Small Business Taxes & Management^TM--Copyright 2020, A/N Group, Inc.

Introduction

The IRS continues to publish lists of its Dirty Dozen tax scams. Tax scams usually are more prevalent during the tax season and during times of crisis--the COVID-19 pandemic generating more activity and some new scams.

The List

Scammers targeting individuals with limited English proficiency. IRS impersonators and other scammers (Social Security impersonators is another common one) are targeting groups with limited English proficiency. These scams are often threatening in nature. Phone scams pose a major threat to peoplewith limited access to information, including individuals not entirely comfortable with the English language. A common one remains the IRS impersonation scam where ataxpayer receives a telephone call threatening jail time, deportation or revocation of a driver's license from someone claiming to be with the IRS. Recent immigrants often are the most vulnerable to these scams. They should ignore these threats and not engage the scammers.

Dishonest return preparers. The IRS uses the term "ghost" preparers because they don't sign the return they prepare. They may offer to reduce your tax bill or get a larger refund, usually by claiming fake deductions or making filing mistakes. Either one can subject the taxpayer to additional liability and, in some cases tax fraud and penalties. Legitimate preparers will generally file electronically and give you a signed copy.

Ransomware. This is malicious software that is often downloaded by the user after clicking on a malicious attachment that encryptstheir data making their data inaccessible. In some cases, entire computer networks can be affected. Tax preparation software uses a multi-factor authentication feature that reduces the possibility of ransomware. Don't open emails from sources you don't know and keep backup copies of all your files. A daily backup routine will prevent a catastrophe. Hard or SSD drive backup systems are too cheap to ignore.

Payroll and HR scams. This one is aimed at businesses. Tax professionals, employers and taxpayers need to be on guard against phishing designed to stealForm W-2s and other tax information. These are called Business Email Compromise or Business Email Spoofing. These scams have used a variety of tactics including requests for wire transfers or payment of fake invoices. One defense is to check with the potential payee using a telephone number or email address from your file, not the requesting email. You won't look dumb for checking. You will look dumb if you make a $5,000 payment to a scammer. A tipoff is frequently an urgent request or a threatening action of payment isn't made quickly. In the case of a bogus supplier, threatening to stop shipment of goods.

Fake payments and repayment demands. A con artist will steal a taxpayer's identity and bank account information. Then the con artist will file a false tax return and will have the refund deposited into the taxpayer's bank account. Once the direct deposit hits the taxpayer's account, the fraudster places a call to them, posing as an IRS employee. The taxpayer is told that there's been an error and that the IRS needs the money returned immediately or penalties andinterest will result. The taxpayer is told to buy specific gift cards for the refund amount. The IRS (nor any other governmental agency or most businesses) will ever request payment in the form of a gift card. They want a check or, in the case of the IRS, a payment through the Direct Pay system at IRS.gov or a payment through the EFTPS system.

Offer in Compromise mills. There's a mix of scammers and legitimate operators here. There are a number of misleading tax debt resolution companies that can exaggerate the chances to settle tax debts for "pennies on the dollar" through an Offer in Compromise. Dishonest companies oversell the program tounqualified candidates so they can collect a large fee from taxpayers already struggling with debt. These scams are commonly called OIC "mills," which cast a wide net for taxpayers, charge them pricey fees and churn out applications for a program they're unlikely to qualify for.

The truth is more complicated. Yes, some taxpayers due settle for less than the amount owed and some do settle for a fraction of the original amount. But any reduction will depend on your financial situation. Just because you no longer can afford two high-priced German cars for you and your wife doesn't mean you're in financial distress. The IRS will calculate your living expenses based on an average--and it's not particularly generous. You're expected to tighten your belt and, if you have equity in your home you may be asked to obtain a mortgage or sell the home, liquidate investments, etc. The IRS may examine your potential future income. For example, currently out of work or working a $60,000 a year job when you were a marketing consultant making $250,000? The IRS may look to what you should be making. On the other hand, working part time to take care of a spouse recovering from cancer and mortgaged the home to pay medical expenses? You could find some relief.

There are CPAs and tax attorneys that are familiar with this issue. Because it's close to a specialty, they can generally be found at larger firms or they get references from general practitioners. Check carefully before committing.

--Last Update 08/17/20