Tax Scams and the General Population
The IRS each year puts together a list of the most dangerous scams and calls the list the "Dirty Dozen." Some that may catch the reader or a client are discussed here.
January 17, 2020 at 02:10 PM
7 minute read
The airwaves and print media are being flooded with advertising about settling your tax debts with the IRS for pennies on the dollar. While the ads are giving truthful information, another problem faces thousands of taxpayers every day. Tax scams are prevalent, and for the innocent taxpayer can be very costly. The IRS said the following in a recent news release: "Thousands of people have lost millions of dollars and their personal information to tax scams. Scammers use the regular mail, telephone, or email to set up individuals, businesses, payroll and tax professionals." The IRS each year puts together a list of the most dangerous scams and calls the list the "Dirty Dozen." Some that may catch the reader or a client are discussed here.
You answer the telephone and either a recording or a live person tells you that the person on the line is an IRS Agent calling about your tax debt. If you do not pay the debt by credit card immediately, the "agent" will be required to issue an arrest warrant for you. The first clue that this is a scam is that the IRS does not contact taxpayers by telephone. Once you are dealing with a legitimate agent you may have phone calls with the IRS. Post office mail is the way of contact. Agents do visit homes and places of business. You should carefully inspect a visiting agent's IRS ID. There are fraudulent scams through visits. If suspicious, ask for the agent's business card and supervisor's name and phone number. Do not be embarrassed to use due diligence. Call the supervisor at the number given to confirm the legitimacy of the agent. Be aware if two agents show up. They are likely criminal investigator agents investigating a crime. General advice is do not talk to them or give them any documents. Tell them you will have your lawyer contact them. Remember the saying: "Anything you say can be used against you."
Another tax scam that catches the innocent taxpayer is phony charities. Every year there are more and more charities formed for a myriad of good causes. However, crooks form fake charities—ones not filed for non-profit charitable status as Internal Revenue Code §501(c)(3) organizations and organizations filed with state attorney generals. Some charities are established appropriately. However, if you review its Internal Revenue Form 990, you might find that a good portion of the money it receives goes for "administrative expenses" and not to benefit the purpose for which the charity was established. For example, organizations make phone calls for donations. When you ask what percentage of donations are for administrative costs, very often you are told 85%. Only 15% goes to the charity. Certainly, this should be the other way around. You have to look not only for the legitimacy of a charity, but also the amount of administrative costs versus what goes to the charity. Due diligence should be done regarding any charity seeking your money. Performing due diligence is relatively easy. In the computer world you can check the list of qualified charities maintained by the Internal Revenue Service. In addition, charities are required to file with the Internal Revenue Service Form 990, generally annually (mentioned above). That form has a wealth of useful information from how much money was collected the past year, its expenses for fundraising, administrative staff salaries and benefits. All the information tells you what percentage of your donation will actually be used for the charitable purposes.
Another scam is a supposed charity asking for Social Security numbers, bank information, even passwords. Be suspicious. Under no circumstances give this information out. Ask the "charity" representative to mail you the requests. That gives you a chance to check it out. No charity needs that information.
Organizations that sound like valid charities but are phony are another scam. Crooks send mail asking for donations to an organization whose name is very close to a real, respected charity, but is actually false.
Common bogus charities pop up when disasters strike. They claim to help disaster survivors, but are seeking "donations" that will never be used to benefit those in need. Look for traditional charities, such as the Red Cross, etc., or do due diligence before giving money to disaster charities. Some fake charities offer to help disaster victims file for tax and disaster relief benefits. They have the benefits sent to them to supposedly take an administrative fee and give the rest to the victims. No money is ever seen by the disaster victims. That person is a victim twice. Always be suspicious and check out the organization.
An interesting bogus charity is one that shows up in a community as a carnival with amusement games and rides claiming it is a non-profit with the "net proceeds" from its fees and charges for the carnival rides and games going to a charity, very often a local house of worship or other charitable organization. At the end of its appearance very few funds end up in the hands of the charity. Of course, there are valid organizations that provide the carnival rides and games. Use care when dealing with these businesses.
Another growing form of tax scam is identity theft. The Internal Revenue Service, in its recent publications for tax professionals, states in part: "You are the first line of defense against identity theft. You must be alert and on guard at all times. In addition to trying to steal client data, thieves may try to steal your identity as well, using your PTINs, EFINs and CAF numbers to file fraudulent returns or steal even more information." In addition, it states in part: "Federal law requires you to create, implement and maintain an information security plan to protect client data, no matter the size of your firm." Internal Revenue Service Publication 4557 (emphasis in original). Thieves are filing tax returns using this information, receiving refunds under the unsuspecting taxpayer's name. Eventually the taxpayer receives an IRS notice that the taxpayer owes back the erroneous refund. At that time the IRS and taxpayer learn of the identity theft. These thieves also use the information to clean out bank accounts and obtain funds from other taxpayer accounts. What a problem to get all this straightened out.
Lately, crooks are using Tax Advocate Office phone numbers to try to trick the taxpayer to give personal information. Don't give personal information unless you have already been dealing with an agent and you know it is a valid call. You can also ask to call back and see if the Advocate Office at the number listed in the Internal Revenue website has an open file. Usually you don't get contacted by the Advocate Office unless you are already dealing with them.
Some common scams that have been around for years are inflating deductions, omitting income, using foreign bank accounts and using rogue tax return preparers. Even though the Internal Revenue Service Criminal Investigation Division has very few agents, it is very good at finding tax cheats and phony tax preparers. Regarding phony preparers, a taxpayer should never let the preparer collect any refunds to take its fee and give the balance to the taxpayer. Some legitimate preparers provide that service. Due diligence is required to make sure the taxpayer is dealing with a reputable preparer. However, as a general rule refunds should be paid directly to the taxpayer.
Every day new scams are developed and used by crooks. Use the smell test. If the situation doesn't smell right, check out the situation before dealing with whoever is contacting you. You can always call your IRS District Office to check validity.
Terence E. Smolev is counsel Berkman Henoch Peterson Peddy and Fenchel in Garden City, N.Y.
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