Scams are common in many industries, including taxes. While the IRS remains vigilant against tax scams, scammers continually seek new ways to defraud individuals, particularly those with high incomes.
In this article, we will look at the different tax scams to be aware of and how to protect yourself from them.
Common Tax Scams to Be Aware Of
1. IRS Impersonation Scams
The first common tax scam to be aware of is scammers impersonating IRS agents and demanding payment of taxes. These impersonations are typically carried out via phone calls or notices, with threats of arrest or deportation used to pressure taxpayers into paying taxes as soon as possible.
They also frequently demand payment via methods that are difficult to trace, such as wire transfers and debit cards. Furthermore, scammers are known to request social security numbers, which can lead to identity theft.
If someone calls or sends you a notice on behalf of the IRS, always verify the information before sharing it or making any payments. Contact the IRS immediately to confirm the correspondence you have just received. It is important to note that the IRS typically contacts taxpayers via mail first and does not issue threats.
2. Phishing and Email Scams
Email scams are another popular method scammers use to obtain personal and financial information. Clicking any links or responding to these scam emails may result in identity theft and unauthorized access to your finances.
To distinguish between genuine IRS emails and scams, verify the domain (which should end with.gov) and pay attention to the tone and spelling errors. Be wary if the writing contains errors and the tone is especially urgent, demanding immediate action.
The IRS does not initiate contact via email or text to request personal or financial information, except in rare cases such as criminal investigations, and only with your permission.
3. Charitable Remainder Annuity Trusts (CRAT)
A Charitable Remainder Annuity Trust (CRAT) is an irrevocable trust in which the donor establishes the trust and donates assets to it. The trust allows you to withdraw annual income from the trust for a specified period.
Scams involving CRAT typically rely heavily on marketing to structure a CRAT with a “too good to be true” outcome, often promising taxpayers a magic tax eraser. CRATs are legitimate estate planning tools, but they do not eliminate taxes. Instead, reduce them while adhering to strict rules. Be wary of anyone offering to structure CRATs, as this can lead to IRS scrutiny and complex tax problems.
4. Monetized Installment Sales
A monetized installment sale (MIS) is another abusive tax scheme used by scammers to defraud taxpayers. An MIS is a tax strategy whereby you sell a property or a business, with most of the payments paid upfront and the rest agreed to be spread out in installments for tax purposes.
This typically involves a third party, such as a financial company, that takes over collecting the installment payments. Scammers use monetized installment sales to lure taxpayers with promises of quick cash and tax savings, but the deals are structured in violation of IRS regulations, resulting in significant fines while the scammers walk away with a substantial sum of money.
5. Art Donation Fraud
Tax evasion through art donation is a common fraud that targets high-income individuals. In this scam, the promoter persuades taxpayers to purchase artwork at a discounted price and then have it appraised by a shady appraiser working with them to raise the price.
Taxpayers then donate the artwork to claim a tax deduction. The scammer could receive a cut for setting it up, while taxpayers are misled into believing they are getting a good deal and a legitimate tax deduction when, in fact, they are not.
How to Protect Yourself from Tax Scams
Protecting yourself from tax scams requires diligence and vigilance. These scams often prompt taxpayers to take action immediately, and the deal is usually too good to be true. As a result, any correspondence that appears to be from the authorities should be treated with extreme caution. Take a step back and confirm with the IRS if you receive any suspicious messages.
Recognizing red flags is also critical to avoiding scams. If you remember the warning signs of these scams, you will know how to keep the situation from escalating. Furthermore, report any scams you encounter to the authorities so that action can be taken.
Always remember that the IRS has specific guidelines for communicating with taxpayers. The IRS will first contact you via mail sent by the United States Postal Service, and you will not receive an unsolicited email or phone call.
The IRS never threatens or requests immediate payment. They will give taxpayers time and options to meet their tax obligations. Payments requested will also be processed through official channels.
Steps to Take if You’ve Been Targeted or Scammed
If you have been targeted or scammed, please contact the IRS immediately and report the incident to them.
It is also critical to monitor your financial accounts regularly to detect suspicious activity. If you have been scammed, scammers may have your personal and financial details. If you notice any suspicious activity, notify your bank and freeze your account.
Working with a tax attorney is one of the most effective ways to prevent and protect your finances from tax scams. A tax attorney can help you understand everything there is to know about taxes. If you want to reduce your tax burden legally, a professional can help you.
The best way to avoid tax trouble is to understand your tax obligations and explore your options for managing taxes and addressing any issues that may arise.
Why High-Income Filers Should Work with a Tax Attorney
If you are a high-income filer, tax scams are looking to target you. Remember that tax scams can result in substantial financial losses and potentially serious legal consequences.
As previously stated, a tax attorney can help protect you from tax scams and ensure that your hard-earned profits are channeled through legitimate channels when fulfilling your tax obligations.
Contact Greenberg Law to start protecting your tax processes and ensure a smooth tax experience!
