Small Business Taxes & Management

Special Report

Spotting Scams


Small Business Taxes & ManagementTM--Copyright 2022, A/N Group, Inc.




It seems like telemarketers, internet scams, etc. grew during the pandemic and are continuing to grow. And many of them have gotten better. There's little chance that they'll stop, but most scams have a number of factors in common. If you can recognize those factors, and not fall prey, you can reduce your chances of getting caught. We'll discuss some of these common factors first, then look at several of the IRS "Dirty Dozen", tax related scams that are popular currently.


Common factors and General Observations

Too Good to be True Just think about it. Why would someone contact you out of the blue for help in transferring $6 million? Or someone pay you $30 an hour to stuff envelopes? Or show you how you can earn 15% a year on your money. (While that's possible, it also means it's either illegal or very risky.) Frequently scammers rely on an individual's greed and lack of honesty to fall for the scam. What's surprising is how smart people can often fall for such schemes like Bernie Madoff's ponzi scheme.

Payment Methods You should be instantly suspicious if the party asking for money requires you to pay in gift cards, crypto, etc. That should be an immediate tip off that you're not dealing with an organization such as a business, the IRS, etc. And, like wire transfers, the transaction can't be undone. IRS impersonators often ask for payment in gift cards. There is no way the IRS accepts gift cards, crypto, etc. Another point. Many of these transactions can't be readily traced making them perfect devices for scammers.

Caller ID It can be faked. Scammers can make the call look like it's coming from another area code or even show the identification of the IRS, Social Security Administration, your bank, etc. You should have a known number for any organization obtained from a reliable source such as your bank statement you're going to deal with and initiate the call in some way, that could be a text, call or email to a number or address you have. Any legitamite caller will welcome you chacking up on them.

Unsolicited Calls or Texts Legitimate unsolicited calls are fairly rare. While your bank might call with a fraud alert, more likely you'll get a warning by some prearranged method such as an email or text. In general, be suspicious of any such calls. You should ask yourself if the call, email, etc. makes sense. The line "we're following up on your request" makes you feel at ease. But did you really call them asking for a quote? Don't assume your spouse did either. If they're not available tell the caller you'll call them back. The IRS always initiates contact with a taxpayer by letter. While the primary approach continues to be calls, you should be suspicious of any unknown texts.

Know Who You're Talking To Do so before revealing any confidential information such as birthday, social security number, etc. Even if the caller has some confidential information such as your birthday,. don't reveal additional info. He or she may have gotten that from social media or another source.

Last Four Digits A bank, lender, etc. will only ask for the last four digits of your social security number to verify your identity. If the caller asks for more, don't provide it without checking further. A bank or other credit card issuer will the card number.

Sense of Urgency You should always be suspicious of a call or in person contact that the other party indicates is urgent. "I can only give you this deal today" or "you'll have to respond immediately or we'll be forced to issue a warrant for your arrest". A scammer doesn't want you to talk to a spouse or advisor, and knows that the deal can be quickly lost. The same idea is often applied by legitimate salesmen. The don't want you to shop the price, compare features, etc. Smart marketers also know that if they don't close the deal quickly the potential customer could lose interest altogether. In the case of a real scammer, urgent action is critical.

Payment by Gift Card, Debit Card, etc. That's an immediate tipoff there's something wrong. Legitimate businesses will accept credit cards. And the IRS or governments or government agencies never accept gift cards.

Legitimate Sounding Deal A good con very often has a grain of truth as an important factor. For example, "the IRS settled my tax debt for pennies on the dollar". That's true, to an extent. Some IRS debt is settled for very little. But the back story is that very few taxpayers can actually claim that. And when you hear the situations of the ones that do, you'll realize why. Fred's business evaporated during the pandemic and he owed $75,000. He's married with two kids, lives in rent, has $2,000 in a bank account and has a leased car. In addition, Fred is employed in a low wage job and his wife has health issues. There's a good chance he'll get a deal. Same situation but Fred and his healthy wife own a home with $80,000 in equity. Any deal here may be minimal without some special circumstances. But there are plenty of other situations. Such as "make big dollars flipping houses". Again almost everyone has heard of someone who bought a house, spent a couple of months fixing it up and sold it for a big profit. But those are frequently individuals that either got lucky, had an inside track and/or already knew how to rehab a house. The scammers selling the courses on how to do so are getting rich on the courses, not flipping.

Legitimate Company Name You get a call or email that your order for a $3,000 gaming computer has been process by a well-known email retailer. The call is bogus and the scammer is just trying to get information from you. But once you hear the name of the company you're convinced it's for real because you regular order from the company. The scammer doesn't know anything about you, but he knows there's a 95 percent chance you've done business with the company and that's all he needs to convince a high percentage of individuals.

Emails In the old days scam emails were easy to spot--spelling errors, poor graphics, etc. That's no longer the case. Many are difficult even for professionals to distinguish on the surface from legitimate companies. One way you may be able to spot them is by the email address. For example, ours would be A bogus address could be something totally different or as close as You can't always pick them out, but you may be able to reduce your exposure significantly. Unsure, contact the sender directly.

