Recent Tax Scams You Should Know About

Scam artists are always on the lookout for ways to get your financial information. Tax season, when we’re all thinking about our W-2s, deductions and tax preparation, provides just another chance to dupe people. To help avoid becoming another identity theft victim, check out these new tax scams everyone should know about.

Free Tax Preparation Emails

Many tax preparation companies advertise free federal filing promotions each tax season. Not surprising is that email scammers have used those promotions to fool people into handing out their personal information. The latest scam involves an email offer for free tax help, and requests taxpayers provide a wealth of personal and financial information. Instead of using that information to prepare a tax return, the scammer steals your information in order to rob you blind. If you are going to file your return online, make sure you are doing so through a trusted and secure site, not one that sends you a scammy email advertisement.

W-2 Scam

Last month the Better Business Bureau issued a warning about a new scam wherein a taxpayer is asked to provide information from their W-2 online. Please remember, the IRS will not contact you via email to ask for personal information. W-2 forms are submitted by employers, not prepared by taxpayers. If the IRS truly has questions about your tax forms, they will send you a letter through the mail.

EFTPS Payment Emails

Another new email scam, that bloggers began noticing towards the end of 2010, is an email claiming to be from the IRS regarding the Electronic Federal Tax Payment System (EFTPS). Although the links did eventually forward you to the EFTPS site, they first went through a redirect that would install spyware on your computer. Of course, with the spyware installed on your computer, as soon as you entered any personal and financial information into the EFTPS, the scammer had everything they needed to steal your identity and your hard earned cash.

Treasury Department Requests

Although this one may seem obvious, you should always ignore emails from senders claiming that you are being awarded a refund or tax inheritance. These emails sometimes claim they are contacting you on behalf of the Treasury Department and need you to provide banking information in order to get the funds. Please remember, that government entities will not make their first contact with you an email.

How to Avoid Tax Scams

It is easy to avoid becoming the victim of tax related identity theft if you follow these 3 basic rules:

1. Do not open any attachments in emails from groups claiming to be the IRS, or offering free tax advice. If you are interested in an advertisement that shows up in your inbox, contact the company over the phone.

2. Do not reply to any emails with personal tax or financial information about yourself. The IRS will never request information such as your social security number, or any financial information, through an email. As a general rule avoid doing business with any company asking you to send personal information via email. Even if the company is legitimate, emailing sensitive information poses a serious security risk. A

3. Do not click any links from organizations you do not recognize. Even if the link appears to be from the IRS.

How to Report Questionable Emails

If you get an email that you think might be part of a tax scam, you should send it to the IRS to investigate. Simply forward it to phishing@irs.gov, and delete the message from your inbox.

Here’s wishing you a safe and secure tax season!

Couple Convicted in Tax Shelter Scheme

Recently, a married couple from Oregon was convicted of running a tax shelter scheme in which they “marketed tax trusts to clients, filed lawsuits against IRS employees, and prepared a $108 million tax lien against former Treasury Secretary John Snow.”

As this article from Web CPA explains, Tony and Micaela Dutson defrauded the U.S. government of approximately $7 million.

The couple were convicted of conspiring to defraud the IRS, obstructing the IRS, causing clients to use bogus financial instruments in an attempt to pay their taxes, failing to file tax returns, and aiding and advising a client to file a false tax return. The couple used Micaela Dutson’s law office in Tigard, Ore., to promote and sell tax trusts for several years before moving to Arizona in 2003. The couple made over $1 million from the scheme and paid no income tax.

The investigation was launched after the Internal Revenue Service discovered that multiple taxpayers who had followed advice from the Dutsons were being audited for failure to file tax returns despite a prior history of filing and paying their taxes. The IRS initiated an audit of Micaela Dutson after it received notice from the State of Oregon that she had been paid out-of-state funds to provide indigent legal services but had never filed a tax return reporting that income.

Micaela Dutson resigned from the Oregon State Bar in 2002. For several years, the IRS tried unsuccessfully to stop the Dutsons from selling abusive tax shelters before eventually referring the matter to IRS Criminal Investigation. In 2006, at the request of the IRS, a federal court in Phoenix ordered the Dutsons to cease their activities. After the investigation revealed extensive fraudulent activity, the case was referred to the U.S. Attorney’s Office for prosecution.

