The IRS recently released its list of tax scams for 2015, nine of which have implications for small-business owners. Be on guard against these scams this tax season.
1. Phone Scams
If your business receives an aggressive and threatening phone call from someone claiming to be from the IRS, it’s a scam, according to IRS Commissioner John Koskinen. These callers threaten people with arrest, deportation, and — especially worrisome for small-business owners — license revocation. In addition, the scammers ask for personal information, such as Social Security and employer ID numbers, which they use to commit fraud. Koskinen stresses that the IRS will never initially call you to collect taxes, but always uses U.S. mail as a first contact. In the past two years, victims have collectively paid scammers more than $14 million.
2. Phishing Emails
If your business receives an unsolicited email that appears to be from the IRS, it may be a phishing scam. In these scams, victims receive an email that appears to be from the IRS and are informed that they owe money, or are entitled to a refund. Koskinen says that the IRS will not send you an email about a bill or refund out of the blue, and you shouldn’t click on it because it may be a scam to steal your information and commit financial theft. If you receive such an email, report it by sending it to email@example.com.
3. Identity Theft
According to the Small Business Administration, business identity theft is the newest threat to U.S. small businesses. And at tax time, thieves can steal your business’ identity and file a fraudulent return. Sole proprietors are most at risk because their Social Security numbers are tied to their business. To reduce your risk, protect your Social Security and employer ID numbers and monitor your credit reports.
4. Fake Charities
Many business owners make a last-minute charitable donation to reduce their tax liability, and that’s why scam artists beef up their efforts this time of year. The IRS says it’s important to pay attention to organizations that have similar names to familiar and nationally known organizations, as many fraudsters use names that sound like respected charities. To ensure that your charitable donation is tax deductible, confirm that the organization is on the list of exempt organizations with the IRS’ Select Check tool.
5. Falsifying Income
Some tax preparers are persuading people to falsify their income to receive tax credits they aren’t really due. The IRS says if someone convinces you to alter your self-employment income, it could have serious repercussions, including repayment of the erroneous refund, interest and penalties, and even criminal prosecution. Check to ensure your preparer has an IRS Preparer Tax Identification Number for 2015. If so, they are authorized to prepare federal tax refunds.
6. Offshore Tax Avoidance
While your business may have legitimate reasons for maintaining offshore holdings, that income must be reported to the IRS. Some business owners have been lured into scams such as employee-leasing schemes, insurance plans, brokerage accounts, and nominee entities that are set up offshore for the purpose of hiding assets. If you have offshore accounts and don’t comply with reporting requirements, you could face fines, penalties, and criminal prosecution. The IRS has reopened the Offshore Voluntary Disclosure Program to help those who may have been taken in by one of these schemes.
7. False Documents
Koskinen says if your tax return preparer suggests that you file false documents to decrease your tax bill or increase your tax refund, it should be a huge red flag. One of the ways this scam is carried out is by having the business owner file false 1099s to lower the amount of taxes owed. The IRS says that if you are a party to this type of scam, you could face severe financial penalties and criminal prosecution, even if someone else prepares your return.
8. Illegal Tax Shelter Schemes
If a tax shelter scheme promises to eliminate or substantially reduce your tax liability, you should be suspicious. The schemes are characterized by the use of limited liability companies, limited liability partnerships, and international business companies, and often lawyers and accountants assist in these scams. The IRS says to watch for the use of unnecessary steps in any transaction that don’t achieve the purported business purpose, or the use of financial instruments that are unnecessary for the transaction and only serve to reduce the tax burden.
9. Excessive Claims for Fuel Tax Credits
If your business uses fuel to power off-road vehicles and other equipment, you may be entitled to a tax credit, but some preparers are persuading business owners to claim the credit on their returns when they’re not eligible. The credit is only used for farm equipment and some boats, trains, and airplanes. The IRS has taken additional steps this year to identify claims for review that claim fuel tax credits, and imposes a $5,000 fine for those who misuse the credit.
Stay safe this tax season by staying aware of the scams targeting business owners. And if someone tries to scam you, report it to the IRS.