Look Out for These 3 Popular Tax Scams

If you were a customer of the Tax Club, a company headquartered in New York’s iconic Empire State Building, you probably expected to get personalized business planning services, including customized tax advice this year.

But in a lawsuit filed earlier this year by the Federal Trade Commission, the government alleges that the Tax Club was nothing more than a $220 million telemarketing scheme that has reportedly victimized thousands of people, including the elderly and disabled.

The FTC wants to shut down the businesses, freeze the Tax Club’s assets and appoint a temporary receiver.

With tax season just around the corner, you’re probably considering how to file your return, if you haven’t done so already.

Here are a few hazards to avoid:

“Free money” from the IRS.

Last year, these scams started appearing in churches just before tax season, advertising “free” money from the Federal Government.

The fliers claimed you could file a tax return with little or no documentation, and often targeted low-income or elderly taxpayers.

In the end, their claims were rejected — and the promoters of the claims are long gone, according to the government.

The abusive return preparer.

Be careful who you entrust your return to. Some unscrupulous return preparers file false and bogus tax returns and may defraud you, according to the IRS.

Their tactics include everything from taking deductions to which they’re not entitled, or to claiming dependents that don’t exist.

Stay away from fly-by-night operators that show up in March and offer to cut your tax bill by an outrageous amount. Here’s more information on how to avoid an abusive return preparer.

The tax shelter schemes.

Want to avoid paying taxes altogether? Some enterprises will offer trusts, limited liability partnerships or offshore accounts to reduce your tax burden.

How do you know if something is scammy? If a company promises to completely eliminate your tax burden, that’s a pretty good sign.

And even a scheme that promises to significantly reduce your taxes may be questionable. Here’s more information from the IRS on these schemes and how to avoid them.

The Bottom Line

Remember: If you think you’ve been a victim of a tax scam, or if you see something that looks suspicious, you can report it to the IRS.

Tax scams are a year-round business, but they tend to surface this time of year, just as people begin to prepare their returns. They’re fairly easy to spot, promising you “free” money or a way to reduce or even eliminate your taxes.

And while you may not like to pay your taxes, it probably goes without saying that you’ll like falling for one of these fraudulent schemes even less.

Christopher Elliott is a consumer advocate who blogs about getting better customer service at On Your Side. Connect with him on Twitter and Facebook or send him your questions by email.