IRS Regulations and Scam Alerts

The Federal Trade Commission (FTC) has issued warning letters to operators of websites selling Employer Identification Number (EIN) filing services, cautioning that some of their business practices may be illegal under the FTC Act and the agency’s Impersonation Rule.

The letters alert companies that they may be misleading consumers by falsely implying an affiliation with the Internal Revenue Service (IRS) — a violation that can result in steep civil penalties.

“Impersonating the government is unlawful, period,” said Chris Mufarrige, Director of the FTC’s Bureau of Consumer Protection. “The FTC is warning businesses that sell services the government provides to review their websites and advertisements for symbols and words that mislead consumers.”

Services charging for free government tools

The websites in question are reportedly charging consumers up to $300 for EINs — even though EINs can be obtained for free directly through the IRS’s official website.

An EIN is a federal identifier used by businesses, estates, nonprofits, and households that employ workers. It functions similarly to a Social Security Number but is used for organizational tax purposes.

According to complaints received by the FTC, some websites:

• Use IRS-like logos, fonts, and layouts to imitate government websites

• Include “IRS” in their domain names or ads

• Use terms like “EIN Assistant”, mimicking the IRS’s free tool

• Fail to clearly disclose that their site is not affiliated with the IRS

• Do not make it obvious that the fee they charge is for optional third-party services

Legal consequences loom

The FTC's letters serve as a warning: any violation of the Impersonation Rule could result in civil penalties of up to $53,088 per violation, along with possible requirements to refund consumers.

While the Commission is not yet accusing the companies of wrongdoing, the letters urge them to review all marketing and advertising, including paid ads, websites, social media, and promotional materials, to ensure full compliance with the law.

The crackdown is part of the FTC’s broader effort to protect consumers from scams involving government impersonation. In recent years, the agency has filed several lawsuits against similar deceptive practices, including cases against Superior Servicing LLC, Panda Benefit Services, and DOTAuthority.com, Inc.

Consumers are advised to obtain EINs directly through the IRS at irs.gov to avoid unnecessary fees and possible deception.

Scams are a threat all year round, but in December, as many people plan end-of-the-year charitable contributions, there’s usually an increase in scams that take advantage of good intentions. One scheme in particular could also land the donor in trouble.

The IRS is warning taxpayers to be aware of fraudulent tax schemes involving donations of ownership interests in closely held businesses, often marketed as "charitable LLCs." These schemes, which primarily target higher-income individuals, are deemed abusive transactions by the IRS and can lead to severe financial and legal consequences.

The IRS emphasizes that taxpayers are ultimately responsible for the accuracy of their tax returns. Engaging in these schemes to reduce tax liability can result in the assessment of the correct tax owed, along with penalties, interest, and potential fines and imprisonment. Charities are also cautioned against inadvertently enabling these schemes.

While legitimate deductions for donations of closely held business interests are permissible, unscrupulous promoters sometimes lure taxpayers into schemes involving false charitable deductions. These schemes typically involve creating limited liability companies (LLCs), transferring assets into them, and then donating a majority percentage of nonvoting, non-managing membership units to a charity. 

Meanwhile, the taxpayer retains control of the voting units and can reclaim the assets for personal use. In some cases, promoters may even control the charity receiving the donation.

The IRS is actively investigating these abusive transactions using a variety of compliance tools, including thorough audits and civil penalty investigations. The IRS says hundreds of tax returns have been filed using this scheme, leading to criminal convictions, including a promoter pleading guilty and a donor convicted of obstruction.

Red flags

To avoid penalties and potential legal repercussions, the IRS advises taxpayers to be vigilant against abusive transactions marketed by unscrupulous promoters. Key red flags include promises of personal benefits beyond tax deductions, transactions involving the creation of entities solely for donations, and arrangements allowing personal use of donated assets.

Properly claiming a charitable contribution deduction for a donation of a closely held business interest requires meticulous record-keeping. Taxpayers must document the name and address of the charitable organization, the date of the contribution, and a detailed description of the business interest. 

Additional requirements vary based on the value of the claimed deduction, including obtaining written acknowledgments, completing specific IRS forms, and securing qualified appraisals for larger donations.