Potential Telephone and Email Scams regarding state taxes

Telephone Scam
The Colorado Department of Revenue would like to alert taxpayers of a possible telephone scam from a party fraudulently representing themselves as the Colorado Department of Revenue.

The caller may identify themselves as “State Tax Investigation Department.” They will state that you may have a legal case file against your name and Social Security number, have violated banking regulations, or have cheated on tax credits. They will ask you to wire them a large sum of money, usually through a convenience store debit/credit card and will require you not to tell anyone or take the matter to court.

This is NOT a call from the Colorado Department of Revenue.

We do not contact taxpayers over the telephone and request credit card numbers through a pre-paid debit/credit card to pay an outstanding tax balance.

When a taxpayer owes state taxes, the department will send written notification through a series of letters mailed to the taxpayer’s address. When the taxpayer does not respond, our Tax Auditing and Compliance Division will attempt to collect the outstanding debt.

We advise against sending any party money who claims they can clear up a tax issue with a convenience store debit / credit card.

Email Scam
Email messages from the State of Colorado Department of Revenue never have personally identifiable or financial information in the messages.

In order to verify financial information with the department, a taxpayer is required to log onto Revenue Online, the state’s free tax filing and account management Web service. Any email messages submitted through Revenue Online between the department and the taxpayer are secure. Responses between the taxpayer and the department occur within the Revenue Online service.

We do send general tax information by email. Note that the message will be from a State of Colorado email address (@state.co.us).

How to Report Suspicious Activity
If you receive or your tax client (tax professionals) receives a telephone call or email message telling you state tax is owed and you are suspicious about the party who is making the contact, you may report it to our Criminal Tax Investigation Section.

Similar scam alerts have been issued by the IRS. Please refer the IRS Warning Web page if the person contacting you states they are from the IRS.

Increased Payroll Scrutiny

The frequency of payroll audits has surged over the last five years and businesses are facing increased payroll scrutiny.

Most payroll audits have traditionally focused on whether or not a business is misclassifying an employee as an independent contractor, thus avoiding Social Security, Medicare and other payroll taxes. According to an article published last March by the Wall Street Journal entitled Payroll Audits Put Employers on Edge, “local businesses misclassify anywhere from 10% to more than 60% of their workers as independent contractors.”

Since the 2008 economic meltdown states have been springing into action to audit payroll taxes as a way to increase revenue. States are assessing hefty fines for misclassification. For example, Colorado passed House Bill 1301, which allows the Colorado Department of Labor and Employment to fine a business up to $5,000 for the first misclassification offense and up to $25,000 for subsequent offenses (Payroll audits increase as government seeks added revenue, Heather Draper, Denver Business Journal).

The increase in payroll audits has also been intensified by the Federal government. The U.S. Department of Labor has issued partnership agreements with California, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington to collaboratively investigate more than 6,000 employers for misclassifying employees. The U.S. Treasury estimates that if all employers were forced to properly classify employees it would result in $8.71 billion in added federal tax revenue over the next decade.

If an employer is misclassifying employees then they can take advantage of a voluntary disclosure program. The IRS is offering a Voluntary Clarification Settlement Program (VCSP) that allows employers to reclassify employees while minimizing look back, and waiving penalties and interest. Similar agreements may be negotiated at the state level.