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