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The following has been lifted from BANKRATE.COM I give them
full and 100% credit. It is of interest to US readers in
particular but except for the slavery issue, they all apply to
Canada as well.
IRS warns: watch out for these "dirty dozen"
tax scams
By Kay Bell • Bankrate.com
When it comes to tax-saving promises, the
Internal Revenue Service says taxpayers would be wise to remember
the recurring warning from television's X-Files: Trust no one.
Each year, the IRS sees con artists emerge with
schemes designed to separate taxpayers from their cash. Believing
promises to cut tax bills, scam victims end up losing cash.
Compounding their financial misery, they subsequently find
themselves in hot water with the IRS. Even if you are duped, you
could end up owing penalty charges and back interest on unpaid
taxes.
Most of the schemes are patently false. A
couple take real tax breaks, or portions of legal write-offs, and
illegally apply them. Rip-offs range from phony prizes to
"sheltered" offshore credit card accounts to promised tax savings
for older and ethnic filers. Some folks can't even trust their
bosses, with work-related scams still popular.
Here are 12 common, and potentially costly,
cons the IRS is alert to. You should be, too.
Offshore tax shelters
It's not illegal to have a credit card issued
by an offshore institution. However, it is illegal to hide
taxable income and the IRS says that's exactly what a growing
number of people are doing when they open accounts in tax-haven
countries. Credit cards associated with the accounts then afford
easy access to the "sheltered" money. Several U.S. courts have
ordered issuers of these accounts to surrender their records to
the IRS; the first summons alone turned up 237,000 cards issued
through 28 banks in three countries. The IRS estimates that there
could be up to 2 million U.S. taxpayers with questionable
offshore credit or debit cards.
Uncovering these schemes tops the tax agency's
priority list and the IRS is seeking help from offshore credit
card holders themselves. The IRS is offering limited amnesty to
people involved in such arrangements. Account holders who
participate in the Offshore Voluntary Compliance Initiative will
not face civil fraud and information-return penalties, but they
will have to pay back taxes, interest and some accuracy or
delinquency penalties. Call (215) 516-3537 for more information
on the program.
Tax-related identity theft
Identity theft is the number one consumer
complaint and the crime can easily escalate during tax season.
The IRS knows of at least two identity theft scams involving
taxes or the IRS. In one, tax preparers allegedly used client
information, such as Social Security numbers and financial data,
to commit identity theft. In another, bank customers received
fictitious letters and purported tax forms in an attempt to trick
them into disclosing personal and banking data. Always be careful
about revealing personal and financial information and make sure
you select a reputable tax professional.
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 fraudsters may also
counsel their clients to use a phony check to overpay their taxes
so they can receive a refund. 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.
Special refund for African-Americans
Thousands of African-Americans have been misled
by people offering to file for tax credits or refunds related to
reparations for slavery. This scam has a distant factual basis.
Shortly after the Civil War, Congress voted to provide former
slaves with 40 acres and a mule as payback for their years in
slavery. President Andrew Johnson vetoed the bill. Though
politicians and various media discuss the reparations issue for
descendants periodically, there currently is no tax law that
allows for any slavery-related tax breaks.
Some unscrupulous promoters encourage clients
to pay them to prepare a claim for this invalid refund. But the
claims are a waste of money. Plus, those who file subsequent
claims can be subject to a $500 frivolous return penalty.
Not withholding taxes from your paycheck
Illegal schemes arguing that employers don't
have to withhold federal income tax or employment taxes from
employees' wages are showing up with increasing frequency. These
scams rely on an interpretation of tax law that wages are not a
"source" of income and that the definition of "sources of income"
does not apply to individuals.
This is wrong, says the IRS, and federal courts
have agreed with the tax agency, rejecting these arguments as
frivolous and imposing penalties on tax evaders.
"The law is crystal clear that income and
employment taxes must be paid," said Joe Kehoe, Commissioner of
the IRS Small Business and Self-Employed Division. "Evading
employment taxes can have serious consequences. Employers may be
subject to criminal and civil sanctions for willfully failing to
pay employment taxes."
Tax-law violating employers have been sentenced
to either federal prison, a halfway house, home detention or some
incarceration combination on employment tax issues. The convicted
tax evaders also were ordered to make restitution to the
government for the unpaid taxes. And the IRS is ramping up such
investigations.
While employers may see jail time, workers also
could face tax consequences. Individuals still are ultimately
responsible for personal tax payments -- income, Social Security
and Medicare -- even when a boss refuses to withhold them. If
these taxes aren't withheld regularly from paychecks, a taxpayer
could face a huge tax bill in April, plus penalties and interest
for not paying throughout the year as income was earned.
The IRS urges persons concerned about an
employer and employment taxes to call the agency toll-free at
(800) 829-1040.
