0926 Publ 3995 (PDF)

Official source: IRS Forms, Instructions & Publications (https://www.irs.gov/pub/irs-pdf/p3995.pdf), retrieved 2026-10-03. U.S. Government work (17 U.S.C. § 105).

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EITC Fraud Unscrupulous tax professionals will place false information on the tax return to maximize the amount of the Earned Income Tax Credit (EITC). The return preparer may report a false business on the tax return, or may “share” one taxpayer’s qualifying children with another taxpayer to allow both to claim the maximum EITC. For example, if one client has four children, the return preparer only needs to list the first two children to get the maximum credit. The return preparer will offer to pay the first client a fee to list the other two children on another client’s return. Both the return preparer and the taxpayers participating in this scheme could be subject to civil and/or criminal penalties.

“Put Your Money in a Trust and Never Pay

Taxes Again.”

Promoters of abusive trust schemes may charge a fee for “trust” packages. The fee enables taxpayers to have trust documents prepared, to use foreign and/or domestic trustees as offered by promoters or to use foreign bank accounts and corporations. If a trust is legitimate, ownership of the trust assets is completely separate from your control and benefit.

“Use a Charitable Trust to Eliminate Income”

Promoters advise taxpayers to establish complex charitable trusts to avoid reporting income and to claim inflated charitable deductions. While charitable trusts are a legal way to donate to charities, the trusts must meet specific legal requirements. Promoters create trusts that do not meet these legal requirements and they have no legal tax benefits for the taxpayers who create them.

“Never Pay Any Taxes Again!”

Promoters may suggest that you, as an employer, NOT withhold federal income tax or employment taxes from wages paid to your employees. This scheme is based on an incorrect interpretation of the tax law; the courts have rejected all variations of this scheme.

“I Don’t Pay Taxes – Why Should You?”

Promoters may talk about how they don’t file or pay taxes and then charge people a fee to share their “secret.” The secret they don’t reveal is that many of

them actually do file and pay taxes — they just won’t publicly admit it.

“Do Not Pay Taxes on Capital Gains”

Promoters promise to eliminate taxes on capital gains on property you sell if you first transfer the property to a trust, or if you sell the property to a third-party working with the promoter, or if you use some other scheme created by these promoters. Seek a second opinion from a qualified tax professional before using any of the highly questionable schemes.

“Deduct Personal Expenses, such as the

Cost of Your Residence or Your Child’s Education Expenses”

Participants incorrectly claim that non-deductible personal living expenses can be claimed as deductible business expenses by transferring ownership of assets or income to a trust, partnership, or other entity. Any investment scheme that claims you can deduct these types of expenses should be considered highly questionable.

“The IRS Doesn’t Want You to Know About

This.”

If there are legal deductions that can reduce your taxes, the IRS wants you to know about them and use them. The mission of the IRS is to provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. If you have any questions about your taxes, please contact the Internal Revenue Service at 1-800-829-1040.

“So New, Your Tax Professional Doesn’t

Even Know About It.” Promoters use this phrase to discourage you from seeking professional advice about new tax laws. However, if there is a new law that could reduce your taxes, a legitimate tax professional should encourage you to seek a second opinion. You should even ask for a reference just in case your tax professional really does not know about it yet. If the investment cannot stand the scrutiny or the review of an unbiased third party, it is probably one you should avoid.

“I Can Get You a Big Refund...for a Fee!”

Refund scheme promoters may give you a phony Form W-2 or Form 1099 that shows a large withholding credit or advise you to claim a credit for federal fuel taxes so it appears you qualify for a big refund. They may promise to split the refund with you. The

IRS catches most of these false refund claims before they go out, and if a refund is issued it is usually discovered. The participant will have to repay the entire refund, including the portion split with the promoter, along with stiff penalties and interest.