Editor's Note (August 15, 2011):Naomi Martin, a reporter with The New Orleans Times-Picayune wrote this article for the newspaper on Sunday. It provides additional details on how some of these scams approach church leaders.
In July, the IRS urged its Twitter followers to be leery of tax scams convincing taxpayers to apply for rebates or credits. And Forbesreported that there's been a recent "flurry of schemes in the South and Midwest" targeting local churches. Scammers convince churches that free money is available from the IRS through large tax credits or rebates, requiring minimal paperwork—a substantial reward for little effort and an offer truly too good to be true.
Unfortunately, churches are falling for it.
In 2008, Richard Hammar cautioned churches about several scams included in the IRS's annual "Dirty Dozen," a list of common tax scams all taxpayers should be aware of. Out of the twelve, Hammar focused on five that were relevant to churches. These five are still relevant, according to the IRS's 2011 Dirty Dozen. Read about the five below, and view the complete list at irs.gov.
Five To Watch
Phishing. Identity thieves use this technique to acquire personal information in order to gain access to the financial accounts of unsuspecting consumers, run up charges on their credit cards, or apply for loans in their names.
These Internet-based criminals pose as representatives of a financial institution—or sometimes the IRS itself—and send out fictitious e-mail correspondence in an attempt to trick consumers into disclosing private information. A typical e-mail notifies a taxpayer of an outstanding refund and urges the taxpayer to click on a hyperlink and visit an official-looking website. The website then solicits a Social Security and credit card number. Scam artists are also using social media and spyware (usually loaded on to a computer by opening an e-mail attachment or clicking on a link) to gain access to personal financial information. Use caution when opening e-mail from unknown senders and giving out too much information through your social media accounts.
The IRS encourages anyone who believes personal information has been stolen to contact the IRS Identity Protection Specialized Unit at 1-800-908-4490. A suspicious e-mail or an "IRS" web address that does not begin with http://www.irs.gov should be forwarded to the IRS at email@example.com.
Zero wages. In this scam, which first appeared in the Dirty Dozen in 2006, "a Form 4852 (Substitute Form W-2) or a ‘corrected' Form 1099 is used as a way to improperly reduce taxable income to zero." The taxpayer may include a statement rebutting wages and taxes reported by the payer to the IRS. An explanation on the Form 4852 may cite statutory language behind Internal Revenue Code sections 3401 and 3121 or may include some reference to the paying company refusing to issue a corrected Form W-2 for fear of IRS retaliation. According to the IRS, filing this kind of return can cost you up to $5,000.
Return preparer fraud. Dishonest return preparers can cause problems for taxpayers who fall victim to their schemes. Such preparers make their money by skimming a portion of their clients' refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Some preparers promote filing fraudulent claims for refunds on items such as fuel tax credits to recover taxes paid in prior years. The IRS urges taxpayers to choose carefully when hiring a tax preparer: "As the old saying goes, if it sounds too good to be true, it probably is. Remember that no matter who prepares the return, the taxpayer is ultimately responsible for its accuracy."
To crack down on this kind of dishonest business work, and increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of requirements for paid tax preparers, including new regulations that "require paid tax preparers (including attorneys, CPAs, and enrolled agents) to apply for a Preparer Tax Identification Number (PTIN) before preparing any federal tax returns in 2011."
Abuse of charitable deductions. The IRS notes that contributions of noncash assets continue to be an area of abuse, especially with regard to overvaluation of contributed property. In some schemes, organizations are claiming the full value for a receipt and distribution of the same non-cash contribution.
Frivolous arguments. The IRS considers several arguments to be frivolous, including the following: (1) the Sixteenth Amendment, which authorizes Congress to collect income taxes, was never properly ratified; (2) wages are not income; (3) filing a return and paying taxes are voluntary; and (4) being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. The IRS urges taxpayers "not to believe these or similar claims. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or else they may subject themselves to increased penalties." The IRS also noted that Congress amended the tax code in 2006 to increase the amount of the penalty for frivolous tax returns from $500 to $5,000.
For more tax information, check out Richard Hammar's 2011 Church & Clergy Tax Guide to stay up-to-date through the year.
Lindsey Learn is assistant editor to the Church Management Team at Christianity Today International.
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