You get a call from a scammer pretending to be with the IRS, threatening you’ll be arrested if you don’t pay taxes you owe right now. You’re told to wire the money or put it on a prepaid debit card. The scammer might threaten to deport you or say you’ll lose your driver’s license. Some scammers even know your Social Security number, and they fake caller ID so you think it really is the IRS calling. But it’s all a lie. If you send the money, it’s gone.
The Federal Trade Commission advises that if you get illegal sales calls, robocalls, or fake IRS calls, it’s best to ignore them. Don’t interact in any way. Don’t press buttons to be taken off the call list or talk to a live person or call back. When you have a tax problem, the IRS will first contact you by mail. The IRS won’t ask you to wire money, pay with a prepaid debit card, or share your credit card information over the phone. If you get fake calls, file a complaint with the Treasury Inspector General for Tax Administration at tigta.gov. You also can file a complaint with the FTC at ftc.gov/complaint. If you’re concerned there’s a real tax problem, call the IRS directly at 800-829-1040.
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- Ask students to make a list of steps that taxpayers can take to protect themselves from tax scammers.
- Why do scammers prey on the most vulnerable people, such as the elderly, newly arrived immigrants and those whose first language is not English?
- What can the IRS and other governmental agencies do to catch and punish criminals impersonating IRS agents?
- How can taxpayers protect themselves from scam artists?
- What should you do if you believe you owe federal income taxes?
As strange as it may sound, U.S. federal tax law requires that stolen property, bribes, kickbacks, and income from other illegal activities be reported as income. And, embezzlers, thieves, and bootleggers are allowed to take deductions for costs relating to generating that criminal “income.”
Due to an extensive network of hidden criminal earnings and witnesses unwilling to testify against him (for fear of their lives), infamous American gangster Al Capone was not prosecuted for illegal activities. He was, however, targeted and convicted of not paying taxes.
The government can collect taxes on illegal activity if it can be proven that an individual received income. Soviet spy Aldrich Ames earned more than $2 million cash for espionage. He was charged with tax evasion because none of the money was reported on his tax return.
Regarding stolen property, IRS instructions note that “if you steal property, you must report its fair market value in your income in that year you steal it, unless in the same year, you return it to its rightful owner.”
The IRS allows embezzlers, thieves, and bootleggers to take deductions for costs related to their criminal activity. A taxpayer who was guilty of violating the Securities Act of 1933 was allowed to deduct the legal fees spent defending himself.
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- What may have been reasons for the tax law actions that may seem absurd?
- What changes would you recommend regarding current tax laws?
- How might a tax system be created to encourage business innovation and job creation?
- Have students research various unusual examples of deductions that have been allowed or disallowed by the IRS.
- Have students present proposals for revision in the current tax laws.
The nation’s chief tax collector made a rare plea for overhauling the nation’s tax laws, saying the Internal Revenue Service is eager ‘to do whatever we can’ to help Congress simplify the tax code.”
John Koskinen, who rarely discusses the nation’s tax policy, told reporters the IRS needs to be involved in tax reform discussion to make sure the “simplication really is simple.” According to Koskinen, the two issues most in need of an overhaul are the taxation of American companies doing business abroad and the alternative minimum tax.
Koskinen also said it was a mistake to attempt to reform the multitudes of tax credits, deductions, and exemptions one by one. He likened that approach to fighting a “guerrilla war” with special interests. He indicated he would prefer to tackle tax reform all at once. He said “the advantage of doing it all at once is that the lobbyists can’t all get in the door at the same time.”
The last major tax reform of the nation’s tax code occurred in 1986.
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- Point out how complex the IRS tax code is for both individuals and businesses.
- Help students determine if they should file their own tax return or pay a professional.
- Discuss the need for tax reform in order to create a simpler method of collecting the money needed to operate the government.
- Given your current situation, would you file your own tax return or would you use a professional?
- While everyone agrees the U.S. tax code is too complex and too confusing, major reform is unlikely. What are the obstacles to tax reform and why can’t Congress take steps to create a simpler tax code?