Top #10 things to keep in mind to avoid falling prey to tax scams

Top #10 things to keep in mind to avoid falling prey to tax scams

by | Jul 24, 2020 | coronavirus Tax scammers, Frauds and Scams, Social Security Number, Tax Scams, Taxpayers

Top #10 things to keep in mind to avoid falling prey to tax scams

Tax scams are common happening throughout the year. However, with distressful times caused all around by the novel coronavirus tax scammers are finding this as an ideal time for catching up new prey. Usually, it is seen that young Americans are most likely to fall prey to the tax fraudsters and scammers.

The IRS has been continuously creating awareness amongst the Americans against the increased tax scams, frauds, and cons. The IRS has informed the common people about the various in which tax scams can occur may it be in the form of abusive tax schemes, telephone scams, or even in the form of phishing schemes. The IRS urges the Americans to be alert and prevent being a victim to any scams or any such schemes which might be offering instant money or exemption from filing tax returns or paying taxes as the citizen of the United States. Any such schemes or offers can land up common people into big troubles like prosecution and imprisonment as well.

Let us have look at the most important things which need to be kept in mind by the Americans to avoid falling prey to tax scams.

a.Abusive or fraudulent tax preparers

The majority of the tax preparers are quite honest and do the tax preparation legitimately, but some can be fraudulent. Fraudulent tax preparers can file returns by the use of false information to boost the refund. Some taxpayers might even attempt to steal personal information that is present in your tax documents. Taxpayers must be very careful while selecting their tax preparers and must remember that the ultimate responsibility for information used in a tax return is theirs.

b.Telephone scams

This can happen when criminals pose to be IRS agents and call the taxpayers to threaten for paying overdue tax bills. These imposters use fake names and phony IRS identification badge numbers. Taxpayers should always remember that the IRS would never adopt threatening as a strategy to deal with common people. Moreover, the IRS would also never call up taxpayers for immediate payment using a debit card or any other medium. It would usually send you mail in case of any payment due or any other issues. 

c.Tax identity thefts

Tax identity thefts occur when a tax fraudster tend to use taxpayer’s information and obtain income tax returns from the IRS. This might occur even before income tax returns have been filed by the taxpayers. Fraudsters can steal taxpayer’s Social Security number and file returns early in the season. Usually, fraudsters try to use this strategy for deceased persons to obtain the benefits.

 

d.Phishing 

Phishing occurs by unsolicited emails or websites posing as legitimate sites that can lure the victims to share their personal and financial information. The intent of the fraudsters here is not to use the taxpayer’s information only for tax-related scams but also to store the information for use in other frauds in the future. 

 

e.Security of Social Security Number

A taxpayer can lose his Social Security number easily and the entire fraud procedure begins when the Social Security Number is available. Taxpayers should avoid carrying Social Security Number outside and must also ensure that their smartphones are locked to avoid Social Security Number theft.

f.Early filing of tax returns

The taxpayers should file their tax returns at the earliest so that they can beat the criminals. Usually, fraudsters aim at filing the tax returns by using the stolen information at the earliest and even obtain the returns before the IRS is aware of it. However, taxpayers can rule out this possibility by filing their tax returns as soon as possible.

g.Choose bona fide tax preparers

Taxpayers must always opt to work with a reputed company and trustworthy tax preparers. Qualified tax preparers would have Tax Preparer Identification Number and taxpayers can check on this from the IRS website. Moreover, taxpayers can check the reviews of the tax preparation companies before deciding to work with them.

 h.Alert about data breaches

Data breaches help the fraudsters in obtaining the information which is needed to execute the tax identity thefts.  Sometimes, tax scammers might be having very little information and they can use phishing emails to gain further information. It is very necessary for taxpayers to be aware of data breaches and secure their information in case of any breach.

i.Secure tax return filing

If taxpayers are filing tax returns using Wi-Fi, they must do it by the use of the secure connection. The filing of tax returns by using public Wi-Fi should be avoided by taxpayers. Moreover, if taxpayers are filing their tax returns by using mail they must do it directly from the post office. 

j.Report about frauds and scams

Taxpayers are encouraged to report any fraudulent practice, impersonation scam, phishing scam, etc. to the IRS by using the various tools of the IRS such as IRS Impersonation Scam Reporting, FTC complaint assistant or by sending mail to phishing@irs.gov.

Conclusion

Hence, taxpayers must be very alert about the different types of tax scams that are happening very frequently and must report to the IRS about such scams.

Tax scams, phishing, fraud schemes, and cons: IRS wants you to know!

Tax scams, phishing, fraud schemes, and cons: IRS wants you to know!

by | Feb 17, 2020 | Foreign Trust Schemes, Fraud Schemes, Tax Scams

Tax scams, phishing, fraud schemes, and cons: IRS wants you to know!

