When we think of getting in any kind of tax trouble, we get scared – that’s why everyone needs to know the three most common types of tax fraud and how to avoid them, courtesy of our resident tax expert Tracy Coenen.
1. You’ve probably seen the ads for companies promising to settle your debts with the IRS. But many of these firms have little interest in helping you keep your money. Tax settlement scams are just that – they know how unlikely it is to get a settlement with the IRS, but they will gladly let you pay them for the opportunity to try. The only way to get your tax debt reduced is through an Offer in Compromise. The IRS asks for lots of information and then determines what you can really pay to settle your debt. Usually only those in the most dire of circumstances have their offers accepted. Bottom line: unless you fit the mold that the IRS has set up for an Offer in Compromise, you are unlikely to be successful in settling your debt, with one of these settlement companies or without.
2. Beware of ‘phishing’ as well. This is when you receive an email that tells you information is needed from you in order to process your tax refund or clarify a tax problem. If you provide this information, what you’re really doing is helping a criminal somewhere empty your bank account or get credit in your name. Never respond to an email that purports to be from the IRS and never use a link from an email to provide private information, Coenen says.
3. Then there are the kinds of fraud done by your preparer, known as return fraud and frivolous tax arguments. Some tax preparers charge inflated fees for their services or try to steal a portion of their clients’ funds. Always use a reputable firm and look for certifications such as CPA license or enrolled agent. Frivolous tax arguemtns are when criminals promote fraudulent tax avoidance schemes that promise you won’t have to pay income taxes. The IRS has published a long list of excuses that taxpayers might try to use to avoid paying taxes but don’t work. This kind of scheme will end up costing you in terms of tax, interest, penalties and even legal assistance. Buyer beware.