The IRS reminds taxpayers not to fall victim to a variety of tax scams. These schemes take several shapes, ranging from promises of special tax refunds to illegal ways of "untaxing" yourself. If people think something may be unscrupulous, they can report suspected tax fraud to the IRS at 1-800-829-0433.
The IRS urges people to avoid these common schemes:
- No taxes being withheld from your 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. If you have concerns about your employer and employment taxes, you can get help by calling the IRS at 1-800-829-1040.
- "I don't pay taxes - why should you?" Con artists may talk about how they don't file or pay taxes and then charge people a fee to share their "secret." The real secret that these people don't reveal is that many of them actually do file and pay taxes -- they just won't publicly admit it. Again, the IRS reminds people that failure to file or pay taxes is subject to civil and/or criminal tax penalties.
- 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 your money. Plus, those who file subsequent claims can be subject to a $500 frivolous return penalty.
- 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 pay the income tax due. Don't believe it. If you really won a prize, you 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 you've won cash, a car, or a trip, the prize giver generally sends you and the IRS a Form 1099 showing the total prize value that should be reported on your tax return.
- Untax yourself for $49.95. This one's as old as snake oil, but people continue to be taken in. And now it's on the Internet. The ads may say that paying taxes is "voluntary," but they are absolutely wrong. The U. S. courts have continuously rejected this and other similar arguments. Unfortunately, hundreds of people across the country have bought "untax packages" before finding out that following the advice contained in them can result in civil and/or criminal tax penalties being assessed. Numerous sellers of these bogus packages have been convicted on criminal tax charges.
- Social Security tax scheme. Taxpayers shouldn't fall victim to a scam offering them 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 upfront 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.
- "I can get you a big refund...for a fee!" Refund scheme operators may approach you wanting to "borrow" your Social Security Number or give you a phony W-2 so it appears that you qualify for a big refund. They may promise to split the refund with you, 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 you a bigger refund without knowing your tax situation could be misleading you, and 2) Never sign a tax return without looking it over to make sure it's honest and correct.
- 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.