Five tips to avoid tax scams

April 24, 2009

William E. Massey– William E. Massey is a senior tax analyst from the Tax & Accounting business of Thomson Reuters. The views expressed are his own. —

Tax scams are prolific especially in these tough economic times. On the plus side, the IRS has been very good at keeping the public informed about the numerous scams it has uncovered. Each year, it issues a “Dirty Dozen” list of the most notorious scams. In addition, it posts detailed information on tax scams on its Internet site www.irs.gov. Here are five tips for avoiding being victimized by tax scammers.

Tip #1

Someone has promoted a way to for me to save taxes. It sounds good but sounds somewhat fishy at the same time. What should I do?

If it sounds fishy, stay away from it. It is probably no good. Check the IRS web site to see if the plan being touted is really a tax scam. In general, only pursue tax strategies put forth by a trusted, seasoned professional, whose credentials can be verified.

Tip #2

I received an e-mail from the IRS claiming I am due a refund. Should I respond?

Do not respond to the e-mail. The IRS does not initiate taxpayer contacts through e-mail. In fact, don’t open any attachment to the e-mail as it may contain malicious software that could infect your computer. The IRS requests that individuals receiving these “phishing” e-mails forward them to the IRS at phishing@IRS.gov. Delete the message after you forward it. These scams can also involve phone calls and faxes.

Tip #3

I received a letter from the IRS that leads me to believe my identity has been stolen. What should I do?

That can happen. For example, you could get a letter from the IRS saying that more than one return has been filed by you when you know you only filed a single return, or a letter indicating that you were employed by a company you never worked for. Here, you should respond to the IRS. If your tax records are not currently affected by identity theft, but you believe you may be at risk, you need to provide the IRS with proof of your identity. You should submit a copy, not the original documents, of your valid Federal or State issued identification, such as a social security card, driver’s license, or passport, etc, along with a copy of a police report or a completed IRS Identity Theft Affidavit – Form 14039. You may also contact the IRS Identity Protection Specialized Unit, toll-free 1-800-908-4490 for guidance.

Tip #4
A promoter informs me that I can use a business entity to deduct my personal living expenses. Is that true?

Personal living expenses are not deductible under any circumstances. You can’t use a business entity, such as a regular or S corporation, partnership or limited liability company to deduct personal living expenses. If you have undertaken this scam, file an amended return. You likely will owe tax, interest and penalties but you could owe even greater amounts if you wait until the IRS uncovers the scam.

Tip #5
Can I use an offshore account to avoid my tax obligations?

A U.S. citizen or resident cannot use an offshore arrangement (such as a foreign bank or brokerage account, or a credit card issued by a foreign bank) to avoid his tax obligations. In addition, taxpayers are required to disclose foreign financial accounts to the Treasury Department or face civil and criminal penalties. In recent days, the IRS has stepped up its efforts to go after tax evaders using offshore accounts. The IRS recently announced a settlement offer for those that voluntarily and timely disclose unreported offshore income.

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