As if having to worry about how much income tax you owe and how you're going to pay it isn't enough, now the IRS is warning about an increasing number of fraudulent income tax scams.

While many tax professionals charge legitimate fees for genuine advice and tax preparation services, it's best to beware of what seems like outrageous guarantees and promises. As the IRS warns, if it seems too good to be true, it probably is.

According to the IRS, the following are the most common tax fraud schemes now making the rounds:

Offshore "Business Transactions"

Be weary of anyone who tries to urge you to use a foreign credit card, trust or other alleged "business arrangement" to hide taxable income. The advice often comes from a sophisticated-sounded tax "professional" who seems to have their act together. Don't believe it. The IRS is aggressively tracking down promoters of these bogus offshore trusts, and also holding gullible taxpayers accountable.

Identity Theft

Scammers use personal data such as your social security number and financial info to steal financial accounts, run up existing credit card balances and apply for new credit cards and services in your name. So pick your tax professional carefully and be very picky about who you decide to trust with financial info.

Phony Tax Payment Checks

There are fraudsters that sell fake documents that look like checks, which are then used to pay the IRS. Some schemers will even advise you use these phony checks to overpay your taxes so you can receive a refund. Of course, this does not work. Not only will you eventually have to cough up real funds to pay your taxes, but you may owe penalties as well. Not to mention the possibility of federal tax fraud prosecution.

Employers Not Withholding Taxes

If you're encouraged not to withhold income tax or other employment taxes from your employees' wage, run in the opposite direction. This interpretation of the tax law is not valid, and the IRS has recently taken promoters to court.

If you have concerns about employment taxes and your employer, you can call the IRS at 1-800-829-1040.

Pay A Tax, Win A Prize

Beware of any caller telling you that you've won a prize, and all you have to do to receive the prize is to pay them the tax that's due on the prize. A real prize giver usually sends the prize and an IRS Form 1099 to the winner, and the winner is expected to pay any taxes directly to the IRS.

"Taxes Are Unconstitutional" Theories

Many scam promoters claim to know the secret to not paying taxes and sell "untax packages" in which it is suggested that paying income tax is "voluntary." Don't fall for this trap; following this advice could subject you to civil penalties. The courts have repeatedly rejected these arguments, and citizens who use this ploy can end up not only owing extra tax penalties, but being prosecuted as well. Not a pretty picture.

Social Security Tax Schemes

Some scammers offer to file a claim to get a refund for social security paid into the IRS, in exchange for a "paperwork" fee of $100 plus a percentage of any social security tax refund received. Not only do you not get the refund, but you don't get your "paperwork" fee refunded either.

Slavery Reparation Tax Refund

Thousands of African-Americans have been ripped off by con artists offering to share secrets for filing a bogus tax credit or refund related to reparations for slavery. Some promoters of these schemes have already been convicted and imprisoned.

Americans with Disabilities Act Scam

This scam often involves companies that claim to carry equipment or provide services that can be claimed as a Disabled Access Credit.

IRS "Agents" Paying Home Visits

Beware of anyone just showing up at your home claiming to be an IRS agent, pressuring you into writing a check on the spot. Real IRS field agents carry IRS photo IDs and call ahead of time. If you suspect an IRS imposter, call your local police and the Treasury Inspector General's hotline at 1-800-366-4484.

Home Based Business Scam

Some scammers may urge you to set up a home based business to deduct all or most of your personal expenses as "business expenses". Don't follow this advice. You need a clear business purpose and profit motive in order to claim "allowable" business expenses

Sharing or Borrowing EITC Dependent

In this scenario, a fraudulent tax preparer convinces one client to share a "qualifying child" with another client in order that the second client can claim an Earned Income Tax Credit ("EITC"). Normally, the tax preparer will offer to split the fee with the client with the qualifying child.

If you are approached to share or borrow a qualifying EITC dependent, don't do it. Those who participate in this scheme may be subject to civil penalties. Preparers will be prosecuted by the IRS.

Claim of Right

This is a new scheme, in which fraud promoters advise you to take a deduction equal to the entire amount of your wages and to label it as "a necessary expense for the production of income" or "compensation for personal services actually rendered." This interpretation of the tax law is not valid.

Question For Your Attorney

  • I've been taken in by one of these scams, what should I do now?
  • How do I find a reputable person to do my taxes?