New Year, Same Old Tax Fraud

January 30, 2025

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By: Andrea Harris

Tax Day is fast approaching and with it, scammers are crawling out of the woodwork to cheat honest taxpayers out of their money.

Remember the old adage: "If it sounds too good to be true, it probably is!" Steer clear of anyone offering a way to "cheat" the tax system to get rich quick or avoid your obligation as a citizen of the United States to file your tax return and pay any outstanding taxes. Some of these schemes can literally cost you your life savings, while others can result in prosecution or imprisonment if you knowingly participate in them.

Abusive Return Preparer

Be very careful when selecting a business to help prepare your taxes. While there are plenty of reputable tax professionals that offer excellent service for their clients, there will inevitably be a few bad eggs who file false or fraudulent tax returns in order to defraud their clients.

Even if someone else prepares your return, the final responsibility for the accuracy of your tax return ultimately falls upon you. Check the credentials of your tax professional before relying on them to prepare you returns. Some red flags to watch out for include:

• A preparer asks for cash-only payment without providing a receipt.
• They claim fake deductions to inflate the size of your refund.
• The preparer invents false income in order to get their client more tax credits.
• They prepare your tax return but refuse to sign or include their IRS Preparer Tax Identification Number.
• Your refund is directed into their bank account rather than yours.

Abusive Tax Schemes

Anyone who browses social media for any amount of time will encounter people claiming they know a "cheat" or "workaround" that consumers can use to avoid paying taxes or to obtain a tax benefit. These schemes can take many forms, including:

• Offshore Tax Havens - Fraudsters create shell companies or trusts in these "tax havens" to hide income and assets offshore. These can also take the form of bank accounts in offshore tax havens, or money invested into digital assets such as cryptocurrency.
• Loan Schemes - Directors receive their income in the form of loans without any intention of ever repaying the loan, in order to avoid payroll taxes.
• Ponzi Schemes - Many Ponzi schemes claim the returns they generate are tax-free or that any losses you incur as part of a Ponzi scheme can offset your tax burden.
• Phantom Trusts - These are trusts set up for the sole purpose of claiming fraudulent deductions on tax returns in order to avoid paying taxes.
• Abusive Retirement Plans - These look like normal retirement plans but do not comply with tax laws, leading filers to claim improper deductions.

Non-Filer Enforcement

You may have come across a social media post or video featuring someone arguing that taxes are voluntary or illegal. They quote some part of the U.S. Constitution or U.S. Case Law to argue their point in order to bolster their argument.

Remember: you are (probably) not an attorney specializing in tax law, and this person making these claims most likely isn't either. Courts have repeatedly rejected these arguments as frivolous and routinely impose financial penalties for raising these arguments. Taxes are a mandatory part of living and working in the United States.

To help the public recognize and avoid abusive tax schemes, the IRS offers an materials for consumers to educate themselves. Familiarize yourself with the basics and report any suspicious activity to the IRS. You can learn more here: https://www.irs.gov/help/tax-scams/report-a-tax-scam-or-fraud

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