The Internal Revenue Service has issued a warning to taxpayers to avoid offers from con artists selling advice on how to file slavery reparation tax refund claims.

According to the IRS, U.S. tax laws have no provisions allowing African-Americans to get tax credits or refunds related to slavery reparations. Unfortunately, that fact has not prevented dishonest businesses and individuals from tricking people into paying as much as $80,000 for advice on how to file such claims.

This is far from an isolated problem, either. In 2001 alone, the IRS reports receiving nearly 80,000 returns claiming more than $2.7 billion in false slavery reparation refunds.

"Promoters are shamelessly preying upon people,” IRS Commissioner Charles O. Rossotti said. "These snake-oil salesmen build false hopes and charge people good money for bad advice on reparation refunds. In the end, the victims discover their refund claims are rejected, and their money and the promoters are long gone."

While the IRS has seen claims from almost every section of the country, about 45 percent of the claims have been from states served by the Atlanta Service Center (including Florida, Georgia, South Carolina and West Virginia), with
about 25 percent from states served by the Memphis Service Center (including Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Nebraska, North Carolina and Tennessee).

Noting that the promoters appear to be targeting church congregations, the IRS has urged churches in the African-American community to be on the alert for the scam. "Good people are getting caught up in this scam," Rossotti said.

Warning Signs: The IRS reports promoters often use several related schemes:

• Promoters promise taxpayers they can get tax credits or refunds for "black investment taxes," "reparations for African-Americans," "black inheritance tax refund" or racial discrimination.

• Promoters frequently warn their clients against contacting the IRS on the pretext that the IRS does not want the general public to know about the "credit."

• Promoters convincing taxpayers to file a tax returns listing thousands of dollars in tax withholding that, in fact, never occurred.

• Promoters sometimes tell those seeking reparation claims not to back away from their claims and to submit additional tax returns. Some promoters charge additional money for filing these additional claims.

The IRS also reports signs that bogus reparations promoters are targeting new groups this year after receiving some 200 claims submitted for Native Americans.

The IRS is particularly concerned about this recent activity targeting African-Americans and others for several reasons, including rapidly changing tactics being used by promoters in recent months. Promoters have been submitting different types of scams in hopes of slipping false tax returns through the IRS system. 

IRS Takes Action: According to recent agency press release, the IRS is taking action on several fronts:

• The agency has developed special teams trained to watch for these suspicious returns being submitted. These teams in the agency’s 10 Service Centers have been alerted to watch for questionable tax claims on slavery reparations and other
scams.

• The IRS will be contacting and distributing information to African-American leaders, church groups, organizations representing older Americans and other groups representing people targeted for these scams.

• The IRS continues to investigate new promoters for prosecution, and more legal action is expected in the weeks ahead. The IRS reminds taxpayers that promoters of reparations tax schemes have been convicted and imprisoned.

New IRS Policy for Taxpayer -- Effective April 15, 2002
Under a new policy effective April 15, the IRS will send a letter warning taxpayers about filing false reparation claims. If the taxpayer refuses to back away from the improper claim, they face a potential $500 penalty for filing a frivolous tax return.

Since they have no basis on law, IRS will treat reparation claims the same as all other types of frivolous tax claims. Taxpayers will be given a chance to submit a corrected return or rescind the frivolous claim with no penalty imposed. But if the taxpayer does not agree, the $500 penalty can be assessed. The IRS chose the April 15 implementation date to provide enough time to alert taxpayers and organizations about the new policy.

Taxpayers with questions about reparations scams can call the IRS’s toll-free customer service line is 1-800-829-1040. To report suspected tax fraud activity, taxpayers should call 1-800-829-0433.

For more information about legal action taken against reparation refund scams, see IRS Fact Sheet 2002-08, "Reparation Scams Carry A Price."