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WASHINGTON
— 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.
"These Dirty Dozen schemes surface each year as tax
filing season begins. Con artists shamelessly take advantage
of people, charging fees for their illegal tax schemes,"
IRS Commissioner Charles O. Rossotti said. "People should
be on-guard for these scams. If something sounds too good to
be true, it probably is."
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:
No
Taxes Being 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. 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. *
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 your money. Plus, those who file subsequent
claims can be subject to a $500 frivolous return penalty. *
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.
Two lessons to remember:
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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.
An
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. *
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.
"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 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.
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