Beware of IRS’ 2010 “Dirty Dozen” Tax Scams

Earlier today the IRS published their 2010 list of 12 tax scams to look out for in this new press release. Amongst the “dirty dozen” scams are phishing, zero wages, and income hidden offshore. You can find a section of the release below, or read the full text at IRS.gov.

Hiding Income Offshore

The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.

IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. While special civil-penalty provisions for those with undisclosed offshore accounts expired in 2009, the IRS continues to urge taxpayers with offshore accounts or entities to voluntarily come forward and resolve their tax matters. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution.

Phishing

Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. IRS impersonation schemes flourish during the filing season and can take the form of e-mails, tweets or phony Web sites. Scammers may also use phones and faxes to reach their victims.

Scam artists will try to mislead consumers by telling them they are entitled to a tax refund from the IRS and that they must reveal personal information to claim it. Criminals use the information they get to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Taxpayers who receive suspicious e-mails claiming to come from the IRS should not open any attachments or click on any of the links in the e-mail. Suspicious e-mails claiming to be from the IRS or Web addresses that do not begin with http://www.irs.gov should be forwarded to the IRS mailbox: phishing@irs.gov.

‘Tis the Season: Don’t Fall Victim to Tax Scams

IRS impersonation schemes run rampant during tax season. The scam-artists running these schemes are out to steal your personal identification information. Because these schemes could take place through email, phone, fax, internet sites and even your social networking sites, you need to be very cautious. Here is what you need to know to avoid these scams:

• The IRS will never send you unsolicited e-mails about your personal tax situation, tax accounts or other tax issues. If you receive such an e-mail, it is most likely a scam.
• Some impersonations may even go so far as to be an actual commercial internet site that you might happen to visit thinking you’re accessing the official IRS Web site. Such sites have no connection to the IRS and are trying to trick people into revealing personal and financial information, or trying to access your financial accounts.
• Some email scams could contain links or attachments that ultimately download malicious code (a virus) that will infect your computer, trying to access your personal information and passwords that way, or they may direct you to a bogus “IRS” form or website when you click on them.
• If you get such an e-mail, delete it immediately, and don’t get lured by bogus site.
• If you are directed to what seems to be an IRS site asking for your information, it never hurts to exit out of the window and open a new window where you can actually type in the IRS’s website yourself. Once at the official IRS website, you can perform a search for the web-page you were previously viewing.

I hope these tips help you to steer clear of those seeking to take advantage of unsuspecting taxpayers.

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IRS Alerts Public to New Identity Theft Scams

The IRS has recently become aware that a handful of new tax scams have popped up using their official logo, name, and even website URL to trick taxpayers into believing they are dealing with a federal agency. Unfortunately, after being fooled these taxpayers will have their identities stolen, which can quickly turn into an expensive mistake. To help American taxpayers the IRS has put out this new press release with details on these new scams, and advice on how to avoid them. Since their article is so in-depth and informative, I wanted to make sure all of my readers had a chance to learn from it. Check out details of the various scams the IRS is warning about below.

Making Work Pay Refund

This phishing e-mail, which claims to come from the IRS, references the president and the Making Work Pay provision of the 2009 economic recovery law. It says that there is a refundable credit available to workers, consumers and retirees that can be paid into the recipient’s bank account if the recipient registers their account information with the IRS. The e-mail contains links to register the account and to claim the tax refund.

In reality, most taxpayers receive their Making Work Pay tax credit, which was designed for wage earners, in their paychecks as a result of decreased tax withholding, not as a lump sum distribution from a federal fund. Additionally, consumers and retirees who are not wage earners are not eligible for this tax credit.

Inherited Funds / Lottery Winnings / Cash Consignment

In this phishing scheme, recipients receive an e-mail claiming to come from the U.S. Department of the Treasury notifying them that they will receive millions of dollars in recovered funds or lottery winnings or cash consignment if they provide certain personal information, including phone numbers, via return e-mail. The e-mail may be just the first step in a multi-step scheme, in which the victim is later contacted by telephone or further e-mail and instructed to deposit taxes on the funds or winnings before they can receive any of it. Alternatively, they may be sent a phony check of the funds or winnings and told to deposit it but pay 10 percent in taxes or fees. Thinking that the check must have cleared the bank and is genuine, some people comply. However, the scammers, not the Treasury Department, will get the taxes or fees.

