Senior Scam Alert #1, Tax Shelter Scams!
Welcome to the Senior Scam Alert, a column designed for seniors, in order to inform them of scams and cons that are regularly committed against senior citizens. Seniors are victims of cons more often than any other age group. Seniors tend to be more trusting, and less apt to question someone who portrays himself as an "expert".
Disabled Access Telephone Scam
According to the IRS, a new tax scam has been uncovered. Con artists sell expensive coin-operated telephones to individuals. Then, the salespeople offer to "lease back" the phones and service them for a fee. The unsuspecting "investors" are then charged outrageous amounts. According to the Federal Trade Commission, the phones are often never delivered, and the fees continue to be charged anyway.
The telephone salesman also informs the "investor" that they qualify for IRS Disabled Access Credits; a substantial tax break offered to businesses who invest in equipment and upgrades designed to make their businesses more accessible to disabled individuals. The phones do not qualify for the credit, and the victim is then also in trouble because of tax fraud. The responsibility for tax mistakes always lies with the taxpayer, regardless of where the information came from.
(continued)...Seniors are particularly vulnerable, because most of them are unfamiliar with complex tax law. Seniors are eager for passive income, since most are retired and do not work. The scam artists promise to provide enormous tax breaks and a steady income. Multiple tax cases have been brought before the IRS regarding this scam. In at least three cases, the company "Alpha Telecom" incorrectly advised investors that the pay phones qualified for a Disabled Access tax deduction. In 2002, Alpha Telecom was cited by the Federal Trade Commission for violating Federal law. Unsuspecting investors lost thousands of dollars, and Alpha Telecom filed for bankruptcy after being investigated in at least twelve states.
Website Mall Scams
In a similar scam, a salesman offers to set up an internet "virtual mall." The internet mall supposedly qualifies the buyer for the Disabled Access Credit, and the scam promises huge profits from internet sales, which, of course, never materialize. The website company sets up a "dummy" website and then charges the buyer an inflated commission. When the unsuspecting investor attempts to claim the tax credit, the IRS disallows the deduction. The investor is then liable for additional taxes and penalties.
A Las Vegas telemarketing company, National Audit Defense Network (NADN), is one of the companies involved in this "Virtual Mall" scheme. In 2004, NADN filed for bankruptcy after the justice department discovered that it had sold numerous abusive tax shelters, costing the US Treasury over $320 million dollars. The justice department obtained NADN's customer list, allegedly comprised of 640,000 taxpayers, all of which may have unknowingly participated in an unlawful tax shelter.
If you feel that you may have been a victim of an abusive tax shelter, contact a tax professional immediately. Enrolled Agents, CPAs, and attorneys are all qualified to represent taxpayers in an audit and in tax court. They can file an amended return for you, and help represent you, if necessary. Enrolled Agents may be the least expensive of the three, because they specialize only in tax.
Remember, "if it sounds too good to be true, it probably is!"
Christine P Silva, BA, CRTP, lives in California with her husband, two children, and three spoiled cats. She earned her undergraduate degree from San Jose State University, and her advanced accounting certificate and tax license from Cosumnes River College. She is the founder of the Sacramento Volunteer Tax Preparation Clinic, a free service offering tax assistance to low income and Spanish-speaking taxpayers.
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