Tax Scams

July 27, 2023

Every year, people lose both money and personal information to tax scams. At First Western Trust, we encourage clients to be vigilant year-round to avoid falling victim to all tax scams. The Internal Revenue Service (IRS) and the Federal Trade Commission (FTC) are receiving reports of scams involving back taxes and Employee Retention Credits.

Types of Tax Scams

Back Taxes

Tax season might be over; however, people who owe back taxes are often victims of tax relief companies who say they can help but usually leave people further in debt. Tax relief companies say they can lower or erase tax debts and stop back-tax collection by applying for an IRS hardship program on your behalf – if you pay them first. Most taxpayers are unlikely to qualify for the programs these scammers advertise, leaving them further in debt.

If you owe back taxes, try to work out a payment plan directly with the IRS (for federal taxes) or your state comptroller (for your state taxes).

Remember:

• Only the IRS or your state comptroller can decide what you qualify for, not tax relief companies.
• Don’t do business with anyone wanting you to pay the entire fee upfront. Walk away.
• Don’t do business with companies that charge you monthly maintenance fees.
• Every taxpayer’s situation is unique, and no one can guarantee a particular result.

If you have an issue with a tax relief company, contact the Federal Trade Commission at ReportFraud.ftc.gov.

Employee Retention Credit (ETC)

Employee Retention Credit (ETC) is sometimes called the Employee Retention Tax Credit (ERTC). ETC is a refundable credit for businesses and tax-exempt organizations that paid qualified wages to some or all employees after 03/12/2020 and before 01/01/2022. There are several eligibility requirements as well as limitations. The Employee Retention Credit is complex; consult your tax professional.

Recently, there have been numerous radio and television advertisements hyping this credit. Some ads appear to be official government letters, texts, emails, and phone calls. Anyone who improperly claims the credit must pay it back, likely with penalties and interest.

Warning signs of aggressive ERC marketing:

• Unsolicited ads, calls, emails, or texts from someone you don’t know.
• Statements that your ERC eligibility can be determined within minutes.
• Large upfront fees.
• Fees that are based on a percentage of the refund amount of the ERC claimed.
• Statements from the advertiser that you qualify for the credit before any discussion about your tax situation has taken place.

Remember, the U.S. Postal Service is the primary delivery method for IRS communication. The IRS will only reach out by telephone or contact people, in person, under particular/unique circumstances. Email, text messages, or social media platforms are not used to communicate with taxpayers about tax debts, refunds, or other tax matters.

For more information, refer to the IRS website listed below.

Sources:

https://consumer.ftc.gov/consumer-alerts/2023/04/think-you-owe-back-taxes-read

Employee Retention Credit | Internal Revenue Service (irs.gov)