Form W-8BEN

In this scam, fraudsters modify a genuine IRS form, the W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to request detailed personal and financial information. This could include nationality, passport number, bank account and PIN numbers, spouse’s name and mother’s maiden name, or other personal or financial information or security measures for financial accounts. The scammers may use the genuine form number and name or may make up a new form number, such as W-4100B2.

They either e-mail or fax the form or letter. If only a letter, the letter itself contains the request for the personal and financial information. The letter, which claims to come from the IRS, states that the recipient will face additional taxes unless he or she quickly faxes the required information to the number provided by the scammer.

In reality, taxpayers file the genuine Form W-8BEN with their financial institutions, not with the IRS. Additionally, the genuine W-8BEN does not request the taxpayer’s passport number, bank account number, security or similar information.

New Tax Scams

In my 18 years of tax law practice, I have seen a number of tax scams. Most of the time, people try to hide assets, or under report income so their tax liability will appear lower. It is fairly common. Illegal, of course, but common nonetheless. But, I recently heard of a tax scam that seems rather creative in its fraud.

(Remember that this is highly illegal, and punishable by hefty jail sentences.)

Rather than under reporting income, some self-employed individuals are actually over reporting their income. Now, what is the benefit of doing this? They get to claim the maximum Social Security payments without paying into the system.

This scam only works for self-employed individuals. You see the Schedule SE is the self-employed person’s record of Social Security taxes you paid out. So, if you under report your income, your Social Security benefits get under reported as well. Meaning when you finally retire, your benefits will be greatly reduced.

Now, here is where the tax scammers found their loophole. The way the law is written, to get the highest amount of Social Security benefits, you must report 40 quarters (or 10 years) wherein you owed the maximum Social Security taxes. You only have to owe that amount, nothing in the law says you must pay that amount.

Therefore, if a self-employed person reports that they owe the maximum Social Security tax for 10 years straight, they need only avoid IRS collections until the liability runs out. Those who successfully run this scam avoid collections by not having bank accounts, not having assets, and running their business on a strictly cash basis.

With all the work and inconvenience in the scam, you are probably wondering how much this actually pays. The maximum Social Security benefit is $2,323 a month. So, collect that for 20 years, and you’re looking at hundreds of thousands of dollars.

Now, my purpose for writing about this scam is not to help you defraud the government. (I repeat, this is highly illegal. Do not do this!) Instead, this just illustrates how much effort some people will put into fraudulent schemes, while so many others refuse to put half the time into legally reducing their tax liability by increasing their tax knowledge.

(Hat tip to fellow tax blogger: Anthony Parent. http://www.irsmedic.com/2009/06/01/greatest_tax_scam/)

IRS Offers Tips On Late Filing And Tax Scams

From The Sentinel:

You meant to do your taxes, but the next thing you knew the April 15 tax deadline passed. According to the Internal Revenue Service, you can still file your tax return, even if you didn't ask for an extension, and in some cases you won't even face a penalty. The IRS also offers tips on recordkeeping and how to protect against tax related scams.

What if you have not filed yet?

Electronic filing is available until Oct. 15 for extension and late filers. IRS e-file is the most efficient way to prepare your taxes, particularly taking into consideration the latest tax changes including the Recovery Rebate Credit, First-Time Homebuyers Tax Credit, Additional Standard Deduction for Real Estate Taxes and the Educators Expense Deduction. E-filing will ensure you do not miss out on any tax breaks. Also, taxpayers who earn $56,000 or less can file for free and online at the IRS.gov Web site using the Free File Program.

For the traditional paper filer, tax forms and instructions are available at the IRS.gov website.

"If you overpaid your tax by April 15 and will get a refund when you file, there's no late filing penalty," said New Jersey's IRS spokesperson Gregg Semanick. "The penalty is based on the amount not paid by April 15. But don't get too relaxed — you have only three years from the due date to file for that refund. Miss that deadline and you kiss the money goodbye."