Verify Address, Account Number Changes. A popular business scam (although it can be used with individuals) is to contact someone in accounts payable at a company and tell them a bank account for electronic transfers has been changed, a mail address changed, etc. Verify addresses and other information with a known contact at the company.

Elderly They're particularly good targets for several reasons including unskilled with technology. Talk to your parents, aunts and uncles, etc. and make sure they check with someone before using the internet or phone to engage in unfamiliar transactions. Checking their bank statement and brokerage accounts regularly is always a good idea.

Unknown Hacks This is one you don't have to take action to get caught in. Suddenly, there's an unknown charge on your debit or credit card. There are a number of ways scammers can get your information. If you monitor your accounts weekly you'll catch these early. Call the bank, normally they'll reverse the charge if you're quick and your reason for not having authorized the charge is reasonable. They get new credit and debit cards.

Charitable Organizations Asking for money for a good cause has led to more scams than probably any other type of scheme. You may not want to do the research for a $100 contribution, but as they get larger it makes sense to check (1) that the contribution is tax deductible (go to Tax Exempt Organization Search on the IRS website) and (2) go to charity information pages on the web such as Charity Navigator or Charity Watch (there are others). If you want to give to a particular cause, such as a food pantry in a specifc locale and intend to do so regularly, take extra time to do the research. Most charitable organizations tend to stay stable over time.

Watch for "newsy" scams. The pandemic created many of them. Con men know that people are generous with a tragedy that's in the news. It could be a local flood, hurricane, tornado, etc. And even for legitimate organizations some are better able to respond because they do so on a regular basis. Other scams rely on the fact that you heard the SBA, or IRS is giving out credits, grants, etc.


IRS Scams

These aren't $500 or $1,000 at a time scams. They can add up to thousands very fast, particularly if a business is involved. The ones below have been identified by the IRS, and some have been around for some time. Often a promoter will earn a fee and leave you in the lurch when the IRS challenges the scam. In addition to repaying the taxes, penalties can add 20 percent of the tax amount

Charitable Remainder Annuity Trust (CRAT) In this transaction, appreciated property is transferred to a CRAT. Taxpayers improperly claim the transfer of the appreciated assets to the CRAT in and of itself gives those assets a step-up in basis to fair market value as if they had been sold to the trust. The CRAT then sells the property but does not recognize gain due to the claimed step-up in basis. The CRAT then uses the proceeds to purchase a single premium immediate annuity (SPIA). The beneficiary reports, as income, only a small portion of the annuity received from the SPIA.

Abusive Micro-Captive Insurance Arrangements In abusive "micro-captive" structures, promoters, accountants, or wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes of insurance. For example, coverages may "insure" implausible risks, fail to match genuine business needs or duplicate the taxpayer's commercial coverages. The "premiums" paid under these arrangements are often excessive and are used to skirt the tax law. Recently, the IRS has stepped up enforcement against a variation using potentially abusive offshore captive insurance companies. Abusive micro-captive transactions continue to be a high-priority area of focus.

Concealing Assets in Offshore Accounts and Improper Reporting of Digital Assets The IRS remains focused on stopping tax avoidance by those who hide assets in offshore accounts and in accounts holding cryptocurrency or other digital assets. New patterns and trends emerging in complex international tax avoidance schemes and cross-border transactions have heightened concerns regarding the lack of tax compliance by individuals and entities with an international footprint.

Abusive Syndicated Conservation Easements In syndicated conservation easements, promoters take a provision of the tax law allowing for conservation easements and twist it by using inflated appraisals of undeveloped land (or, for a few specialized ones, the facades of historic buildings), and by using partnership arrangements devoid of a legitimate business purpose. These abusive arrangements do nothing more than game the tax system with grossly inflated tax deductions and generate high fees for promoters. The IRS urges taxpayers to avoid becoming ensnared in these deals sold by unscrupulous promoters. If something sounds too good to be true, then it probably is. People can risk severe monetary penalties for engaging in questionable deals such as abusive syndicated conservation easements.

OIC (Offer in Compromise) Mills. These companies advertise that they've reduced a taxpayer's outstanding debt to pennies on the dollar of what they originally owed. The IRS will agree to settle for less than 100% of the amount you owe, but only if you can show you can't pay. Have $300,000 equity in your home? You'll be expected to take out a loan. Those three German cars in the driveway may have to go. The IRS will look at your income and expenses and will only allow a certain level of expenses. You can input your financial information at Offer in Compromise Pre Qualifier and find out if they'll settle for less than the full amount. Many taxpayers can negotiate their own settlement. If you have trouble preparing the required financial statements, your accountant can help at far less cost than an OIC mill.

Illegitimate Prepares They'll take your money, prepare a return that's questionable or illegal. You can't manufacture deductions out of thin area and hope to avoid penalties. Stick with an honest preparer. They don't cost more (often less) and you'll be legal. A quality preparer will try to get you all the benefits you're entitled to.


Copyright 2022 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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--Last Update 07/25/22