12 Tax Scams You Need To Know About

Aug 22, 2020 | Economy, Tax

On this week’s podcast, Karl discusses the IRS’s dirty dozen tax scams that they just released as a public service announcement and a warning. Karl explains.


Plus, Karl discusses which company is now the first $2 trillion company.  And, is the market really at all-time highs?


Hey, good morning everybody. Welcome to Creating Richer Lives the podcast. Thanks for joining us as usual. Just a reminder, this show is brought to you by Covenant, lifestyle, legacy, philanthropy. If you would like to get ahold of us for anything you might need, or have a friend that might need help (210) 526-0057. Website, creatingricherlives.com. All right, well, let’s jump right in. We’ve got a few different things going on this week. We’ll kind of give a little bit of a wrap up of what was moving this week, and then I’m going to get into a couple of things that you really need to know. Number one, if you’re refinancing, got some brand new news for you on that. Number two, there are some financial scams going around and we’re going to touch on just a few of them to be aware of. All right, well, we saw the S&P 500 up about 0.7% this week.

We saw a really, again, technology stocks, the QQQ, which is the large NASDAQ 100 stocks up 3.5%, and momentum stocks up 3.6%. They were by far the biggest winners on the week. What’s interesting is if you look at things like small caps down 1.5% on the week. The Dow Jones was just about flat, but it was another one of those weeks where we continue to see technology stocks, not just technology stocks. We started to see a little bit of growth in general, but technology in particular is just continuing to be super resilient. It was very evident the last few days. We saw Apple go above $2 trillion in market cap. So what does that mean? You look at their shares outstanding, you look at the price per share, that is the market cap. That is what the stock is worth. Largest company right now at $2 trillion.

Now they were the first company a few years ago. I think it was five years ago to reach $1 trillion. I mean, when we started hearing about companies, could a company ever surpass $1 trillion, many of us thought probably not in our lifetimes, but here we are not only 1 trillion, but 2 trillion and Apple has gone just downright vertical pushing $500 per share. So Apple has been very strong, technology in general has been strong.

Look we’ve said this from the get go. It makes sense in this environment post… I was going to say post COVID, but we’re not through it yet. Anything past pre-COVID we’ll call it that. In this COVID world, you have technology really leading the way from video conferencing to storage, to bandwidth, to cell phones, cameras, technology in general is why we’re able to really get through this and why you’re seeing retail be so strong.

I mean, retail sales are stronger than they were before this even started. Now we’ve seen a big shift from in store retail to online, but quite amazing, and it’s because of technology. So technology companies deserve a premium and furthermore companies that are growing fast deserve a premium, especially in an environment globally where the world is not growing that fast. We’re in a low and slow growth environment around the world, not just in the US, so globally.

It’s very clear if you look at what’s working, companies that have fast revenue growth, companies that are in that arena, and especially in technology, are being rewarded with not just a premium, but something that is out of hand now. And I mentioned it, I called it a bubble a few weeks ago, and it’s more of a bubble now, and it’s very clear what’s going on. Now on the flip side of that, when you look at dividend paying stocks, companies that have sustainable dividends, growing dividends, good cashflow, but maybe aren’t growing that fast. Not only are they not keeping up, they’re getting penalized this year.

So you’re seeing those companies actually down. There is a massive difference between value funds. I see some value funds down 18% to 20% in 2020, and yet the NASDAQ and the NASDAQ 100 up over 20%. There’s a 40% difference just this year between those two. So what will change that? What’s going to tip the scales? I don’t know. I don’t know what it is. Is it interest rates? Is it just a popularity contest? A bubble very similar to 1999? I don’t know what it is, but what we are seeing is definitely a massive divergence and it was very clear this week, on Tuesday it was a mixed day, but yet technology led. In fact, the S&P 500, 500 companies made new all time highs, but only 6% of the stocks in the S&P 500 made new 52 week highs.

So something is awry there. There is really a handful of companies leading the market. Now, again, if you own those indices, the S&P 500, something that mimics that, it’s okay, but you have to know that that is what’s controlling your portfolio right now. If you have a lot of money tied to ETFs or funds that are very similar to the S&P 500, then you probably own a lot of technology in a handful of companies. That’s what’s moving your portfolio from day to day.

