Tax Season Means New Tax Scams

By Uppercumberland BBB
Uppercumberland BBB
March 03, 2005

Tax season is here and there are some recent tax law changes for the 2004 tax year. If you are concerned about whether these changes will affect you, be sure to get the details before you prepare your tax return. For a list of tax law changes, visit www.irs.gov.

Most consumers are always looking for ways to cut their tax bill. Unfortunately, con artists are always looking for filers who are eager to find tax breaks. The Better Business Bureau, along with the Internal Revenue Services (IRS), reminds taxpayers not to fall victim to a variety of tax scams. Here a few:

*BIG REFUNDS…for a fee. These scam artists 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 offer to split the refund with you. Keep in mind that anyone who promises you a refund, without knowing your tax situation, is most likely misleading you. Never sign a tax return without reviewing it to make sure it is honest and correct.

*PAY THE TAX AND GET A PRIZE: If you have won a prize and the promoter claims that you have to pay the income tax due in order to receive it, don’t fall for it! If you have 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 would go to the IRS, not the prize promoter.

IMPROPER HOME BASED BUSINESS: This scheme purports to offer tax ‘relief’ but n reality is illegal tax avoidance. The promoters of this scheme claim that individual taxpayers can deduct most, or all, of their personal expenses as business expenses by setting up a bogus home based business. But the tax code firmly establishes that a clear business purpose and profit motive must exist in order to generate an claim allowable business expenses. This scam has been around for years and continues to become active during tax season.

*NO TAXES FROM YOUR WAGES: Now that’s a scam that gets the attention of many taxpayers! Listen, but don’t follow through with the information given by these schemers. These seminars are based on an incorrect interpretation of tax laws that instruct employers not to withhold federal income tax or employment taxes from wages paid to their employees. Employers are required by law to withhold employment taxes from their employees. Employers who do not comply with the employment tax laws may be subject to criminal and civil sanctions for willfully failing to pay employment taxes.

*AFRICIAN –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 money. Promoters of reparations tax schemes have been convicted and imprisoned.

Related scams include claiming an illegal tax credit by misusing Form 2439, "Notice to Shareholder of Undistributed Long-Term Capital Gains." The slavery reparations scam was at the top to the IRS 002 "Dirty Dozen" list and, although claims have fallen considerably, the IRS continues to see activity in this area.