Governments rely on taxes to provide the services their citizens need. The tax laws and the various state, local and federal apparatuses for tax collection are complex. Moreover, a number of different types of tax each with its own reporting, valuation and collection mechanisms exist: income, sales, use, inheritance, payroll, real and personal property, excise, extraction, and transaction taxes as well as import and export duties, etc.
While most people recognize the need for taxes to support our society, they don’t often relish the idea of paying those taxes and all too often find ways to circumvent — legally or illegally — their payment, collection or remittance.
The combination of a great deal of money, legal complexity, operational difficulty, insufficient oversight, self-reporting, and taxpayer resistance is the ideal environment for fraud to develop.
In many circumstances, audits and inspections of various types are used to catch tax evaders. More and more, for certain types of taxes, data analytics proves its worth.
IRS-Related Phone or Mail Fraud
Receive a phone call or paper letter via mail from an individual claiming to be the IRS but you suspect they are not an IRS employee.
- Ask for a call back number and employee badge number.
- Contact the IRS to determine if the caller is an IRS employee with a legitimate need to contact you.
- If you determine the person calling you is an IRS employee with a legitimate need to contact you, call them back.
Letter or notice via paper mail:
- Contact the IRS to determine if the mail is a legitimate IRS letter.
- If it is a legitimate IRS letter, reply if needed.
- If caller or party that sent the paper letter is not legitimate, contact the Treasury Inspector General for Tax Administration at 1.800.366.4484.
Abusive Tax Schemes
Tax abuse—even when limited to Federal Income Tax abuse--takes many forms and involves a good number of red flags (too many to list individually in this table). To learn more about this subject, review the appropriate literature listed to the right.
Beneficial Owner Form
This fax-based phishing scam, which generally targets foreign nationals, recurs periodically. It’s based on a genuine IRS form, the W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. The scammer, though, invents his or her own number and name for the form. The scammer modifies the form to request passport numbers, information that is often used for account security purposes (such as mother’s maiden name) and similar detailed personal and financial information, and states that the recipient may have to pay additional tax if he or she fails to immediately fax back the completed form.
W-8BEN forms are completed by banks, not individuals.
Forward the e-mail in its entirety to firstname.lastname@example.org
The column to the right provides some general information on Federal Income Tax. The cells below provide additional information.
How to Report Abusive Tax Promotions and/or Promoters:
- Complete the referral form which documents the information necessary to report an abusive tax avoidance scheme. The form can be mailed or faxed to the IRS address and fax number on the form.
How to Report Abusive CPAs, Attorneys or Enrolled Agents:
- Submit suspicious actions by tax professionals to the email address of the IRS Office of Professional Responsibility.
Fraudulent IRS e-Mails and Websites:
- Contact the IRS at email@example.com if you receive an e-mail claiming to be from the IRS.
- IRS Tax Shelter Hotline - The IRS maintains a hotline that people can use to provide information (anonymously, if preferred) about abusive tax shelters. The Office of Tax Shelter Analysis is primarily interested in potentially abusive transactions that may be employed by many taxpayers and could pose a significant compliance risk to the IRS.
- Reporting abusive shelters, fraud and unscrupulous tax preparers
- IRS tax scams video
Lottery Winning or Cash Consignment
These advance fee scam e-mails claim to come from the U.S. Treasury Department to notify recipients that they will receive millions of dollars in recovered funds or lottery winnings or cash consignment if they provide certain personal information, including phone numbers, via return e-mail. The e-mail may be just the first step in a multi-step scheme, in which the victim is later contacted by telephone or further e-mail and instructed to deposit taxes on the funds or winnings before they can receive any funds. Alternatively, they may be sent a phony check and told to deposit it but to pay 10 percent in taxes or fees. Thinking that the check must have cleared the bank and is genuine, some people comply. However, the scammers, not the U.S. Treasury Department, will get the taxes or fees.
The U.S. Treasury Department does not become involved in notification of inheritances or lottery or other winnings.
Contact the IRS at irs.gov/contact/index.html.
This is the most frequent IRS-impersonation scam seen by the IRS. In this phishing scam, a bogus e-mail claiming to come from the IRS tells the consumer that he or she is eligible to receive a tax refund for a specified amount.
Taxpayers do not complete a special form to obtain their federal tax refund — refunds are triggered by the tax return they submitted to the IRS. Contact the IRS at irs.gov/contact/index.html
Tax Exempt Organization Abusive Tax Avoidance Transactions
Employee Plan Abusive Tax Transactions
Tax Preparer Fraud
A tax return preparer is defined as any person (including a partnership or corporation) who prepares for compensation all or a substantial portion of a tax return or claim for refund under the income tax provisions of the Internal Revenue Code.
