IRS releases list of tax scams to avoid | Crime

While tax season is upon us, the Internal Revenue Service is warning taxpayers about a wide-range of schemes from identity theft to preparer fraud.

The “Dirty Dozen” lists a variety of common scams taxpayers can encounter at any point during the year.

However, many of those scams are at their peak during filing season.

The “Dirty Dozen” tax scams include:

• Identity Theft

 Many thieves will use a legitimate taxpayer’s identity and personal information to file a tax return and claim a fraudulent refund. Authorities say a notice will be sent to inform the taxpayer that more than one return was filed in the taxpayer’s name. Also, if you receive wages from an unknown employer may be the first tip off you may be a victim of identity theft.  If you think you are the victim of identity fraud, visit the IRS website.

• Phishing

Phishing is a scam that can be carried out with the help of an email or a fake website that poses as a legitimate site and lures victims into giving up their personal information. The IRS will not contact taxpayers by email to request personal or financial information. If you receive such an email, forward it to phishing@irs.gov.

• Return Preparer Fraud

Questionable return preparers have been known to skim off their clients’ refunds, charge inflated fees and promise inflated refunds.  Make sure the preparer signs the return or places a Preparer Tax Identification Number on it and gives you a copy of your return. Avoid preparers if they promise larger than normal returns or charge a percentage of the refund as a preparation fee. Experts also warn against those who require you to split the refund to pay the preparation fee or add forms to the return that you have never filed.

• Hiding Income Offshore

While there are legitimate reasons for maintaining financial accounts abroad, taxpayers are required to file those accounts. Taxpayers who do not report the accounts can face many penalties.

• “Free Money” from the IRS & Tax Scams Involving Social Security

Scammers will pass out flyers and advertisements for free money from the IRS. The victims will discover their claims are rejected and they paid for the bad information. There are also a lot of tax scams involving Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

• False/Inflated Income and Expenses

Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits could have serious repercussions. The taxpayer could be forced to repay the erroneous refunds with interest and penalties. Also, filing excessive claims for the fuel tax credit when your occupations or income levels make the claims unreasonable could result in issues for you.  Fraud involving the fuel credit is considered a frivolous tax claim and can result in a fine of $5,000.

• False Form 1099 Refund Claims

In this scam the preparer files a fake return to justify a false refund claim on a corresponding tax return.

• Frivolous Arguments

Some preparers will encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. While taxpayers have the right to contest their tax liabilities in court, trying to use a frivolous argument will get you nowhere.

• Falsely Claiming Zero Wages

Filing a phony return is an illegal way to lower the amount of taxes someone owes. Typically, a Form 4852 is used to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by the employer to the IRS. