The Internal Revenue Service continues its “Dirty Dozen” tax series by warning people to watch out for predators using tax-related schemes including fake charities and scams targeting seniors and immigrants.
The IRS continues to see a group of ruses by dishonest people who trick others into doing something illegal or which ultimately causes them harm. Predators encourage otherwise honest people to do things they don’t realize are illegal or prey on their good will to take something from them.
Several schemes involve fraudsters targeting groups such as senior citizens or immigrants; posing as fake charities impersonating IRS authorities; charging excessive fees for Offers in Compromise; committing unemployment insurance fraud; and preparing tax returns unscrupulously.
Here are five more of this year’s “Dirty Dozen” scams.
Fake Charities
People should be on the lookout for scammers who set up fake organizations to take advantage of the public’s generosity, especially during tragedies and disasters such as the COVID-19 pandemic.
Scams requesting donations for disaster relief efforts are especially common over the phone. You should always check out a charity before you donate, and you shouldn't feel pressured to give immediately.
If you give money or goods to a charity, you may be able to claim a deduction on your federal tax return by reducing the amount of your taxable income, but remember that to receive a deduction, the donation must be to a qualified charity. You can use the IRS Select Check tool online to check the status of a charity. (Also, remember that you can’t deduct gifts to individuals or to political organizations and candidates.)
Tips to remember about fake charity scams:
Never let callers pressure you. A legitimate charity will be happy to get a donation at any time, so there’s no rush. Donors are encouraged to take time to do the research.
Potential donors should ask the fundraiser for the charity’s exact name, web address and mailing address, so they can confirm it later. Some dishonest telemarketers use names that sound like large well-known charities to confuse people.
Be careful how a donation is paid. Donors should not work with charities that ask them to pay by giving numbers from a gift card or by wiring money. That’s how scammers ask people to pay. The safest to make a donation is by credit card or check, after having done research on the charity.
More information on fake charity scams can be found on the Federal Trade Commission web site.
Immigrant/Senior Fraud
IRS impersonators and other scammers are known to target groups with limited English proficiency as well as senior citizens with scams that are often threatening in nature.
While it has diminished some recently, the IRS impersonation scam remains a common scam. This is where a taxpayer 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 are often the most vulnerable. They should ignore these threats and not engage the scammers.
The first contact with the IRS will usually be through mail, not over the phone. Legitimate IRS employees will not threaten to revoke licenses or have a person deported. These are scare tactics.
As phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language, the IRS has added new features to help those who are more comfortable in a language other than English. The Schedule LEP lets people select the language in which they wish to communicate. Once they complete and submit the schedule, they will receive future communications in that selected language.
The IRS provides tax information, forms and publications in many languages other than English. IRS Publication 17, Your Federal Income Tax, is available in Spanish, Chinese (simplified and traditional), Vietnamese, Korean and Russian.
Seniors Beware
Senior citizens and those who care about them should be on alert for tax scams targeting older Americans. The IRS recognizes the pervasiveness of fraud targeting older Americans, along with the Department of Justice and FBI, the Federal Trade Commission and the Consumer Financial Protection Bureau (CFPB), among others.
The IRS re-designed Form 1040 and its instructions for people born before Jan. 2, 1956 with Form 1040SR and related instructions in an effort to make filing taxes easier for seniors, and reminds them that the best source of information about their taxes is the official IRS.gov website.
Offer in Compromise ‘Mills’
Offer in Compromise mills contort the IRS program into something it’s not by misleading people who have no chance of meeting the requirements while charging excessive fees, often thousands of dollars.
“We’re increasingly concerned that people having trouble paying their taxes are being duped into misleading claims about settling their tax debts for ‘pennies on the dollar’,” said IRS Commissioner Chuck Rettig. “The IRS urges people to take a few minutes to review information on IRS.gov to see if they might be a good candidate for the program – and avoiding costly promoters who advertise on radio and television.”
People should be wary of promoters claiming their services are needed to settle with the IRS; that their tax debts can be settled for “pennies on the dollar”; or that there is a limited window of time to resolve tax debts through the Offer in Compromise (OIC) program.
An “offer,” or OIC, is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. However, some promoters are inappropriately advising indebted taxpayers to file an OIC application with the IRS, even though they know the person won’t qualify. This costs honest taxpayers money and time.
Be especially wary of promoters claiming that they can obtain larger offer settlements than others, or who make misleading promises that the IRS will accept an offer for a small percentage. Companies advertising on TV or radio frequently can’t do anything for people that they can’t do for themselves by contacting the IRS directly.
People should review the IRS Offer in Compromise Pre-Qualifier Tool to see if they qualify for an OIC. Also, remember that under the First Time Penalty Abatement policy, people can go directly to the IRS for administrative relief from a penalty that would otherwise be added to their tax debt.
Unscrupulous Tax Return Preparers (Ghost Preparers)
Although most tax preparers are ethical and trustworthy, people should be wary of preparers who won’t sign the tax returns they prepare, often referred to as ghost preparers. For e-filed returns, the “ghost” will prepare the return, but refuse to digitally sign as the paid preparer.
By law, anyone who is paid to prepare, or assists in preparing federal tax returns, must have a valid Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on the return. Not signing a return is a red flag that the paid preparer may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund.
Unscrupulous tax return preparers may do the following:
Require payment in cash only and not provide a receipt.
Invent income to qualify their clients for tax credits.
Claim fake deductions to boost the size of the refund.
Direct refunds into their own bank account, not the taxpayer's account.
It's important to choose tax return preparers wisely, because people are legally responsible for what is on their tax return even if it is prepared by someone else. People can help protect themselves by choosing a reputable tax preparer. The Choosing a Tax Professional page on the IRS website has information about tax preparer credentials and qualifications, and the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications helps to identify many preparers by their type of credential or qualification.
Unemployment Insurance Fraud
Unemployment fraud often involves individuals acting in coordination with or against employers and financial institutions to get state and local assistance to which they are not entitled. These scams pose problems that can adversely affect individuals in the long run.
States, employers and financial institutions all need to be aware of these unemployment insurance related scams:
Identity-related fraud: Filers submit applications for unemployment payments using stolen or fake identification information to perpetrate an account takeover.
Employer-employee collusion fraud: The employee receives unemployment insurance payments while the employer continues to pay the employee reduced, unreported wages.
Misrepresentation of income fraud: An individual returns to work and fails to report the income so they can continue to receive unemployment payments; or, in an effort to receive higher unemployment payments, applicants claim higher wages than they actually earned.
Fictitious employer-employee fraud: Filers falsely claim they work for a legitimate company, or they create a fictitious company, and supply fabricated employee and wage records to apply for unemployment payments.
Insider fraud: State employees use credentials to inappropriately access or change unemployment claims, resulting in the approval of unqualified applications, improper payment amounts, or movement of unemployment funds to accounts that are not on the application.
Short List of Financial Red Flag Indicators of Unemployment Fraud:
Unemployment payments are coming from a state other than the state in which the customer reportedly resides or has previously worked.
Multiple state unemployment payments are made within the same disbursement timeframe.
Unemployment payments are made in the name of a person other than the account holder, or in the names of multiple unemployment payment recipients.
Numerous deposits or electronic funds transfers (EFTs) are made that indicate they are unemployment payments from one or more states to people other than the account holder.
A higher amount of unemployment payments is seen in the same timeframe compared to similar customers and the amount they received.