Be honest on tax day. The IRS is watching. Image: MoneyBlogNewz/Flickr/CC BY
Thursday the IRS issued its annual “dirty dozen” list of tax scams. The list is designed to help taxpayers recognize some common scams. It is also a warning to would-be tax cheats.
‘Don’t be fooled’
IRS commissioner Doug Shulman said:
“Scam artists will tempt people in person, on-line and by e-mail with misleading promises about lost refunds and free money. Don’t be fooled.”
The top 12 schemes this year are:
Identity theft
Identity thieves file false returns using stolen personal information. Anybody who feels a fraudulent claim may have been filed using their information can call the IRS at 1-800-908-4490.
Phishing scams
Phishing scams use emails, fake websites, phone calls, text messages and social media to get taxpayers to divulge their personal information. Taxpayers should forward suspicious messages claiming to be from the IRS to phishing@irs.gov.
Shady tax ‘pros’
According to the IRS, approximately 60 percent of all taxpayers will use a paid preparer this year. The agency urges caution in who taxpayers hire and give their personal data to. All legitimate tax preparers are now required to register with the IRS and receive a Preparer Tax Identification Number, or PTIN. All taxpayers using a paid preparer are urged to get that number up front.
Offshore income
The IRS urges taxpayers with offshore bank accounts, credit cards or insurance policies to voluntarily come forward and declare them. To avoid doing so it to risk criminal prosecution.
The IRS offered another amnesty program this year, encouraging taxpayers to come clean about offshore accounts and, in most cases, avoid criminal charges. Those who don’t and are caught can expect to be prosecuted to the fullest extent of the law.
‘Free money’
Ads have been showing up around the nation targeting elderly and low-income taxpayers. These ads claim taxpayers can file returns with minimal or no documentation and get large rebates from Social Security for their effort. These rebates do not exist, and the returns are inevitably rejected by the IRS. But by then, of course, the scammers have vanished.
Inflated income/expenses
One of the most common ways taxpayers cheat the IRS is by claiming more income or expenses than they are entitled to. If caught, taxpayers will be required to pay substantial penalties. In some case, criminal charges may follow.
[Tax penalties got you down? Try an installment loan.]
Erroneous forms
Tax cheats will sometimes file supporting tax forms using false information in order to pad their refunds. If caught, the IRS warns, “you could be liable for financial penalties or even face criminal prosecution.”
IRS arguments
Some scammers charge a fee to teach taxpayers arguments to present to the IRS to avoid paying their taxes. The IRS is aware of these arguments and routinely rejects them. It is every taxpayer’s right to contest a tax return, but arguments must based on legally defensible points.
Claiming no wages
Some tax frauds use Form 4852 instead of actual W-2 forms to falsely lower their taxable income to zero. The IRS receives all those W-2s, and these scammers will likely be found out.
Inflated charitable contributions
Inflating the value of charitable contributions, especially as it relates to property, is very common. Adequate documentation is essential to avoid scrutiny. The agency warns it is also on the lookout for those who make temporary donations to hide income at tax time.
Disguised corporate ownership
Some taxpayers use a third party to improperly obtain an employer identification number for the purpose of forming a corporation that hides the true ownership of a business. These hidden businesses can be used to under-report income, claim phony deductions and avoid filing returns. These hidden businesses are often used to launder money, perpetrate financial crimes, or to fund illegal activities.
Misusing trusts
Some scammers urge taxpayers to transfer money into a trust in order to lessen their taxable income. The IRS has seen a marked increase in this activity in recent years, and is vigilant.
The agency wrote:
“While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised.”
Sources
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