The Dirty Dozen Tax Scams Aimed at You - and by You
By Maryalene LaPonsie
Taxes seem to strike fear in the hearts of millions. And for some reason, that makes a few people lose their heads and hand out their personal information to strangers claiming to be from the Internal Revenue Service.
1. It's the IRS Calling
This scam has been going around my community. Threatening IRS agents call and inform you the police have a warrant for your arrest. And unless you go to Walgreens (WBA), buy a prepaid debit card loaded with hundreds of dollars and call back with the number, you're being carted off to the big house. Walgreens? You think we're going to fall for that, bad guys?
I'm sure all you Money Talks News readers are too sophisticated to be taken in by this scam, but apparently some people do in fact get a prepaid card or wire money to the criminals. Make sure your elderly relatives or other people who may be susceptible know that if they get a call from the IRS, it's fake.
But if you want to hear what one of these calls sounds like, listen to The Washington Post. If you're really concerned you might owe money, you can call the IRS at 800-829-1040.
2. No, Wait, It's the IRS Emailing
Let's be very clear. IRS staffers live in the Stone Age. They do not email. Ever. Or at least, they don't email you. They won't be sending you an email saying you need to click a link and verify your identity to get a refund. Likewise, you won't go to jail if you don't click on their link and fill in your personal information. It's all a ruse to get you to give up information to the bad guys so they can steal from you, as you'll see in scam No. 3.
3. Early Filers Stealing Your Identity
People use scam No. 2 to pull off scam No. 3, among other things. They use your name, address, Social Security number and all that other personal data you provided to fill out a fake tax return in your name. Then, they get a big refund, and your return gets rejected because the IRS thinks you already filed.
The problem can be fixed, but it's a giant headache. Your best bet is to guard your Social Security number closely and file your return as soon as you have all of your paperwork.
4. Promise of a Monster Tax Refund
Trust me when I say you probably don't want to have your taxes done by someone advertising on a telephone pole. They may say they are going to get you the biggest refund ever, but there's a chance they are going to falsify your information to do so.
That faked return may get you a refund, but maybe that's only after your preparer skims some off the top. It could also mean you lose certain Social Security and low-income housing benefits because the income listed on your tax return no longer meets eligibility criteria. Plus, if you get audited, the false information is your problem because the IRS holds taxpayers legally responsible for the information provided on their returns.
5. Fair Weather Tax Preparer
This scam is a variation of scam No. 4. These people don't necessarily claim to give you the biggest refund. They simply claim to do your taxes at a reasonable rate. The problem? They're really crooks.
These so-called tax preparers may take your money and run. Or they may file a return for you but then help themselves to your Social Security number and other information to be used later for devious deeds such as identity theft and retail fraud.
Protect yourself by carefully vetting any tax preparer. Search for reviews online, ask for referrals and read our article on how to pick the best tax pro.
6. The Charity That Isn't a Charity
Fraudulent charities can be a problem anytime of the year, but they can come back to bite you at tax time. If you are audited and deducted donations from a charity that really isn't a charity, you could get hit with more taxes and a penalty.
Typically, fake charities make look-alike logos and websites that trick you into thinking you're donating to established organizations. They may also spring up after a disaster and take advantage of the fact that you want to help. In reality, little to none of your money will make it to the stated cause. In addition, if a charity says it needs your Social Security number to take your donation, hang up the phone. No charity needs that information, and it's likely a ploy to steal your identity.
7. Playing Hide-and-Seek With Money Offshore
Now we move away from the scams that the bad guys try to pull on you to the scams taxpayers try to pull on the government.
First up is hiding money in offshore accounts. While this has long been acknowledged as a form of tax evasion, it's only in recent years that the IRS has started cracking down on offenders. Starting last year, foreign financial institutions began reporting information on U.S. account holders to the IRS.
It's going to be harder to hide that money, and if you want to come clean now, you may be able to reduce your penalties under the Offshore Voluntary Disclosure Program.
8. Pretending You're Destitute
Another way people try to scam the government is by not claiming all their income. In some cases, they may simply fail to declare money from side jobs on their taxes. Others may falsify their W-2s and 1099s, while still others split hairs over what's considered "wages" and insist they didn't earn any. It's all fun and games until you're audited or the IRS notices discrepancies in the information provided.
9. Puffing Up Income to Get a Refund
On the other hand, some people try to claim income they didn't earn. This may be done to become eligible for lucrative refundable credits like the Earned Income Tax Credit. That's one reason why those with EITCs are more likely to get audited than other taxpayers.
10. Not-So-Trustworthy Trusts
When it comes to trusts, some people may intentionally misuse them to shelter money from taxes, or they may act under the advice of unscrupulous or incompetent finance "professionals." A trust can be a legitimate and valuable way to arrange estate planning. However, before you inadvertently run afoul of the IRS, check with someone who specializes in trusts to help you set it up.
11. Elaborate Schemes to Elude the Law
This scam is something the IRS calls "abusive tax structures." Essentially, it involves taxpayers creating elaborate systems to pass money through multiple layers of businesses and accounts to conceal it from the government. If someone approaches you about investing your money in a way that seems incomprehensible, it's possibly a scam. If they also tell you it will nearly eliminate your tax liability, forget about it being a possibility. It's probably almost assuredly a scam.
12. But It's in Not in the Constitution
Apparently, there's a whole segment of the population that believes the 16th Amendment (that's the one authorizing an income tax) was never ratified to become part of the Constitution. Their arguments range from the idea that Ohio wasn't actually a state when it ratified the amendment to apparent transcription errors that occurred when preparing the amendment for votes in various states. As much I wish there was a way to magically get out of paying taxes, I'm not quite ready to argue that the fact some early 20th century typist misplaced some punctuation gives us a free pass on our taxes.
But maybe you are. In that case, you may call yourself a sovereign citizen. However, the IRS will call you a scam artist. And you can certainly fight the law on this if you want, but I can practically guarantee the law will win.
There you have it: 12 scams that are making the rounds this tax season. Hopefully, you won't be a victim, and hopefully you won't be fooled into thinking you can hide from the taxman. As anyone who's been audited will likely tell you, don't mess with the IRS.