In the US, there are thousands of people who have lost a huge amount of money due to various tax scams. These tax scammers are highly dangerous and tend to use the telephone, regular mail, etc. to make an impression and appear like businesses, payroll, and tax professionals. Educating yourself and being alert is the best way by which you can avoid being prey to these dangerous scammers.

The IRS would never contact you by any text messages, emails or telephone calls. You should consider this as a thumb rule for identifying fraudulent tax scams. Moreover, if you are participating in an illegal scheme for avoiding the payment of taxes then it is an offense that can lead to re-payment of taxes along with payment of penalties and interest. 

Tax scams include a plethora of illegal and abusive methods used for filing tax returns or reducing taxable income, etc. Some of the common inclusions under the tax scams being carried out in the US can be summarized below.

  1. Phishing
  2. Abusive Tax Return Preparer
  3. Abusive Tax schemes

Phishing

Some unsolicited emails or websites pose to be legal ones and try to find out personal information from you. You would not have slightest of doubt on these websites as they appear to be completely legitimate but would be very risky in actual. This practice is known as phishing and is quite a common tax scam. 

Abusive tax return preparer

Tax return preparer fraud mainly involves the preparation and filing of false income tax returns either in the paper form or electronic form by any unscrupulous tax preparer.  An abusive tax return preparer can make false claims in your tax return by

  1. Making false deductions
  2. By increasing or inflating the business and personal expenses
  3. By claiming fraudulent tax credits
  4. By claiming false dependents
  5. By claiming false Schedule E, losses and supplemental income as well

The majority of the people prefer electronic mediums for filing tax returns and this increased use of the electronic medium is the main cause of frauds committed by tax return preparers. It is necessary to be careful while selecting tax return preparers and always opt for the reputed ones.

Abusive tax schemes

Various abusive tax schemes which will lead to a reduction in the taxable income or involving other partnerships, trust, and nominees, etc. for portraying the wrong income are quite common. Some of the major abusive tax schemes are mentioned below.

a.Abusive Foreign Trust Schemes

This scheme consists of a series of domestic trusts layered upon each other. This set up is made in such a way that it appears that you have turned your business and assets over to a trust and you no longer have any control over your assets. Then once the business and assets are transferred to the domestic trust they are passed on to foreign trusts, especially which are in tax haven countries. The trust documentation and business records will make it appear as if you are not in control of the assets or business anymore but in reality, nothing changes. 

b.International Business Corporation (IBC)

In this case, you will create an IBC with the same name as that of your business.  The IBC which you have created will also have a bank account in a foreign country. When you receive a cheque from customers, you can send those to the foreign country’s bank account.  The foreign bank will use the correspondent account to process the cheque received and it would never be known to the customer. When the cheque is cleared, the IBC account is credited with the payment. So, by this, you have been able to transfer your unreported income offshore without any notice.

c.False Billing Schemes

You will set up an IBC with your nominee as the owner of the IBC in a tax haven jurisdiction. You can then open a bank account under the IBC. You would be a signatory of the bank account according to the records of the bank. Your nominee would issue invoices to the business for those goods which have been purchased by you. You can now send the payment to the IBC which is deposited in the joint account held by you and the IBC. You can now display your taxable income as reduced and also would have been successful in placing unreported income into a foreign bank account.

Combating tax scams in the US

It is one of the most important priorities of the IRS. The IRS has been organizing various awareness campaigns and even circulates educational materials that can educate people. The IRS Lead Development Center constantly works on keeping the tax scams under control in the country. Whenever a referral is received LDC would follow up on them and even conduct civil and criminal investigations.

The IRS would also need the support of common people in this procedure of combating fraudulent tax scams. Whenever you are suspicious about an email or a message related to tax exemption you should report about it to the IRS.

Conclusion

Hence, tax scams, abusive tax return preparers, abusive tax schemes, etc. can be very dangerous and put you into huge monetary losses. The only effective method to avoid such losses is to be alert, educate yourself and support the IRS in keeping a check on the number of such scams.

Reference

  1. https://www.irs.gov/compliance/criminal-investigation/irs-wants-you-to-know-about-schemes-scams-and-cons
  2. https://www.irs.gov/businesses/small-businesses-self-employed/tax-scams-how-to-report-them
  3. https://www.irs.gov/businesses/small-businesses-self-employed/abusive-tax-schemes-and-abusive-tax-return-preparers-irs-lead-development-center
  4. https://www.irs.gov/compliance/criminal-investigation/tactics-used-by-dishonest-abusive-return-preparers
  5. https://www.irs.gov/compliance/criminal-investigation/what-are-some-of-the-most-common-abusive-tax-schemes