What's the result when the worst things happen? Too often, it's terrible people taking advantage of good people.
This occurs with alarming regularity in the tax world following tragedies and disasters. Con artists use horrible events to convince compassionate individuals to donate to groups that will help out the victims. What really happens all too often is the caring donors become victims, too.
Fake charities are just one type of scam in today's third installment of the IRS' Dirty Dozen for 2021. This category of tax ruses in which dishonest people trick others into doing something illegal often includes fraudulent schemes targeting senior citizens or immigrants.
Similar scams that typically end up costing victims tax money on top of other financial losses are fake Offers in Compromise and falling for promises of unscrupulous tax preparers.
Here's more on this groups of fake and felonious tax schemes.
Fake charities: For, well, forever, scammers have known generous individuals are easy marks. That's why they regularly set up fake organizations to take advantage of public generosity, especially in the wake of tragedies and disasters.
Telephone scams requesting disaster relief donations are especially common. The victims are told that not only can they help those in need, they can get a tax deduction.
True, to a point. What the crooks don't say is that the charity must be approved by the Internal Revenue Service. (That's just one of the requirements. You can find more about donating and deducting charitable gifts in my most recent Boxing Day post.) Since the charities the con artists are pushing are fake, that negates any tax break.
So if you get a call, especially right after a tragedy occurs, don't feel pressured to give. Instead, check out the supposed charity, starting by asking questions. Remember, authentic charities don't use hard-sell tactics. They also are happy to provide you with their exact name and web address and mailing addresses so you can confirm their legitimacy. You can do so by using the IRS' online Tax Exempt Organization Search tool.
Also, it's not usual practice for a real charity to ask for donations by gift card or wired money. Credit cards or mailed paper checks are the typical donation currency. And those payments should be sent only after researching the nonprofit.
Seniors, immigrants are prime targets: Despite recent studies that show young people are just as (or more) susceptible to scams, con artists still find older folks are prime fraud targets. So are immigrants who aren't proficient in English.
Fear is the prime tactic used by crooks trying to get money from both these demographics, usually through phone calls where the con artists pose as IRS employees. The fake agent threatens the person who answered the phone (or responded to a voice mail message) with loss of Social Security benefits, deportation or revocation of a driver's license, or even arrest from someone claiming to be with the IRS.
Again, remember that the IRS' first contact about a tax debt usually is a mailed letter, not a phone call. And real IRS employees will not threaten to revoke licenses or have a person deported. These are crooks' scare tactics.
To help individuals for whom English is not their native language, the IRS offers Schedule LEP. By submitting this form, taxpayers can choose which language they wish to communicate with the IRS. The agency then will send future communications in that preferred language.
Offer in Compromise mills: The IRS does provide several ways for taxpayers to pay off their overdue debts. One is with an Offer in Compromise (OIC), where you and the IRS agree on just how much of your delinquent tax bill you can pay.
But the OIC process is not as simple as crooks' schemes make it seem. The con artists misleading people about the requirements while charging excessive fees, often thousands of dollars, to get the process started.
"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. Instead, the IRS chief encourages folks considering an OIC to review the agency's online information on the program. Take the time to review the Offer in Compromise Pre-Qualifier Tool to see if you can take this repayment route.
One of the red flags that an OIC promoter is not legit is that they claim they can obtain larger offer settlements than others. You've probably seen them on late-night TV commercials. Such over-promising also is a suspicious trait of the next in this ruse group, the unscrupulous tax preparer.
Unscrupulous tax return preparers: Most tax preparers are ethical and trustworthy. But most isn't all. Sadly, there are many tax preparers or folks pretending to be tax pros who are always on the prowl for taxpayer victims.
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 also must sign and include their PTIN on the return.
Tax preparers who won't sign the tax returns they prepare, either by hand or digitally, often are referred to as ghost preparers. The name comes in part because they tend to disappear after illegally preparing returns that get them big payouts, leaving taxpayers on the hook for the mistakes and resulting tax bills. Remember, even if you use a tax pro, even a legitimate one, you as the taxpayer are legally responsible for all that is on your Form 1040.
Refusal to sign a return is just one big, bright red flag that the preparer isn't on the up-and-up. Unscrupulous tax return preparers also may:
- Require payment in cash only and will 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 bank account, not the taxpayer's account.
So don't go to the cheapest tax preparer or the one making the most outrageous promises. My posts on how to pick the tax preparer who's right for you, as well as how to check our your tax pro before handing over your tax life details, can help you get the best tax help. You also can use the IRS' online Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to find a reputable preparer.
You also might be able to get IRS-sanctioned free or low-cost tax filing help at a local Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) site that operates during the main tax filing season.
Three down, two to come: As noted at the beginning of this post, this is the third installment of the IRS' 2021 version of its annual Dirty Dozen Tax Scams. Instead of delivering them all at once in list form, the agency is doing so this year based on four categories of scams.
The scam quartet is listed below, with the published categories linked to the published posts here on the ol' blog discussing them:
- Pandemic related scams, with a focus on attempts steal COVID-19 Economic Impact Payments (EIPs) and other tax-related coronavirus relief distributed by the IRS, on Monday, June 28;
- Personal information cons, such as phishing, its cousin voice phishing or vishing, and ransomware, on Tuesday, June 29;
- Ruses that focus on unsuspecting victims, including fake charities and fraudulent schemes targeting senior citizens or immigrants, on Wednesday, June 30; and
- Questionable schemes that promote abusive structures, such as syndicated conservation easements, on Thursday, July 1.
I'll be back tomorrow for the last scam grouping. Then after the IRS completes its list, I'll wrap up things here with a consolidated look on Friday, July 2, of the 2021 Dirty Dozen Tax Scams and a review of ways to avoid falling for any and all of them.
You also might find these items of interest:
- A dozen disaster scam warnings
- Turning in tax pros who break bad
- Biden Administration seeks IRS oversight of some tax pros