Every person must pay taxes. No matter one’s job, income level, or the amount of assets owned, most people are unhappy with the amount that the government takes. But while there are many ways to legally minimize the amount of taxes a person is obligated to pay, some people take additional, illegal steps to evade paying taxes. 

Tax fraud is a crime that can result in serious consequences; however, many people also fall prey to tax scams that promise to substantially reduce or completely eliminate the taxes a person must pay. In order to avoid criminal prosecution for tax evasion, it is important to recognize and avoid these abusive tax schemes. 

Types of Abusive Tax Schemes

Every year scammers posing as the IRS attempt to scare taxpayers into handing over money that they do not owe or money that will never go to reduce their tax obligations. Recently, the IRS warned the public of the newest twist on a common tax scam. It is important to understand how to identify a tax scam to help prevent yourself from being taken advantage.

Details of This IRS Scam

According to the IRS, a fraudster will contact a taxpayer, identify himself or herself as an IRS employee, and demand to be paid immediately. The scammer will only accept payment through a prepaid debit card, which the scammer claims is connected to the Electronic Federal Tax Payment System (or EFTPS).

Scammers have long pretended to be the IRS in order to prey on taxpayers in the hopes of scaring them into paying hundreds or thousands of dollars. In reaction to this, the IRS warns consumers of these scams, which take on many forms. 

Recently, there has been an uptick in IRS scams coming from India. One 29-year-old woman, who ultimately gave into the scammer’s request for money, said that the person who called her had a foreign accent and confused basic English phrases. 

Twice in the conversation, the scam victim said the person on the phone said she owed 1,000 rupees, which is the currency used in India. Both times he corrected himself and said she owed $1,000.

Each year, IRS puts out a series of press releases warning taxpayers of twelve schemes they call the "Dirty Dozen." The items on the list can change from year to year, and several typically have to do with taxpayers attempts to game the system by understating income, overstating deductions, engaging in "tax shelter" transactions, and so forth.

But for the past several years, the top three items on the list have been identity theft, phone scams, and phishing schemes - situations in which ordinary people are vulnerable simply because they are trying to comply with the tax laws.

Each year IRS identifies literally millions of returns in which a thief has used someone else's Social Security number to claim refunds. While the agency says it is making progress in detecting and preventing identity theft, "criminals continue to look for increasingly sophisticated ways to breach the tax system," including phishing and phone scams.

Prepaid debit cards already have enough controversy surrounding them, and this latest bit of news about tax refunds being frozen for prepaid debit card users isn't going to do any favors for the industry.

Several news outlets, including ABC News, are reporting that the reason for this "funds freeze" is because the IRS is teaming up with the financial industry to crack down on tax fraud.

The problem is, of course, is that this is affecting the nation's poorest Americans...and they are finding that they have very little recourse.