Income Tax Scam – Watch Out
People hate paying taxes, and that seems to be pretty universal. People will go to great lengths to avoid paying taxes, as we’ve noted in previous posts about tax avoidance. But there’s something that people hate and want to avoid even more than paying taxes and that’s being arrested. The fear of going to jail is a pretty strong one, and when the threat of incarceration is on the table, people will do just about anything to avoid being hauled away in handcuffs. That, unfortunately, is at the heart of a new IRS income tax scam that is currently making the rounds, and this fear of going to jail is making a number of criminals pretty wealthy these days.
Income Tax Scam Overview
The new income tax scam works like this – identity thieves who have stolen an individuals personal information call them on the telephone and claim to be from the IRS. They’ll offer some information about the individual that would be something that the IRS would know as proof of who they are. The caller will explain over the phone that the victim has not fully paid their income taxes and that penalties and fines are required to put the victim back in the agency’s good graces. This is followed with threats of arrest, or confiscation of personal property, such as cars, or foreclosure on homes.
When the victim asks what to do, the caller usually requests payment of several thousand dollars to be paid that very day via wire transfer. The caller will then provide specific instructions regarding where the victim needs to go to pay the “fine.” Modern technology, such as Google Earth and Google Maps makes it very easy for the caller to locate places for the victim to send money, and so far, the scam has been quite productive. The Federal Trade Commission estimates that scammers have taken victims for at least $15 million so far.
These numbers only represent the reported cases and the Treasury Department says they’ve recorded more than three hundred thousand instances of people receiving calls from criminals operating this type of scam. As the money is usually sent by wire transfer, it can be difficult to trace, as the criminal can simply pick up the money at the receiving end of the transfer and walk away with cash in their pockets. One victim reportedly was taken for $500,000, though the average loss has been estimated at roughly $5000.
The IRS never contacts people by email and never requests payment by telephone. If there is an issue with a tax return, the IRS will contact the taxpayer by letter requesting that the taxpayer call the agency in order to set up an appointment to discuss the matter. The IRS isn’t going to simply declare that a taxpayer owes money and demand immediate payment by wire transfer against a threat of arrest or forfeiture of assets. Nevertheless, thousands of people have fallen for this scam so far, and it’s looking like a pretty lucrative one.
Another scam that is currently making the rounds is one that is being conducted by tax preparers. The Affordable Care Act requires that most everyone living in the United States purchase health insurance on an annual basis, and this must be confirmed on the Federal income tax return. Failure to buy health insurance incurs a penalty that currently averages a little under two hundred dollars. This penalty is assessed on the return itself, as either an amount owed or an amount to be subtracted from any refund the taxpayer might receive. In the scam, tax preparer tells the customer that the fine must be paid directly to the preparer, rather than as part of the tax filing process.
Most taxpayers do have insurance and there aren’t all that many people actually paying fines. The people operating the scam know this, and usually indicate that the taxpayer has somehow failed to follow some procedural step or that the insurance they have purchased doesn’t meet the government’s requirements. Either way, they say that the penalty must be paid immediately or other fines and penalties will follow. Making matters worse is the fact that these scams are usually conducted on people who are poor, or are illegal immigrants or other groups who may be vulnerable and not in a position to complain to the authorities. While illegal immigrants are required to pay income taxes, they are not required to buy health insurance, as they are ineligible for any benefits under the Affordable Care Act.
It seems that every year, a new income tax scam appears. While technology advances quickly, it moves more quickly in the private sector than it does in the government sector. That means that when it comes to conducting income tax scams, the criminals have the advantage. The ability to file a forged income tax return to gain a fraudulent refund makes it easy for a criminal to earn tens of thousands of dollars in just a few days. The IRS, on the other hand, is hamstrung by aging computer systems and a complicated bureaucracy that makes it difficult to follow up on such crimes in a timely manner.
Income Tax Scam Summary
While using new technology to thwart an agency that is still using the old, the biggest scammers are simply preying upon the fears of the taxpayers. While no one wants to pay their taxes, the fear of going to jail is a much stronger one. Scammers who insist on thousands of dollars in fines being paid immediately by wire transfer are preying on the same fears as those who insist that Affordable Care Act fines be paid on the spot. They’re counting on the taxpayer’s fear of having the government haul them off to jail, or taking their house or their car. It’s a shame that so many people are in such fear that they’ll gladly pay over money they can’t afford to spend rather than make a call to the IRS to see if they really owe money, but these scammers are good.
If someone calls and claims to be from the IRS and says you owe money, ask for their number and offer to call them back. Chances are they’ll simply hang up. Don’t be a victim of an income tax scam.