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Be Wary of Tax Scams

The filing deadline for 2003 income tax returns is just around the corner.  In 2002, the IRS collected more than $2 trillion in revenue and processed nearly 227 million tax returns.  Less than 1% of all individual returns filed were examined, but your chance for being audited will substantially increase if you become involved in one of the tax evasion schemes that tend to proliferate at this time of year.  You should be wary of the following:

• Improper Home-Based Business.  The promoters claim that taxpayers can deduct personal living expenses by setting up a bogus home-based business.
• Social Security Tax Scheme.  The companies claim that by paying an upfront transaction fee, they will file to obtain a refund of all social security taxes paid by the taxpayer during their lifetimes.  The law does not permit refunds of social security taxes.
• African American Tax Refund.  Promoters claim that there is a credit or refund payable by the U.S. government to African Americans due to slavery reparations.  The promoters charge a fee to prepare the return and if the return is filed, it could subject the taxpayer to a $500 penalty if the claim is not subsequently withdrawn.
• Offshore Transactions.  Use of an offshore arrangement to hide or underreport U.S. income or to claim false deductions on your income tax return is fraudulent.  Through April 15, 2004, the IRS is offering a limited amnesty program that will exempt taxpayers from civil fraud charges if they self-report.
• Identity Theft.  Identity thieves have found that by posing as a legitimate tax preparer, they may gather all the personal information they need to steal someone’s identity.  You should be careful to deal only with reputable well-established tax preparers.

If IRS personnel contact you, either by telephone or by mail, don’t panic.  It is highly unlikely that criminal charges will be filed against you, since the IRS criminal tax division is generally used to prosecute persons involved in other serious crimes; however, it is important that you respond promptly.  Some correspondence from the IRS starts the running of statutory time periods, and you could lose important legal rights if you fail to respond.  The IRS will impose substantial civil penalties and interest upon you, even if the additional tax resulted from an “honest mistake.”

The Service has instituted a mediation program to expedite case resolution for certain types of cases.  The mediator’s role is to facilitate communication and help the IRS and the taxpayer resolve disputes.  If mediation does not resolve any dispute, the taxpayer has the right to file an internal appeal with the Appellate Division of the IRS, or you may litigate any contested matter.  If liability is not contested, but you are unable to pay the amount due, the Service will consider an installment payment plan or may, under certain circumstances, accept less than what is owed after you submit an acceptable Offer in Compromise.