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News
IRS Updates
the ‘Dirty Dozen’ for 2003:
Agency Warns
of 12 Common Scams
IR-2003-18,
Feb. 19, 2003
WASHINGTON
— In an update of an annual consumer alert, the Internal Revenue
Service urged taxpayers to avoid falling victim to one of the
“Dirty Dozen” tax scams. In the new 2003 ranking, several
new scams have reached the top of the consumer watch list, including
offshore banking and identity theft schemes.
“With
the tax season in full swing, we’re seeing the traditional
upswing in tax trickery,” said IRS Acting Commissioner Bob
Wenzel. “Year after year, con artists across the nation try
pulling a fast one on honest taxpayers with different types of
miracle tax solutions. Don’t be fooled by the ‘Dirty
Dozen’ and other misleading scams. There is no secret way to get
out of paying taxes.”
The IRS
and other federal agencies are aggressively pursuing and successfully
prosecuting promoters of these schemes and many of their clients for
fraud and tax evasion. These can result in imprisonment, fines and
repayment of taxes owed with interest and penalties. Even innocent
taxpayers involved in these schemes can face a staggering amount of
back interest and penalties.
Taxpayers
who suspect tax fraud can report it to the IRS at 1-800-829-0433.
The IRS urges
people to avoid these common schemes:
1) 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).
2) 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.
3) 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.
4) 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 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.
5) 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.
6) 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.
7) 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.
8) 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 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.
9) 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.
10) "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. 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: 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.
11) 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.
12) 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. |
