Sales tax fraud & its examples

Sales tax fraud: Sales tax fraud occurs when a business or individual intentionally fails to pay or
underpays sales tax to the government. It typically involves businesses failing to collect and
remit the appropriate amount of sales tax on taxable goods or services they sell, resulting in the
loss of revenue for the government.

Examples:

1. False exemption certificates: A seller may claim to be exempt from paying sales tax on
certain purchases or sales, such as by claiming to be a tax-exempt organization or falsely
claiming that certain goods or services are tax-exempt. For instance, a retailer may provide
an exemption certificate to a customer who is not eligible for an exemption, such as a non-
profit organization.
2. Underreporting sales: A business may underreport sales to the government to reduce the
amount of sales tax owed. There is the case of a restaurant owner who was found guilty of
sales tax fraud after failing to remit sales tax to the government for several years. The owner
had used several different methods to avoid paying sales tax, including underreporting sales,
over claiming deductions, and using phantom tax. The owner was sentenced to several years
in prison and ordered to pay back the unpaid sales tax, penalties, and interest.
3. Skimming: Is a method of sales tax fraud where a business collects sales tax from customers
but does not report or remit the full amount to the government. For instance, a restaurant
owner might only report a portion of the sales they made and keep the rest of the sales tax
collected.
4. Shifting sales to another location: A business may shift sales to another location to avoid
paying sales tax in a particular jurisdiction. For example, a retailer may report sales in a
jurisdiction with a lower sales tax rate, even if the sales occurred in a jurisdiction with a
higher sales tax rate.
5. Shell Companies: A business may create a shell company to avoid paying sales tax by
transferring sales to the shell company, which then disappears or goes bankrupt.

Conclusion: Sales tax fraud is a serious crime that can result in severe penalties, such as fines,
imprisonment, and loss of business licenses and harms the government's ability to collect
revenue. It's important to note that sales tax fraud is a serious offense that can have significant
consequences for both businesses and individuals involved. It's essential to ensure that sales tax
is accurately collected, reported, and remitted to the government to avoid legal and financial
consequences.

Identity Theft Tax Fraud

Identity theft tax fraud: occurs when someone steals another person's personal information
such as their name, social security number, identifying information, stealing mail or going
through trash to find sensitive documents, hacking into databases that contain personal
information, or using skimming devices to steal credit or debit card information and once they
obtained someone's personal information, they can use it to file a tax return in that person's name
and request a refund.

This type of fraud can be particularly difficult to detect, as victims may not realize their
information has been stolen until they try to file their own tax return and find that it has already
been filed.

Examples:

1. Stolen Personal Information: An identity thief steals someone's personal information and
uses it to file a tax return claiming a refund. The thief will typically provide false information
about income, deductions, and tax credits to maximize the refund amount.
2. Phishing Scams: Scammers send emails or make phone calls posing as the IRS or other tax
authorities to individuals and asking them to provide their personal information. Once they
obtains the personal information, they use it to file a fraudulent tax return.
3. Skimming Devices: The fraudster may use skimming devices to steal credit or debit card
information and use that information to file a fraudulent tax return.
4. False tax preparers: Some individuals falsely advertise themselves as tax preparers and take
people's personal information with the promise of filing their taxes. They may file fraudulent
tax returns or may not even file taxes at all, leaving the victim on the hook for any penalties
or back taxes.
5. False Employment Information: The fraudster may use a fake employer and income
information to file a false tax return, making it appear as if the victim earned income and is
eligible for a tax refund.

Conclusion: Identity theft tax fraud can be financially devastating to victims and may take years
to resolve. Victims of this type of fraud should immediately contact the IRS, file a police report,
and take steps to protect their personal information, such as regularly monitoring their credit
reports and using strong passwords.