Tax Come-Ons to Avoid
This article was written by Becky Schmitz and originally published in Bottom Line/Personal, a publication by Boardroom, Inc. The article below is a revised transcript of Ms. Schmitz's interview with Bottom Line/Personal.
1. Who are the scammers typically and how do they find their prey?
Tax scammers can be anywhere and anyone. The internet has opened a whole world to the way that tax scammers are able to find people and advertise to them. The wild, Wild West has a lot of individuals that believe they do not want to pay taxes or they are tired of paying taxes which is an easy target for individuals to buy into someone telling them they do not have to pay their taxes anymore. A recent set of individuals bought products from an airline magazine advertisement selling them the idea that they are able to file tax returns with zero amounts. The individuals bought into the idea that they did not have to pay taxes.
2. Can we provide a more sophisticated (and less sweeping) self-defense?
Be cautious when working with tax preparers that claim that you are able to set up a business and take extravagant deductions in the partnership or corporations. I have seen clients be told that they were able to deduct extreme business deductions through the business that really was not a business, the tax preparer then went back and recreated tax returns and amended the individuals tax return to take the fake business deductions. The IRS originally issued substantial refunds to the taxpayer victims. The tax preparer took a portion of the refund as payment for the amount of taxes he saved the individuals. The IRS turned around and audited the individual’s tax returns, collapsed the phony business returns, and assessed the taxpayer victim penalties and interest on top of the balance due. The taxpayer victim went to attempt to get a refund from the crooked tax return preparer but the IRS had already issued the tax preparer a cease and desist order so the tax preparer had filed bankruptcy. The individuals that believed in this scam ended up paying more money out of their pocket than what they received in phony refunds by far.
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With this gimmick, a genuine IRS form (Form 843) which is the Claim for Refund/Request for Abatement is filed being misused.
4. [An audit?]
By filing this form incorrectly, you’re inviting intense examination by the Internal Revenue Service which is an audit.
5. Clarify – how do you access if the trust is irrevocable?
An irrevocable trust does not let you have access to the money. In the trusts that are sold, they are not set up correctly letting you have access to the asset. As long as you have access to the money, income earned in any country is subject to US income tax.
6. Please clarify what the schemes are.
Promoters move your investment to off shore bank accounts or brokerage accounts. Then the promoters set you up with a credit card that has an offshore address on it. An individual is able to access all the money via a credit card that is paid out of the fund that is overseas. Recently, we had a gentleman who had invested his money in one of these and not only did he end up in tax trouble the investment he had disappeared also. When he was done, he lost around one million dollars between the taxes he owed and the money he lost in bad investment.
7. And you could face criminal charges too?
And yes, you could face criminal charges too.
8. Is that all?
There is no validity to such contentions. According to the IRS Chief Council Donald Korb, the courts have consistently rejected these arguments. The IRS continues to investigate promoters and users of these schemes. The individual that uses such a defense is subject to a penalty of $500.00. In case one pursues frivolous court cases, one may face additional penalties of $25,000.00.
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Here, you are provided with a fake IRS form 1099, Miscellaneous Income form, that replaces your original form one originally received from their income source. You’re told to attach the substitute form, which shows little or no income to your tax return.
10. What might the scammer charge for this?
The scammer will charge you an enormous amount of money for the fake information. One of my clients paid an individual in excess of $12,000 to prepare the information. The snake oil artists convince individuals that it is a way to not pay taxes. The client that paid the $12,000 for the scammers help only owed $4,500 in taxes when the taxes were done correctly.
11. What’s in it for the scammer?
Also, why would anyone fall for these? The scammers tell the individuals that it is a great way not to pay taxes. The scammers usually charge enormous amounts of money for the zero returns/zero gains tax return. Individuals fall for these scams simply because they do not like paying taxes.
12. Such as?
If you are a business owner, it’s your personal responsibility to see that the income tax, social security taxes, and Medicare taxes are withheld out of the employee’s paychecks and then paid to the proper taxing authority.
Don’t be fooled by promoters hawking an incorrect interpretation of the tax code, which states that withholding is not required. If you attempt to evade your withholding obligations, the Internal Revenue Service is able to seize your assets and close your doors putting your company out of business.
Bottom line is scammers are out their wanting to sell individuals products that are not legal and that do not work. Be cautious, if it sounds too good to be true it probably is!
About Becky Schmitz
Becky Schmitz is a certified tax resolution specialist and enrolled agent. Named 2006 Top Practitioner by the American Society of Tax Problem Solvers, she is the owner of Centsable Accounting, a tax problem resolution company serving Montana, Wyoming, North Dakota and South Dakota. Centsable Accounting offers many services related to tax problem resolution including a free tax problem resolution consultation. Visit them online today at http://www.centsableaccounting.com to learn more.