Identity Theft, Phishing, and Tax Scams
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The IRS has been warning consumers about the fraudulent use of the IRS name and/or logo by scam artists and fraudsters. They do this to try to gain access to consumers’ financial data in order to steal their assets.
The “phishers” and fraudsters tend to use the IRS name because:
(a) most people recognize the IRS name,
(b) they have had prior communication with or from the IRS (such as receiving annual tax form and instruction packages) and
(c) they have previously provided the IRS financial data (such as that contained on tax returns).
Warning - Note the following:
1. As a general rule, the IRS does not send out unsolicited e-mails or ask for detailed personal information.
2. Additionally, the IRS does not ask people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.
Identity Theft
The act of tricking people into disclosing their personal and financial data, such as secret access data or credit card or bank account numbers, is called identity theft.
Such schemes perpetrated through the Internet are called “phishing†for information (sounds like fishing).
The information fraudulently obtained is then used to steal the taxpayer’s identity and financial assets. Typically, identity thieves use someone’s personal data to steal his or her financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name and even file fraudulent tax returns.
Identity theft usually causes immediate financial losses for the victims, who may also encounter lingering credit and other problems as a result of the identity theft.
Identity theft schemes take numerous forms. It may be conducted by:
(a) e-mail (phishing),
(b) standard mail, telephone or fax.
(c) Thieves may also go through trash looking for discarded tax returns, bank records, credit card receipts or other records that contain personal and financial information.
You can find out more about identity theft from the IRS at http://www.irs.gov
Go here for identity theft advice www.consumer.gov
Keep up to date on tax advice news www.taxassistonline.com
What Are Some of the Most Common Abusive Tax Schemes?
There are a few schemes outlined below. These are included as a warning, not a suggestion!
Don’t think about trying these because the IRS is well aware of them and the probability of getting caught is high.
Tax evasion using foreign jurisdictions is accomplished using many different methods. Some can be as simple as taking unreported cash receipts and personally traveling to a tax haven country and depositing the cash into a bank account.
Others are more elaborate involving numerous domestic and foreign trusts, partnerships, nominees, etc. The following schemes are not all-inclusive, but just a sample of abusive tax schemes.
Abusive Foreign Trust Schemes:
The foreign trust schemes usually start off as a series of domestic trusts layered upon one another. This set up is used to give the appearance that the taxpayer has turned his/her business and assets over to a trust and is no longer in control of the business or its assets. Once transferred to the domestic trust, the income and expenses are passed to one or more foreign trusts, typically in tax haven countries.
As an example, a taxpayer’s business is split into two trusts. One trust would be the business trust that is in charge of the daily operations. The other trust is an equipment trust formed to hold the business’s equipment that is leased back to the business trust at inflated rates to nullify any income reported on the business trust tax return (Form 1041).
Next the income from the equipment trust is distributed to foreign trust-one, again, which nullifies any tax due on the equipment trust tax return. Foreign trust-one then distributes all or most of its income to foreign trust-two.
Since all of foreign trust-two’s income is foreign based there is no filing requirement.
Once the assets are in foreign trust-two, a bank account is opened either under the trust name or an International Business Corporation (IBC). The trust documentation and business records of this scheme all make it appear that the taxpayer is no longer in control of his/her business or its assets.
However, the reality is that nothing ever changed. The taxpayer still exercises full control over his/her business and assets. There can be many different variations to the scheme.
International Business Corporations (IBC):
The taxpayer establishes an IBC with the exact name as that of his/her business. The IBC also has a bank account in the foreign country. As the taxpayer receives checks from customers, he sends them to the bank in the foreign country.
The foreign bank then uses its correspondent account to process the checks so that it never would appear to the customer, upon reviewing the canceled check that the payment was sent offshore. Once the checks clear, the taxpayer’s IBC account is credited for the check payments.
Here the taxpayer has, again, transferred the unreported income offshore to a tax haven jurisdiction.
False Billing Schemes:
A taxpayer sets up an International Business Corporation (IBC) in a tax haven country with a nominee as the owner (usually the promoter). A bank account is then opened under the IBC.
On the bank’s records the taxpayer would be listed as a signatory on the account. The promoter then issues invoices to the taxpayer’s business for goods allegedly purchased by the taxpayer. The taxpayer then sends payment to the IBC that gets deposited into the joint account held by the IBC and taxpayer.
The taxpayer takes a business deduction for the payment to the IBC thereby reducing his/her taxable income and has safely placed the unreported income into the foreign bank account.
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