It’s okay because it’s working right now, but when it starts going down, that’s probably why it’s going to be going down is because those companies aren’t doing well. So just know what you own. Now, again, if you’ve diversified, if you’ve bought equal weight ETFs, if you bought managed mutual funds, if you bought stocks that look attractive from a value standpoint, if you bought international stocks, you have been penalized. Again, not just not keeping up with tech, but literally go in the opposite direction in some cases. So, very interesting what’s going on right now.

I want to give you guys a quote. Remember some of these hedge fund managers, pretty interesting. Some of them, I mentioned this way back. They were pretty wrong through a lot of this turbulence in March, and April, and May, and subsequently after it bounced, they all thought it was going to go back down to the lows and they have fabulous track records. That’s why we talked about them, not to pick on them because we all have made mistakes. However, these guys have unbelievable track records. That’s why they deserve the respect, but there is a quote from Stanley Druckenmiller, one of the best managers of all time, hedge fund managers. And this is a quote from Stanley drunken Miller.

He said, “I bought $6 billion worth of tech stocks. And in six weeks, I’d lost 3 billion in that one play. You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to do that. I was just an emotional basket case and couldn’t help myself. So maybe I learned not to do it again, but I already knew that.” What does that mean? Well, he could have been talking about, I don’t have the time frame in here, but he could have been talking about the .com bubble of 2000. I don’t know what, but he is telling you that I couldn’t take the underperforming and owning things that weren’t keeping up with the market. So I capitulated. That’s what I did. I capitulated and I bought stuff I knew I shouldn’t have bought, because I couldn’t take it anymore. And I ended up losing 50% of my money. For him, that was $3 billion.

So, that’s a great lesson. This is one of the greats of all time telling you, you have to take a balanced approach. So if you have some things, right now that may not be working, whether they’re individual stocks that look attractive to you, but they’re not going up every day like technology stocks, you are probably doing it correctly. You’re probably diversified properly. Can you lean your portfolio one direction or another based on what’s going on? Yes, but that momentum factor, which is an actual factor. In other words, could you buy all stocks based, purely on momentum? You could. It’s dangerous though. That factor is working in 2020. It was working in 2019, but a diversified approach says, “Yes, I want to own some stocks that are a value. I want to own some stocks that aren’t the sexiest technology stocks. I want to own some stocks that are international stocks and things of that nature.” That’s diversification.

So if you’re somebody buying everything that makes sense to you. I shop online therefore, I own XYZ company, right? We all know who that is. I stream movies, so therefore I own that company. All those companies have really crazy valuations right now. I’m not going to give you the specific numbers, because I haven’t really done the math on it. But I’ve told you this in the past that if you owned a business that was generating, let’s say a million dollars a year in revenue, and you said to yourself, you know what? I think my company’s worth $2 million. Right now what’s going on for Tesla, and Netflix, and some of these companies, is if you had a company like that and you were getting the same valuation, you were getting offers to buy your company for the same as what these companies are, you might be getting 100 times your revenue.

Think about that. You think your company’s worth 2 million. The marketplace is saying your company is worth $100 million. Do you think you would sell? Or would you say, “No, I’m going to hold out for something higher.” Of course you would sell, because it’s a ridiculous premium you’re getting. That’s what’s going on in the public markets. People aren’t paying attention to it. And in fact, because the stocks are running up, more people have to buy them, there’s pressure to buy them. So we have a very bifurcated market. Now, what does that mean for you? That is the opportunity. That is where you have an opportunity, because there are some really good deals out there. Unlike the.com bubble, where there wasn’t a lot of opportunities, the market got hit really hard. A lot of things did.

Now, we’re seeing some really good opportunities in some really good spaces, great companies, and great funds, and great managers, and great ETFs that aren’t doing well the last couple of months. They’re just kind of languishing and that’s okay. Just again, think about your timeframe here. So a really interesting market right now, especially like I said, Wednesday, Thursday, Friday, and that really turned… Wednesday, Thursday, Friday really turned primarily because we saw Wednesday when the federal reserve released their minutes of their last meeting. Everything sold off after that. We didn’t have a horrible week. It’s just you saw some weakness Wednesday and a little bit Thursday. The fed essentially came out and said that they may not continue, or at least they alluded to, they may not continue YCC. What is YCC? Yield Curve Control. Don’t turn off the podcast. I won’t keep talking about yield curve control, but basically all they’re saying is, “We may not manipulate interest rates as much as you guys think.”

