The US Internal Revenue Service (IRS) has just issued a notice (IR-2011-73)
urging taxpayers to “Avoid Becoming Victims of Tax Scams.” Their advice seems
good for other countries too.
The IRS notice warns taxpayers to guard
against being misled by unscrupulous individuals trying to persuade them to file
false claims for tax credits or rebates.
The IRS has noted an increase in
tax-return-related scams, frequently involving unsuspecting taxpayers who
normally do not have a filing requirement in the first place. These taxpayers
are led to believe they should file a return with the IRS for tax credits,
refunds or rebates for which they are not really entitled.
tax-return preparers provide honest and professional service, but there are some
who engage in fraud and other illegal activities. Unscrupulous promoters deceive
people into paying for advice on how to file false claims. Some promoters may
charge unreasonable amounts for preparing legitimate returns that could have
been prepared for free by the IRS or IRS-sponsored Volunteer Income Tax
Assistance partners. In other situations, identity theft is
Taxpayers should be wary of any of the following:
claims for refunds or rebates based on excess or withheld Social Security
• Claims that US Treasury Form 1080 can be used to transfer
funds from the Social Security Administration to the IRS, enabling a payout from
• Unfamiliar for-profit tax services teaming up with local
• Homemade flyers and brochures implying credits
or refunds are available without proof of eligibility.
• Offers of free
money with no documentation required.
• Promises of refunds for “Low
Income – No Documents Tax Returns.”
• Claims for the expired Economic
Recovery Credit Program or Recovery Rebate Credit.
• Advice on claiming
the Earned Income Tax Credit, based on exaggerated reports of selfemployment
In some cases, nonexistent Social Security refunds or rebates
have been the bait used by the con artists. In other situations, taxpayers
deserve the tax credits they are promised, but the preparer uses fictitious or
inflated information on the return, which results in a fraudulent
Flyers and advertisements for free money from the IRS, suggesting
that the taxpayer can file with little or no documentation, have apparently been
appearing in community churches around the United States. Promoters are
targeting church congregations, exploiting their good intentions and
Promoters of these scams often prey upon low-income
individuals and the elderly. They build false hopes and charge people good money
for bad advice. In the end, the victims discover their claims are rejected or
the refund barely exceeds what they paid the promoter.
money and the promoters are long gone.
The IRS is warning all taxpayers,
and those who help others prepare returns, to remain vigilant. If it sounds too
good to be true, it probably is.
Anyone with questions about a tax credit
or program should visit the www.IRS.gov website, contact the IRS or consult
other reputable US tax experts.
For questions about rebates, credit and
benefits from other federal agencies, contact the relevant agency directly for
What about Israel? The National Insurance Institute
is administered separately from the Israel Tax Authority, making it hard to play
one off against the other.
The ITA scrutinizes all tax-refund
Personal tax returns now must be filed not only online, but also
the old-fashioned way on paper tax returns at your local tax
Everything claimed must be supported by relevant external
For example, if you claim a tax credit for donations to
charities, make sure you submit a receipt from them and that they are approved
by the ITA under Section 46 of the Income Tax Ordinance.
Also beware of
people peddling generous Israeli tax rulings. The tax law does allow you to
request an advance tax ruling, but the ITA has instituted detailed procedures
for checking out the validity of requests made and the legality of any ruling
issued. This follows a number of recent scandals relating to tax
For example, if you undertake a number of securities
transactions that might be considered to generate trading income (up to 45
percent income tax plus NII payments) or capital gains (typically taxed at 20%
and no NII), don’t expect to obtain a compromise tax rate of, say, 32.5%;
there’s no such tax rate in the law.
In the area of trusts, it seems that
some advisers have apparently persuaded people to pay them fees to obtain an
Israeli tax ruling they didn’t really need, as the law allowed what they wanted
anyway. One way to detect this is to ask for all your options to be presented to
you before embarking on a tax-ruling application.
As always, consult
experienced tax advisers in each country at an early stage in specific
cases.[email protected] Leon Harris is a certified public accountant and tax
specialist at Harris Consulting & Tax Ltd.