The continuing downturn in the economy means that many cash-strapped Americans are anxiously looking forward to receiving a tax refund check from Uncle Sam. During this tax season, Better Business Bureau advises taxpayers to be on the lookout for schemes and scams that plague businesses and families struggling to make ends meet.
“In a declining economy, a tax refund can provide much-needed cash for families enduring financial hardship,” said Jim Hegarty, BBB president. “As Benjamin Franklin said, ‘In this world nothing is certain but death and taxes,’ but consumers can also be certain that where there are taxes there will be tax scams, and BBB is advising people to be extremely wary of tax-related schemes that will cost them unnecessarily at a time when they can least afford it.”
Following are a few of the tax schemes commonly advocated by unscrupulous promoters, according to the IRS:
• Zero Wages Taxpayer is told to attach to their return a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 showing zero or very little wages or other income. The taxpayer indicates he or she is rebutting information submitted to the IRS by the employer.
• Zero Return Promoter instructs taxpayer to enter all zeros on their income tax filing, or to enter zero income, report their withholding and then write “nunc pro tunc” (Latin for “now for then”) on their return. The taxpayer is told this will lead the IRS to disregard the original return on which they reported wages and other income.
• Tax Abatement This scam rests on a faulty interpretation of the Internal Revenue Code and involves the tax filer using Form 843 to request abatement of previously assessed taxes.
• Misuse of Trusts Taxpayer is encouraged to transfer assets into a trust to reduce income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Be aware that some trusts do not deliver the promised tax benefits; the IRS is examining these arrangements.
• False Arguments No one has the right to disobey tax laws! The following are false arguments used by shady promoters and thrown out of court: the 16th Amendment concerning Congressional power to lay and collect income taxes was never ratified; wages are not income; filing a return and paying taxes are voluntary acts; and, being required to file Form 1040 violates the 5th Amendment right against self-incrimination or the 4th Amendment right to privacy.
Those who do get involved with an illegal tax scheme may well face repayment of taxes, plus interest and penalties. Don’t let yourself be victimized. Before you do business with a tax adviser, contact the BBB at www.bbb.org to find out if the business is trustworthy. A legal or financial expert can also assist you in evaluating tax-related promotions or solicitations. Visit the IRS Web site www.irs.gov for additional information on tax fraud.