The market took that, Wall Street took that as they may not be there to always buy bonds, and therefore interest rates could go up in the future and they’re not going to keep interest rates down. Who knows? That that was probably a big assumption by folks, but that was how it was taken. So the market kind of sold off, interest rates spiked a little bit that day, but it was kind of a one day phenomenon for the most part, because we did see interest rates start to fall back down. In fact, interest rates for the week fell. So we’re still back down at 0.64% for a 10 year treasury in the United States. By the way, shameless plug here, we just wrapped up recording a video that we will release probably late next week, and it is Covenant’s economic outlook for the third quarter.

It was Justin Paul, our chief investment officer and myself, and we go through a handful of slides, really trying to focus more about the economy, but we did touch a little bit on the election. We touched a little bit on how that relates to the stock market, but this was primarily an economic driven video that we will release out to you. On top of that, we’ll probably do another video, which is a lot more market focused, especially as we get closer to the election, but this was had a lot of economic impact in it. The bottom line is, look, we think this is going to be a slug, right? We’re recovering, certainly, but it’s not a Super V, as president Trump called it, I think earlier this week. “It’s a Super V.” It’s not a Super V, but we have had a bounce. But we think may be some of that bounce may be behind us in terms of the intensity of the bounce. But you can get some details on that.

But yeah, interest rates still low, but really the market did change. But the last three days, Wednesday, Thursday, and Friday were very interesting because it was crazy how many stocks were down. You would see for example, 400 of the S&P 500 stocks down on the day, but yet the S&P 500 was up. How has that happened? Well, as we’ve talked about, it all has to do with market cap, which stocks are going up? On Friday, the Dow Jones at one point was up about 120 points. All 120 points were due to one stock, Apple. In other words, if Apple was not in the index, the Dow would have been flat. So you can see how the price of stocks, and the weight of them in terms of market capitalization, impacts the indices that you watch.

So just know a little bit about kind of what’s moving some of that, and it can kind of help you out a little bit. Why your portfolio might be moving a little different than the overall market. Now, one interesting thing here, and maybe some good… Everybody’s waiting for the next shoe to drop, right? How much further can this market go? Jurrien Timmer, out of Fidelity, posted a great chart this week. Really, what he did was he put this fall from February, March, and April, and the subsequent rally, on top of the move in 2008 into 2009. It’s very highly correlated and right on cue. So if you think that ’09 could happen again, in terms of the recovery, we have a long ways to go. According to his chart, perhaps all the way up until really May of next year, before we’d run into any kind of real serious trouble. Some pullbacks here and there, but we still have a ways to go. So that’s encouraging, if it plays out like last time.

Now I mentioned there is some issues with home mortgage refinancing. So, this just came out this week, actually. Yeah, about a week ago. If you’re refinancing now, mortgage rates are still low, right? We’ve been seeing a 30 year mortgage around 3%, which is crazy to think about. So it’s still a good time to refinance, but starting September 1st, the cost of refinances is going up due to economic risks associated with COVID 19. Both Freddie Mac and Fannie Mae are going to have a refinancing fee of 0.5% or half a percent. The fee comes as mortgage refinancing accelerates due to lower interest rates. So this comes out of Forbes and they say, “Fannie Mae is calling it an adverse market refinance fee.” What’s the acronym there? AMRF I’m sorry, an AMREF.

So the adverse market refinance fee. So in a lender letter, Fannie Mae said the fee was, “In light of market and economic uncertainty resulted in higher risks and costs incurred by Fannie Mae.” So they’re trying to hedge themselves. We’re saying we got more risks on our side, so you’re going to pay for it. That’s really what it boils down to. So, that is coming September 1st. So, if you’re going to refinance here we are on August 22nd, Saturday. Hurry up. Hurry up and refinance.

All right. Let’s move on to some of these scams that I was telling you about. Now, the IRS, this is on the IRS website by the way, the IRS unveiled their dirty dozen list of tax scams for 2020. Okay? This just came out. Here’s what they are. And I’ll go through them pretty quickly. Fake charities, criminals, and this come straight from the IRS’s website. So this is happening. Criminals frequently exploit natural disasters, such as COVID by setting up fake charities to steal from people trying to help in times of need. So fake charity scams are rising due to times like these.

Threatening impersonator phone calls. IRS impersonation, scams come in many forms, a common one remains threatening, bogus, threatening phone calls from a criminal claiming to be with the IRS. Now remember the IRS will never call you. Okay? Social security will never call you. So keep that in mind. There’s also social media scams. Taxpayers need to protect themselves against social media scams, which frequently use events like COVID by tricking people. Social media enables anyone to share information with anyone else in the internet. Scammers use that information as ammunition for a variety of scams.

