, such as employees of the Federal government, corporations, nonresident aliens, or residents of the District of Columbia or the Federal territories. 
• Only certain types of income are taxable, for example, income that results from the sale of alcohol, tobacco, or firearms or from transactions or activities that take place in interstate commerce. 
• Federal income taxes are unconstitutional or a taxpayer has a constitutional right not to comply with the Federal tax laws. 
• A “reparations” tax credit exists, including arguments that African-American taxpayers may claim a tax credit on their Federal income tax returns as reparations for slavery or other historical mistreatment, that Native Americans are entitled to an analogous credit (or are exempt from Federal income tax on the basis of a treaty), or similar arguments. 

The penalty for filing a frivolous tax return is $5,000 and applies to anyone who submits a purported tax return or other specified submission, if any portion of the submission is based on a position the IRS identified as frivolous or reflects a desire to delay or impede administration of the tax laws. 

Promote or adopt a frivolous position and you also risk a variety of other penalties.  For example, you might be responsible for an accuracy-related penalty, a civil fraud penalty, an erroneous refund claim penalty, or a failure to file penalty.  Worse yet, taxpayers who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax. Similarly, taxpayers may be convicted of a felony for willfully making and signing under penalties of perjury any return, statement, or other document that the person does not believe to be true and correct as to every material matter.  Persons who promote frivolous arguments and those who assist taxpayers in claiming tax benefits based on frivolous arguments may be prosecuted for a felony.

What to do – or not do:  Don’t use frivolous tax arguments in an effort to avoid paying tax. You always have the right to contest your tax liabilities in court but you don’t have the right to disobey the law or disregard your responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000.

THE IRS WILL NEVER… 

• Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill. 
• Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying. 
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe. 
• Require you to use a specific payment method for your taxes, such as a prepaid debit card. 
• Ask for credit or debit card numbers over the phone.

WHAT TO DO OR NOT DO:

If you get a phone call from someone claiming to be from the IRS and asking for money and you don’t owe taxes, here’s what you should do: 

• Do not give out any information. Hang up immediately. 
• Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page or call 800-366-4484. 
• Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes. 
• If you think you might owe taxes, call the IRS directly at 1-800-829-1040.  

LISI Income Tax Planning Newsletter #92 (April 13, 2016) at http://www.leimbergservices.com  Copyright 2016 Leimberg Information Services, Inc. (LISI).