The IRS is cautioning taxpayers against new tax frauds disguised as debt payment options on credit cards or mortgages. This new scam may also be marketed as a way to pay for outstanding tax liabilities or reducing taxes. This scam involves filing Form 1099-OID, Original Issue Discount, and/or bogus financial instruments such as bonded promissory notes or sight drafts.

The fraud evolved from the previously known “strawman account” which was supposedly set up by the Department of Treasury for each US citizen to pay for debts and claim withholding credits. These “strawman” accounts have already been reviewed by the courts and foundto be frivolous. The IRS has also addressed these through Revenue Ruling 2005–21 and Revenue Ruling 2004-31, and discredits the use of this position for income tax purposes.

For more information on frivolous schemes, see The Truth About Frivolous Arguments.

Along with this new scam, the IRS renews its warning to taxpayers regarding e-mails and phone calls they may receive that claim to have come from the IRS or other federal agency, which may mention their tax refund or economic stimulus payment. These are almost certainly a scam whose purpose is to obtain personal and financial information — such as name, Social Security number, bank account and credit card or even PIN numbers — from taxpayers and then used by the scammers to commit identity theft. The e-mails and calls usually state that the IRS needs the information to process a refund or stimulus payment or deposit it into the taxpayer’s bank account. The e-mails often contain links or attachments to what appears to be the IRS Web site or an IRS “refund application form.” However genuine in appearance, these phonies are designed to elicit the information the scammers are looking for.

The IRS reiterates that it does not send taxpayers e-mails about their tax accounts. In addition, the only way to get a tax refund or stimulus payment, or to arrange for a direct deposit, is to file a tax return.

Always remember, if something sounds too good to be true, it probably is. For more information on Tax Scams, click Suspicious e-Mails and Identity Theft.

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