IRS Announces Common Tax Scams

The IRS recently announced its 2020 edition of its annual Dirty Dozen list of tax scams with a special emphasis on aggressive and evolving schemes related to COVID-19 tax relief, including Economic Impact Payments. Here are six of the more common scams.

Phishing. Phishing refers to potential fake emails or websites looking to steal your personal information. Remember the IRS will never initiate contact with you via email about an outstanding tax bill, refund or Economic Impact Payment.

What you can do. If you receive any suspicious phishing emails, forward them to This email address is being protected from spambots. You need JavaScript enabled to view it..

Fake charities. Criminals frequently exploit natural disasters and other crisis situations such as this year’s pandemic by setting up fake charities to steal donations. Fraudulent schemes normally start with unsolicited contact by telephone, text, social media, e-mail or even in person.

What you can do. Verify the charity’s existence by searching for it using the IRS’s search tool.

Threatening phone calls from IRS impersonators. IRS impersonation scams include phone calls threatening arrest, deportation or license revocation if you don’t pay a bogus tax bill. The IRS will never demand immediate payment or ask for financial information over the phone.

What you can do. If you received a phone call, contact your local IRS office to verify whether you owe any taxes.

Social media scams. A scammer will use social media platforms such as Facebook and Twitter to obtain personal information from you, then use that information to trick you into providing them with confidential information. For example, the scammer could impersonate a family member, friend or co-worker in an attempt to obtain financial information.

What you can do. Be careful of publishing confidential information on social media. Verify the identity of any person or organization that asks you for confidential information.

Economic impact payment or tax refund theft. Criminals file false tax returns or supply other bogus information to the IRS to divert refunds or Economic Impact Payments to wrong addresses or bank accounts.

What you can do. Contact a qualified professional to help walk you through how to report identity theft to the IRS.

Senior fraud. Senior citizens have become more comfortable with various technologies such as social media. This has opened the door for scammers to take advantage of senior citizens by using fake emails, text messages and fake websites to steal personal information.

What you can do. Be the eyes and ears for the senior citizens you come in contact with. According to the IRS, anecdotal evidence indicates that senior fraud decreases substantially when a trusted friend or family member takes an interest in the senior’s affairs.

Build a Fortress Defense for PPP Loan Forgiveness

More than 70% of small businesses in America now have loan proceeds from the Paycheck Protection Program (PPP) to help retain employees during the current pandemic. The entire amount of a PPP loan is eligible to be forgiven if the funds are used for qualified expenses. Recent legislation liberalizes the terms of loan forgiveness for funds used for payroll, utilities and rent. It is now based on a 24-week period, not just eight weeks.

But how can you best position your company to fully benefit from PPP loan forgiveness? Here are five tips to help meet the challenge.

  • Restore your staff. If possible, restore the number of full-time equivalent (FTE) employees to previous levels by the safe-harbor due date of December 31 (extended from June 30). Bring back furloughed FTEs as soon as you can. Of course, this should fit into your overall business plan. If an employee does not return, document the refusal. All these actions will help when the forgiveness formula is applied to your loan.
  • Pile on payroll costs. Run payroll and other remaining qualified expenses—including mortgage interest, rent and utilities—on the last day of the 24-week period. This will enable your business to maximize the amount of loan forgiveness allowed under the calculation.
  • Reward employees. Consider paying out reasonable incentive amounts to maximize the forgiveness of payroll costs. The bonuses can even go to family members like your spouse or children. But remember that you can only count up to $100,000 of wages per person, pro-rated for the covered year, and you must be able to defend these payments as reasonable.
  • Use the simplified application form. There are two loan forgiveness forms - the regular form (Form 3508) and a simplified version called Form 3508EZ. Review both forms before deciding which one is right for your situation. For instance, there are fewer calculations on the simplified form with less documentation required. To qualify for the simplified form, you must meet at least one of these requirements:
    • You’re self-employed and have no other employees.
    • You didn’t reduce employee hours or reduce their wages and salaries by more than 25%.
    • You lost business due to health directives relating to COVID-19 and didn’t reduce employee wages and salaries by more than 25%.
  • Document everything. Once you receive PPP loan funds, keep supporting documentation on everything related to the loan. Document when you receive the loan, each time you spend part of the loan and accrued interest expense on the loan. Also keep copies of receipts and invoices to document all loan expenditures, including bank account statements and journal entries.

Don't Make These Mortgage Refinancing Mistakes

With 30-year fixed rate mortgages approaching historical lows of 3%, you may be thinking about refinancing an existing mortgage. But you better read the fine print before signing on the dotted line to avoid paying too much money. Here are some common mistakes homeowners make when refinancing their mortgage.

  • Not shopping around. When looking to refinance a mortgage, many homeowners simply check a couple advertised rates and pick the lowest one. But there are many factors affecting the total cost of refinancing, so it pays to carefully look at not just rates but also terms and fees offered by different lenders. Remember that a mortgage with a lower rate and higher closing costs from one lender can ultimately cost more overall than a mortgage with a higher rate but lower closing costs from another lender.
  • Saying yes to current mortgage loan forbearance. Loan forbearance occurs when your current lender allows you to delay making a payment or allows you to lower your payments. This is a common offer during the current pandemic. If you are considering refinancing in the future, think twice before taking advantage of this offer. Accepting a bank's offer to skip a couple payments, even during a pandemic, may signal cash flow problems that could negatively affect your mortgage refinancing options.
  • Not improving your credit score. The willingness of banks to lend you money at favorable rates is often contingent on your credit score. You must therefore know your current score and actively work to improve it. So don’t take out a new loan or credit card in the months leading up to refinancing. Also pay your bills on time and never use more than 15% to 20% of your available credit line on credit cards. By doing this you can vastly improve your interest rates and related closing fees.
  • Not looking over the good faith estimate. Origination fees, points, credit reports and other fees are all included with closing costs when refinancing a mortgage. These fees aren’t finalized until you receive a good faith estimate (GFE). Any changes you notice to fees on the GFE compared to what you were originally told is a red flag. Compare the final refinancing document you’re about to sign with the rates and fees originally presented to you. Challenge any increases.

By being aware of refinancing pitfalls, you can actively eliminate any surprises and create a situation where multiple lenders are fighting for the right to lend you funds.

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