Hundreds of thousands of people across the country fall prey to tax scams that rip off their money. Because most people hate the prospect of paying the government their share of taxes, many seek an alternative means to paying taxes or they fall victim to what they think is a good money making opportunity.

As many of us know, now there is more than one way to go fishing and that's phishing over the internet. The latest phishing scam claims to be an IRS refund notification. The phishing e-mail claims the recipient is eligible for a sizeable tax refund. The e-mail then tries to gain credibility by instructing recipients to copy/paste the url rather than clicking it. The problem is, the page being targeted on that site allows the phishers to "bounce" the user to another site altogether. Users are then asked for privileged personal information.

While at first glance the IRS tax refund phishing scam may seem clever, it shouldn't fool savvy users. First, the IRS doesn't use e-mail to correspond with tax payers regarding refunds. Second, the redirect (url) can be plainly seen in the link.

"If is sounds TOO GOOD TO BE TRUE, then it is probably is."

Now lets talk about the rest of the tax scams that seem to rear their ugly heads year after year. These scams include scams that either manipulate laws governing charitable groups, abuse credit counseling services or rely on refuted arguments to claim tax exemptions. The IRS also sees the continuing spread of identity theft schemes preying on people through e-mail, the Internet or the phone, sometimes with con artists posing as representatives of the IRS. Avoid these common tax schemes:

Trust Misuse

Unscrupulous promoters for years have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits, and the IRS is actively examining these arrangements. Taxpayers should always seek the advice of a trusted professional before entering into a trust.

Frivolous Arguments

Promoters have been known to make the following outlandish claims: that the 16th Amendment concerning congressional power to lay and collect income taxes was never ratified; that wages are not income; that filing a return and paying taxes are merely voluntary; and that being required to file Form 10-40 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don't believe these or other similar claims. Such arguments are false and have been thrown out of court.

Return Preparer Fraud

Dishonest return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients' refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer.

Credit Counseling Agencies

Taxpayers should be careful with credit counseling organizations that claim they can fix credit ratings, push debt payment agreements or charge high fees, monthly service charges or mandatory "contributions" that may add to debt. The IRS Tax Exempt and Government Entities Division has made auditing credit counseling organizations a priority because some of these tax-exempt organizations, which are intended to provide education to low-income customers with debt problems, are charging debtors large fees while providing little or no counseling.

"Claim of Right" Doctrine

In this scheme, a taxpayer files a return and attempts to take a deduction equal to the entire amount of his or her wages. The promoter advises the taxpayer to label the deduction as "a necessary expense for the production of income" or "compensation for personal services actually rendered." This so-called deduction is based on a misinterpretation of the Internal Revenue Code and has no basis in law.

"No Gain" Deduction

Similar to "Claim of Right," filers attempt to eliminate their entire adjusted gross income (AGI) by deducting it on Schedule A. The filer lists his or her AGI under the Schedule A section labeled "Other Miscellaneous Deductions" and attaches a statement to the return, referring to court documents and including the words "No Gain Realized."

Identity Theft

In one case, fraudsters sent bank customers fictitious correspondence and IRS forms in an attempt to trick them into disclosing their personal financial data. In another, abusive tax preparers used clients' Social Security numbers and other information to file false tax returns without the clients' knowledge. Sometimes scammers pose as the IRS itself. Last year the IRS shut down a scheme in which perpetrators used e-mail to announce to unsuspecting taxpayers that they were "under audit" and could set matters right by divulging sensitive financial information on an official-looking website. Taxpayers should note the IRS does not use e-mail to contact them about issues related to their accounts.


Michael Green of Michael L. Green Tax and Financial is an enrolled agent and certified financial planner in the Valencia Industrial Center. Reach him for questions by calling 257-4111.