Home Business Surge Leads to New Tax Scam

New tax scam warning as IRS filing deadline approaches: Internet Scambusters #535

It wouldn’t be tax season without a fresh batch of tax scam tricks — and this year is proving to be no exception.

While the basics of most fraudulent and information stealing schemes have been around for many years, there’s a new twist in the activities of unscrupulous tax advisers and preparers, using home-based businesses as a front.

We have details in this week’s issue, plus info about other new tax scams and guidance on how to avoid them.

Now, here we go…

Home Business Surge Leads to New Tax Scam

The changing shape of the US economy is providing a new focus for tax scam opportunists.

As more people become self-employed and running home-based businesses, unscrupulous tax preparers and advisers are creating dubious and illegal deduction schemes.

This is just one of several new tricks to emerge as the 2013 deadline for filing returns rapidly approaches.

In addition, many of the established tax scams we see every year are still in full swing this season.

You can read about these in some of our earlier reports:

Phishing and ID Theft Front Latest Tax Scams

Tax Scams: What You Really Need to Watch Out for

Many of this year’s scams are updated versions of those earlier tricks, including the self-employed tax scam, which falls under the IRS heading of “Abusive Home-Based Business Tax Schemes.”

This trick involves claims that you can deduct most or all of your personal expenses under the guise of running a home business.

Crooked advisers, who usually overcharge for their services, even tell people who don’t have a home business that they can help set one up as a front that will entitle them to the deductions.

In reality, they manipulate and misinterpret tax laws, says the IRS, creating deductions you’re not really entitled to.

Victims can end up not only out of pocket but also in court.

“Participating in these schemes can result in repayment of taxes owed with interest and penalties, and possibly imprisonment and fines,” says the IRS.

“Even innocent taxpayers involved in these schemes can face a staggering amount of back interest and penalties.”

In fact, this year, rules relating to legitimate home-office expenses have been simplified. Check out the article, IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year, for more information.

The home-business scam is one of several so-called abusive schemes that aim to get around the Internal Revenue Code.

You can read more about the rest of them in the IRS article: What are some of the Most Common Abusive Tax Schemes?

How to Check on Your Tax Preparer

The important thing to remember is that if you become involved in such a scheme — knowingly or not — you could end up in big trouble.

And the simple rule is to be skeptical of any adviser who claims they can help you avoid paying your taxes this way.

And make sure your tax preparer is one of the 600,000+ specialists registered with the IRS.

Doing this, however, is easier said than done for an individual.

You can ask for the preparer’s registration number, or PTIN, and ask to see their registration document but this does not protect you against a forged document.

Last year, the IRS said it planned to create a publicly searchable database to check preparers’ credentials but, at the time of writing, this was not yet available.

The IRS simply says the list is coming “soon.”

However, there is an independently owned national directory of preparers, called the PTINdirectory, built from information apparently gleaned from the IRS under Freedom of Information rules, but we can’t vouch for its accuracy.

Now let’s take a look at a couple of the other newer tax scams around this year.

These are aimed at defrauding you by stealing information and using it to make phony refund claims, worth around $5 billion a year.

Stimulus Scam Targets Seniors and Churchgoers

Under the guise of offering money from a federal stimulus funds program for low-income Social Security recipients, scammers invite victims to complete a form providing confidential information including Social Security numbers.

The crooks use an official-sounding company name and visit churches and senior centers and residences, distributing batches of forms that have to be filled in on the spot or collected.

The details are then used to complete fraudulent tax returns, claiming large refunds.

To keep their game and credibility going, the scammers give 50% of the refund to victims and keep the other half for themselves.

But when the IRS discovers the fraud it demands full repayment, with other penalties, from the victims — leaving them with a nasty problem to resolve.

Action: There’s no stimulus program specifically targeting low-income Social Security recipients.

Don’t provide confidential information to anyone who is not a registered tax preparer. See our note above on how to check this.

Bogus Fine Warning

In this tax scam, victims receive an email warning they will be fined $10,000 if they fail to file their return by a new, earlier deadline.

The subject heading is usually something like: “Penalty for not filing tax return on time.”

The text also references a rule it calls Section 6038 and urges recipients to click a link that takes them to a cleverly designed imitation of an official IRS page.

Once again, it asks for personal information that is used for identity theft.

Action: There are no new deadlines. Tax day in 2013 is April 15. And there is no such fine for missing the deadline (though there may be other penalties for non-filing if you don’t request an extension).

As always — and this applies for all online tax matters — the IRS website is www.irs.gov.

Always check that this is part of the address and that it appears either as a standalone or immediately before slashes in a page address with — for example www.irs.gov/refunds.

Phony e-Services Page

Another imitation IRS page is being used to trap tax preparers and some members of the public into giving away confidential information.

The IRS e-Services section is intended purely for registered preparers but it can be accessed by anyone.

The section provides a suite of online services to help preparers, but requires registration and subsequent log-in.

The bogus page also has a log-in form, which, once harvested by the scammer, can then be used to log in to the official IRS page and access the user’s account.

Alternatively, members of the public may be lured into a phony registration process that, again, asks for confidential information.

Action: As above — ensure that “.gov” is the final part of the main address, before any slashes.

And, if you’re not a tax preparer, don’t use the e-Services page, headed “Online Tools for Tax Professionals.” It’s not for you (which is why we’re not giving the address here).

As we know only too well, tax scams are now with us all year round. But at this time of the year it’s important to be especially alert to the risk.

The IRS, in its own words, “does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.”

Remember this and the importance of using a registered preparer (unless you file your return yourself) and you’ll be best placed to avoid a tax scam.

That’s it for today — we hope you enjoy your week!