Money Held for You in an IRS Secret Account

The IRS has a secret account for all U.S. citizens.  There is money in the secret account accessible to taxpayers.  By filing Form 1099-OID, taxpayers can gain access to their own secret account.  Taxpayers have received thousands of dollars from the IRS and you can to.  Does this sound too good to be true?  Well it is.

Promoters of this abusive tax scheme promise large tax refunds.   They say this is all legit because the IRS secret account is yours and you have the legal right to access it.  Taxpayers following the promoter’s advice will get substantial tax refunds.  I’ve come across a client or two that received more than $10,000 of IRS tax refunds due to this fraudulent tax scheme.

False Form 1099-OID Filed

The scam starts by preparing a false Form 1099-OID with a large amount of federal tax withholdings. Form 1099-OID is filed with the IRS.  Form 1099-OID is used for the tax return.   The tax return shows a substantial refund due to the large amount of federal tax withholdings reported on Form 1099-OID.  The IRS processes the tax return and issues the taxpayer a refund.

Why it Works Temporarily

This abusive tax scheme takes advantage of the IRS system.  Most tax returns are electronically filed with the IRS.  The IRS system compares filed tax returns to information returns submitted by third parties.  For example, the employer of a taxpayer submits Form W-2, Wage and Tax Statement, to both the IRS and the employee.  The employee reports Form W-2 on his or her tax return.  The employee’s tax return is flagged by the IRS if Form W-2 reported on the tax return doesn’t match Form W-2 filed by the employer.  The trick in this tax scheme is Form 1099-OID filed with the IRS does match the tax return.  The tax return is not initially flagged by the IRS and the IRS issues a refund.

IRS Dirty Dozen

This fraudulent tax scheme is listed on the IRS “Dirty Dozen” list of tax scams for the 2015 filing season.  There is a good chance taxpayers following this tax scheme will get caught.  The IRS is constantly improving the tax return electronic check system.  The penalties for filing a false tax return are significant.  Not only will the taxpayer pay back the refund, he or she will likely be charged a 20% negligence penalty or even worse 75% civil fraud penalty with interest.

I recommend you get a second opinion if you are approached with an idea that will generate a large refund.  If your gut says it is too good to be true, then it probably is.