Improper home-based business
Lots of people run their own business from
home, either as a main job or to supplement wage income. Such
ventures also can provide several tax-saving deductions. But to
meet IRS muster when claiming such breaks, the home-based
business must be legitimate. Don't necessarily believe -- or
pay -- promoters of work-at-home plans that purport to make all
your personal expenses tax deductible. Tax laws clearly state
that a business must have a clear business purpose and profit
motive before the operator can claim business expenses.
Pay the tax, then get the prize
Everybody wants to be a winner, and tax
scammers use this desire to their advantage in the fake prize
ploy.
In this scheme, a caller congratulates you on
winning a prize. All you have to do to get it is pay the income
tax due. The tip-off that this is not on the level is that the
requested tax payment is to be made payable to the caller.
While taxes are due on prizes (including cash,
merchandise or trips), don't believe these unexpected bearers of
"good" news. Any taxes on prizes would be paid to the IRS,
usually through filing estimated taxes, not the caller. Plus,
reputable prize givers will send you and the IRS a Form 1099
showing the total prize value that should be reported on your tax
return.
"I don't pay taxes. Why should you?"
In these cases, con artists boast about how
they don't file or pay taxes. They're happy to share their
"secret" -- for a fee. The real secret, says the IRS, is that
many of these scammers actually file and pay taxes. They just
won't publicly admit it.
Failure to file or pay taxes is illegal. If you
fall for this con, you could be out the price of the fake
tax-saving secret and also face civil and criminal tax penalties.
Social Security tax scheme
Older people are the target of many illegal
schemes, and it's no different when it comes to tax scams.
A recurring swindle is an offer to refund to
individuals the Social Security taxes they have paid during their
lifetimes. The con artist convinces the victim to pay a
"paperwork" fee, usually $100 plus a percentage of any refund
received, to file a claim with the IRS.
There is no law allowing for refund of Social
Security taxes. So this hoax fleeces the victims for the upfront
fee and leaves them waiting for a nonexistent refund. IRS
processing centers nationwide are on to this scam and immediately
stop the false claims.
"I can get you a big refund (for a fee)"
In this cousin to the untaxing scam, con
artists approach you and want to "borrow" your Social Security
number for use on a phony W-2 that makes it look like you qualify
for a big refund.
The scheme operators may promise to split the
refund with you. The IRS, however, catches most of these false
refund claims before they go out. And when one gets out, the
agency says the recipient doesn't get to keep the money for long.
When the illegal refund is discovered, the scam participant
usually ends up paying back the money along with stiff penalties
and interest.
Sharing tax-credit dependents
The earned income credit offers lower-income
workers a way to save on taxes. The tax break is bigger for
taxpayers who are supporting children. To get the maximum credit,
a filer need only claim two children as dependents. Unscrupulous
tax preparers sometimes "borrow" one client's "extra" kids and
transfer them to another filer's return to illegally manufacture
this tax break. For example, Joe has four youngsters. His
preparer properly lists two of Joe's children to claim the full
earned income tax credit. However, Joe's other two kids are
listed on the childless Jane's return to illegally get her the
same tax saving.
Often, reports the IRS, the preparer convinces
clients to participate in the bogus claim by offering to split
the tax refund money generated by the illegal claim. The tax pro
could face criminal charges, and civil penalties could be
assessed the taxpayers.
Unexpected IRS home visits
Particularly brazen con artists make personal
visits to their marks' homes. Posing as federal tax agents, the
scam operators try to collect what they say is additional tax
owed by the resident.
Don't let any unknown person come into your
home until they have identified themselves to your satisfaction.
The IRS says its special agents, field auditors and collection
officers carry photo identification cards. But even before they
show up, the feds usually try to contact you to arrange a
convenient meeting time. Unexpected IRS visits should immediately
raise questions about the legitimacy of the "agent."
In these cases, as with any unknown visitor, if
you think the person is an imposter, lock your door and call the
local police. To report IRS impostors, call the Treasury
Inspector General's toll-free hotline at (800) 366-4484.
IRS offices across the country are well aware
of these dirty dozen tax scams. If you encounter any of them, or
are approached with a new one, the agency wants to know. Report
suspected tax fraud by calling the IRS toll-free at (800)
829-0433.
And it never hurts to be a little skeptical. If
something sounds too good to be true, especially at tax time, it
probably is.
david ingram - [email protected]
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - (604) 913-9123 www.centa.com
Cell is (604) 657-8451 (10 AM to 10 PM seven days a week)
US/Canada Real Estate Taxation Specialists
US / CANADA / MEXICO
Working Visa and Income Tax Specialists
Disclaimer: This question has been answered without detailed
information or consultation and is to be regarded only as general
comment. Nothing in this message is or should be construed as
advice in any particular circumstances. No contract exists
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duties are expressly denied. All readers should obtain formal
advice from a competent and appropriately qualified legal
practitioner or tax specialist in connection with personal or
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Be ALERT, the world needs more "lerts"
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