These include emails where scammers impersonate someone’s family, friend, or coworkers. So if something sounds a little goofy to you, and don’t just assume, “Well, it’s from somebody in my family surely.” Well, it may not be. It may say that. Another little trick, and I think I’ve mentioned this before, is when you get an email, if it looks weird, don’t necessarily just look at the name. They could be masking the name to say whatever they want. Look at the from email address. Okay? Here’s the other one on the IRS website, EIP or refund theft. The IRS has made great strides against refund fraud and theft in recent years, but they remain an ongoing threat. Criminals this year also turned their attention to stealing economic impact payments as provided by Coronavirus Aid Relief and Economic Security, the CARES Act. So they’re just flat out stealing checks.

Senior fraud. Senior citizens, unfortunately are always at the forefront of a lot of these scams and most scams and most people that are victims of actual scams happening to them are seniors. So be careful, there’s all kinds of tax scams, targeting older Americans. Scams targeting non-English speakers, IRS impersonators, and other scammers also target groups with limited English proficiency. These scams are often threatening in nature. Phone scams pose a major threat to people in the limited access to information including individuals not entirely comfortable with the English language.

Scrupulous return prepares, talking about really selecting the right return preparer is important. Most tax professionals obviously are honest, high quality service, but dishonest preparers pop up every filing season, committing fraud, harming innocent taxpayers, or talking taxpayers into doing illegal things they regret later. The last few offer in compromise mills, taxpayers need to be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for “pennies on the dollar.” Through an offer in compromise, OIC. So be careful about that.

Fake payments with repayment demands. Criminals are always finding new ways to trick taxpayers into believing their scam, including putting a bogus refund into the taxpayers’ actual bank account. The IRS will never demand payment by a specific method. Payroll and HR scams. They’re trying to steal your W2’s and other tax information. This just goes down to we hear about packages being stolen on people’s front porches from Amazon. We see it with these camera doorbells now, where they can catch people. It’s no different than your mailbox. Your mailbox is sitting there with documents just sitting in it all day, no lock on it. That’s what happens.

Then ransomware again, this is a huge one for everybody. This is a growing cyber crime ransomware is malware, targeting human and technical weakness to infect potential victims computer. Malware is a form of invasive software that is often frequently inadvertently downloaded by the user. So that’s where you see people clicking on attachments, and you get a joke from somebody and you click on it, just don’t click on it. Just don’t, because what it does that literally takes a virus and embeds into your computer. Now they’re able to track everything you’re doing, including when you’re typing in your social security number, all those types of things, passwords. So once infected ransomware looks for and locks critical and sensitive data, and then what happens is… Why do they call it ransomware? Yes, you guessed it. They asked for a ransom, hold your data that they’ve locked up now as ransom and say, “Pay us,” usually in a cryptocurrency and say, “Pay us in Bitcoin, $5,000,” for example, “and then we will release your data to you.”

Some companies have to do that. So this is the dirty dozen that the IRS just unveiled about a month ago. So these are a list of tax scams. So be extremely careful out there. It’s on the IRS website. I will try to link it in the show notes. Remember we transcribe all of our podcasts, so right there on our website you see the podcast on there and underneath it, you see all the words from the podcasts. So I’ll put the link in there for that. Hopefully you can take that and share it.

Again, this is a legitimate link. I just told you not to share links, but this is a legitimate link. You can share links to websites, just always be careful of what you’re clicking on, but you can trust stuff from me. All right. Hey, thanks for joining me. Appreciate it. Don’t forget. Creatingricherlives.com. Our telephone number (210) 526-0057. Hey, have a wonderful weekend, everybody. We’ll see you back here next week. Take care. Bye-bye.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product, including the investments and/or investment strategies recommended or undertaken by Covenant Multifamily Offices, LLC, Covenant, or any non-investment related content will be profitable, equal any corresponding indicated historical performance levels be suitable for your portfolio or individual situation or proved successful. Moreover, you should not assume that any discussion or information serves as the receipt of, or as a substitute for personalized investment advice from Covenant. To the extent that a listener has any questions regarding the applicability of any specific issue discussed above to his/her individual situation. He/she is encouraged to consult with a professional advisor of his/her choosing. Covenant is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of our current written disclosure brochure discussing our advisory services and fees is available upon request or at creatingricherlives.com.


Schedule a Free Call

Receive a complimentary 15-minute financial evaluation with one of our wealth advisors.

Other Resources