If you have not yet filed your tax return and you owe, file immediately to minimize the late-filing penalty based on the unpaid balance. The late-filing penalty is 5 percent per month up to five months that a return is outstanding. File your return and pay as much as you can. The IRS will send you a notice for the balance due and will charge interest and penalties only on the unpaid balance. You can also request a payment plan prior to receiving the IRS notice.

You can ask to make monthly installment payments. You can apply for an IRS installment agreement using the IRS Web-based Online Payment Agreement application on IRS.gov. This Web-based application allows eligible taxpayers or their authorized representatives to self-qualify, apply for, and receive immediate notification of approval. You can also request an installment agreement by submitting a completed Form 9465, Installment Agreement Request, either when you file the return or when you later get a notice from the IRS. "Missing the tax deadline isn't the end of the world. But doing something now will be the end of your worrying about it." Semanick said.

What records should be kept?

You must keep records so that you can prepare a complete and accurate income tax return. The law does not require any special form of records. However, you should keep all receipts, canceled checks or other proof of payment, and any other records to support any deductions or credits you claim.

Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA, and business or rental property — should be kept longer.

You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending filed returns or preparing future ones.

For more information on recordkeeping, see IRS Publication 552, Recordkeeping for Individuals.

How to recognize tax scams?

Even after tax season, there are numerous scams in which people receive unsolicited emails, phone calls or faxes that claim to come from the IRS, and which request personal and financial information that may be used to commit identity theft. Typically, identity thieves use someone's personal data to empty the victim's 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, file fraudulent tax returns or even commit crimes.

Anyone who receives one of these bogus emails, phone calls or faxes should avoid responding, clicking on any links or opening attachments. Recipients may forward the emails or report the calls to the IRS using the email address phishing@irs.gov.

Feds Come After Redding Couple for Alleged Tax Scam

From SacBee.com:

A Redding couple faces felony charges for running a tax-return scheme and claiming more than $159,000 in false refunds.

A federal criminal complaint accuses Shannon Elaine Ford, 32, and Michael Joseph Ford, 31, of operating a tax return preparation business and recruiting taxpayers, promising them large returns, a news release from acting U.S. Attorney Lawrence G. Brown's office states.

The couple allegedly filed more than 34 tax returns using false tax forms relating to income from nonexistent small businesses. The couple also misdirected federal and state tax return checks to their own bank and credit union accounts, the complaint alleges.

The fraudulent tax returns claimed more than $159,000 in false refunds.

The Fords allegedly ran the scam, which involved more than 20 victims, from March 2004 to March 2007.

Shannon Ford is charged with conspiracy, 34 counts of filing false tax returns, 17 counts of bank fraud and aggravated identity theft. Michael Ford is charged with conspiracy, five counts of filing false tax returns and seven counts of bank fraud, the release states.

The couple was scheduled to appear Tuesday before U.S. Magistrate Judge Dale A. Drozd.

Roni Deutch on Fox Business, Money For Breakfast

Early this morning I made an appearance on Fox Business News’ “Money For Breakfast”, talking about tax scams, and how you can avoid them. Check out the embedded video below!

Beware of IRS’ 2009 “Dirty Dozen” Tax Scams

In a recent press release, the IRS warns taxpayers of the 12 worst tax scams to avoid. You can a portion of the text below, but the full release can be read here.

The Internal Revenue Service today issued its 2009 “dirty dozen” list of tax scams, including schemes involving phishing, hiding income offshore and false claims for refunds.

“Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times,” IRS Commissioner Doug Shulman said. “There is no secret trick that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”

Tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

The IRS urges taxpayers to avoid these common schemes:

Phishing

Phishing is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Phishing scams often take the form of an e-mail that appears to come from a legitimate source, including the IRS. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Taxpayers who receive unsolicited e-mails that claim to be from the IRS can forward the message to phishing@irs.gov. Further instructions are available at IRS.gov. To date, taxpayers have forwarded scam e-mails reflecting thousands of confirmed IRS phishing sites. If you believe you have been the target of an identity thief, information is available at IRS.gov.

