Be on the Lookout for Tax Scams!

With April 15 just a few weeks away many American small business owners are already looking at ways to save money on next year’s taxes. While there may be ways to legitimately reduce your business tax burden, small business owners should be alert to attractive but illegal tax schemes.

The U.S. Small Business Administration’s Office of Advocacy states that each year at tax time, con artists shamelessly take advantage of people by charging outlandish fees for their illegal tax dodges. Below are examples of “too good to be true” schemes the Advocacy Office warns against.

Put Your Money in a Trust and Never Pay Taxes Again. Scam artists promote fraudulent foreign and domestic trusts as a means to protect assets and evade taxes. They usually target wealthy individuals, small business owners, or high-end wage earners, and may charge from $5,000 to $7,000 for “trust” packages. The fee enables taxpayers to have trust documents prepared, to utilize foreign and domestic trustees as offered by promoters, and to use foreign bank accounts and corporations. Two arrangements that are frequently offered are “business trusts” and “equipment or service trusts.”

Although these schemes give the appearance of the separation of responsibility and control from the benefits of ownership, these schemes are in fact controlled and directed by the taxpayer. A legitimate trust is a form of ownership that completely separates responsibility and control of assets from all of the benefits of ownership.

Improper Home-Based Business. This scheme purports to offer tax “relief” but in reality is illegal tax avoidance. The promoters of these schemes claim that individual taxpayers can deduct most, or all, of their personal expenses as business expenses by setting up a bogus home-based business. But, the tax code firmly establishes that a clear business purpose and profit motive must exist in order to generate and claim allowable business expenses.

No Taxes Being Withheld From Wages. Some illegal schemes instruct employers not to withhold federal income tax or employment taxes from wages paid to their employees. These schemes are based on an incorrect interpretation of tax law and have been refuted in court.

Claim Disabled Access Credit for Pay Phones. Con artists sell expensive coin-operated pay telephones to individuals, contending they can claim a $5,000 disabled access credit on their tax return because the telephones have volume control. In reality, the credit is limited to bona fide businesses that are coming into compliance with the Americans with Disabilities Act.

African-Americans Get a Special Tax Refund. Thousands of African-Americans have been misled by people offering to file for tax credits or refunds related to reparations for slavery. There is no such provision in the tax law. Some unscrupulous promoters have encouraged clients to pay them to prepare a claim for this refund. But the claims are a waste of money. Promoters of reparations tax schemes have been convicted and imprisoned. Currently, there is no law that allows the federal government or the Internal Revenue Service to pay slavery reparations or refunds.

This is just a handful of examples of how con artists prey on American taxpayers. The promoters of these scams will very often warn their clients against contacting the IRS on the pretext that the IRS doesn’t want the general public to know about these incredible tax savings. This type of advice should be an immediate red flag to taxpayers that there is a problem. If the tax benefits sound too good to be true, taxpayers should check them out before sharing personal and financial data with strangers.

I urge you to heed the words of the Office of Advocacy when it advises taxpayers to seek the advice of a trusted tax professional or the IRS before subscribing to any scheme that offers instant wealth or exemption from the obligation to pay taxes. Remember, there’s no such thing as a free lunch!

The column is written by Terry Neese, entrepreneur, past national president of the National Association of Women Business Owners (NAWBO), and co-founder of Grassroots Impact. Terry founded Terry Neese Personnel Services, located in Oklahoma City, 25 years ago.

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