Return preparer fraud generally involves the orchestrated preparation and filing of false income tax returns (in either paper or electronic form) by unscrupulous preparers who may claim, for example:
- inflated personal or business expenses, false deductions; or
- unallowable credits or excessive exemptions, fraudulent tax credits, such as the Earned Income Tax Credit (EITC)
The preparers' clients may or may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns.
Dishonest return preparers use a variety of methods to formulate fraudulent and illegal deductions for reducing taxable income. These include, but are not limited to, the following:
- Preparing fraudulent Schedule C - Profit or Loss from Business, claiming deductions for expenses that have not been paid by the taxpayer to offset Form 1099, Miscellaneous Income, or income earned from outside employment.
- Including false and inflated itemized deductions on Schedule A, Itemized Deductions, for charitable contributions or medical and dental expenses.
- Claiming false Schedule E, Supplemental Income and Loss, losses.
- Claiming false dependents.
Be careful when choosing a return preparer, make sure you do not hire an abusive return preparer.
IRS Criminal Investigation (CI) reminds you;
- Taxpayers are responsible for the accuracy of all entries made on their tax returns, which include related schedules, forms and supporting documentation. This remains true whether the return is prepared by the taxpayer or by a return preparer.
- Be careful in selecting the tax professional who will prepare your return.
- Avoid return preparers who claim they can obtain larger refunds than other preparers.
- Avoid preparers who base their fee on a percentage of the amount of the refund.
- Use a reputable tax professional that signs and enters a preparer tax identification number (PTIN) on your tax return and provides you with a copy for your records.
- Consider whether the individual or firm will be around to answer questions about the preparation of your tax return, months, even years, after the return has been filed.
- Never sign a blank tax form.
- Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?
- Tax evasion is a crime, a felony, punishable up to five years imprisonment and a $250,000 fine.
- When in doubt, check it out! Taxpayers hearing claims from preparers offering larger refunds than other preparers are encouraged to check it out with a trusted tax professional or the IRS before getting involved.
- Contact the IRS at 1-800-829-1040.
Theft of Social Security Number
An application for credit is denied.
Unable to obtain a tax return.
Show your social security card to your employer when you start a job so your records are correct. Provide your social security number to your financial institution(s) for tax reporting purposes. Keep your card and any other document that shows your social security number on it in a safe place. DO NOT routinely carry your card or other documents that display your number.
Contact the Federal Trade Commission (FTC) via their website
or call 1-877-IDTHEFT (1-877-438-4338); TTY 1-866-653-4261. The FTC website is a one-stop national resource to learn about the crime of identity theft. It provides detailed information to help you deter, detect and defend against identity theft.
Contact the Internal Revenue Service. An identity thief might also use your social security number to file a tax return in order to receive a refund. If the thief files the tax return before you do, the IRS will believe you already filed and received your refund if eligible. If your social security number is stolen, another individual may use it to get a job. That person’s employer would report income earned to the IRS using your social security number, making it appear that you did not report all of your income on your tax return. If you think you may have tax issues because someone has stolen your identity, contact the IRS Identity Protection Unit
or call 1-800-908-4490.
File an online complaint with the Internet Crime Complaint Center
The IC3 gives victims of cyber crime a convenient and easy-to-use reporting mechanism that alerts authorities of suspected criminal or civil violations. IC3 sends every complaint to one or more law enforcement or regulatory agencies that have jurisdiction over the matter.
Victim of Phishing (Internet fraudsters send email messages to trick unsuspecting victims into revealing personal and financial information that can be used to steal the victims’ identity)
Receiving unsolicited emails from IRS.
Email requests detailed or an unusual amount of personal and/or financial information, such as name, social security number, bank or credit card account numbers or security-related information (such as mother’s maiden name) either in the email itself or on another site to which a link in the email sends the recipient.
Dangles bait to get the recipient to respond to the email, such as mentioning a tax refund or offering to pay the recipient to participate in an IRS survey.
The sender's email address does not end in the IRS.gov or Treasury.gov.
Threatens a consequence for not responding to the email, such as additional taxes or blocking access to the recipient’s funds.
Gets the Internal Revenue Service or other federal agency names wrong.
Uses incorrect grammar or odd phrasing. Many of the email scams originate overseas and are written by non-native English speakers.
A link to a fake IRS website is included in the email.