The 2021 IRS "Dirty Dozen" – Round Three
In previous installments of the IRS "Dirty Dozen" saga, we dealt with pandemic related scams in article one and personal information cons in last week's second article. Check those out if you haven't read them yet. As we continue today, we'll be looking at scams involving fake charities, so-called "ghost" preparers, senior and immigrant fraud, and other such schemes.
Fake charities seem to make the list every year, and, unfortunately, fakes often increase during times of crisis, tragedy and disaster, such as the COVID-19 pandemic. These schemes sadly take advantage of the public's generosity.
The IRS provides these tips regarding fake charity scams:
- You should never let any caller 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 it can be confirmed 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. It's safest to pay by credit card or check, and only after having done some research on the charity.
Bottom line, always check out a charity that is unknown to you before donating!
Immigrant/Senior fraud is rampant. Scammers are known to target groups with limited English proficiency, as well as senior citizens.
A common tactic in this area is the IRS impersonation scam where a phone call is received threatening jail time, deportation or revocation of a driver's license from someone claiming to be with the IRS. The idea is to confuse the victim into compliance. Taxpayers who are recent immigrants, as well as seniors, often are the most vulnerable, and should ignore these threats and not engage the scammers.
Offer in Compromise "mills" contort a valuable IRS program into something it's not – misleading people with no chance of meeting the requirements while charging excessive fees, often thousands of dollars.
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 the promoters know the person won't qualify.
You 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.
Instead, you can go to IRS.gov and review the "Offer in Compromise Pre-Qualifier Tool" to see if you qualify for an OIC. Also, under the IRS First Time Penalty Abatement policy, taxpayers can go directly to the IRS for administrative relief from a penalty that would otherwise be added to their tax debt.
Unscrupulous return preparers continue to be on the list. Although most tax preparers are ethical and trustworthy, 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 also:
- 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.
Remember, you are legally responsible for what is on your tax return even if it is prepared by someone else. Protect yourself by choosing a reputable tax preparer.
Unemployment insurance fraud is the final item on today's list. Unemployment fraud often involves individuals acting in coordination with or against employers and financial institutions to get benefits to which they are not entitled. As taxpayers, we all have a stake in helping prevent this kind of fraud. The IRS identified the following scams related to unemployment insurance:
- Identity-related fraud: Stolen or fake identification information is used to submit applications for unemployment benefits.
- 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 to continue receiving unemployment insurance 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 create a fictitious company, and supply fictitious employee and wage records to apply for unemployment insurance 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.
If you see or suspect unemployment fraud, you can go to www.dol.gov/fraud for information on how to report it.