Hiding Income Offshore

The IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Recently, the IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts. The IRS draws a clear line between taxpayers with offshore accounts who voluntarily come forward and those who fail to come forward.

Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. The IRS has also identified abusive offshore schemes including those that involve use of electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.

Filing False or Misleading Forms

The IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims. The new scam has evolved from an earlier phony argument that a “strawman” bank account has been created for each citizen. Under this scheme, taxpayers fabricate an information return, arguing they used their “strawman” account to pay for goods and services and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely held corporate stock and real property. Often, the donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

Avoiding Tax Scams

Tax schemes can lead to many problems for taxpayers. So, here is my best advice on how to avoid tax scams this tax season:

• Be cautious of any unsolicited e-mails or phone calls asking for personal information – they are usually fraudulent.
• Be suspicious of anyone contacting you from a company with whom you have a bank or credit card account. If they ask for information, do not give it out. Call the company separately by using the contact number on your statement or back of your credit card.
• Remember that the IRS will not call you on the telephone and ask for bank or credit card information.
• Remember that the IRS will never e-mail you. Taxpayers who receive unsolicited e-mail that claims to be from the IRS can forward the message to a special electronic mailbox, phishing@irs.gov. They can use instructions contained in an article titled “How to Protect Yourself from Suspicious E-Mails or Phishing Schemes” located at the IRS website. Remember: the only official IRS Web site is located at www.irs.gov.
• If you receive an e-mail which contains an official looking logo does not mean it is one. Always verify before providing any personal data, bank accounts or credit card information.
• Verify the authenticity of information received by contacting the IRS, your tax preparation service, or your bank. Use the contact number provided in your local phone book or known Web site that is provided in your bank statement.

In addition, if you are a victim, report it immediately. Suspected tax fraud can be reported to the IRS using IRS Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS Web site at IRS.gov. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The identity of the person filing the report can be kept confidential.

If you believe you are a victim of tax fraud, also contact the credit bureau and place a fraud alert on your account. Putting a fraud alert on your credit file is one of the first things you should do if you suspect someone is trying to open credit accounts in your name. When someone tries to open up a credit account in your name by getting a new credit card, car loan, cell phone, etc., the lender should contact you by phone to verify that you really want to open a new account. If you are not reachable by telephone, the credit account should not be opened. This might be something you want to do, even if you do not think identity theft is an immediate threat.

As Tax Season Continues, Beware of Scams

From The Washington Post:

As sure as the taxman cometh each year, so do the scam artists.

The Internal Revenue Service is warning U.S. taxpayers to be prepared for a steady increase in scams and virus attacks via e-mail, telephone and the Web as the April 15 tax-filing deadline approaches.

"We see a big upswing in complaints about these phishing emails January through April during the tax filing season," IRS spokeswoman Nancy Mathis said.

The most common type of scam arrives via e-mails claiming to come from the IRS or Treasury Department. They typically try to either scare consumers into thinking there is an error with their tax filing, or that they are eligible for a tax rebate or benefit from the government economic stimulus package that just passed on Capitol Hill.

These so-called "phishing" e-mails typically arrive in an e-mail that urges users to visit a site, which in turn prompts visitors to enter their personal and financial data, information that is then sent off to identity thieves.

Regardless of the type of come-on used in these scams, the IRS wants taxpayer to hear one message loud and clear:

"The Internal Revenue Service does not communicate with taxpayers via unsolicited e-mail," said J. Russell George, treasury inspector general for tax administration. "Some of these bogus e-mails are so sophisticated that people who are uninformed can and do fall prey to this type of scam. That is why it is so imperative that we continue to get this message out to people."

On Feb. 6, the U.S. Computer Emergency Readiness Team (US-CERT), warned Americans about a phishing scam that spoofed the IRS, offering recipients stimulus package payments. These e-mails include text that attempts to convince users to follow a link to a Web site or to complete an attached document.

These types of attacks, which prompt people to click on e-mailed links and download documents, also are frequently attempts to install malicious software that steals sensitive and financial information from infected systems, the government warns.

Since 2005, George's office has received nearly 2,000 complaints about phishing, and it estimates that at least 11,000 taxpayers have been victimized by these scams to date.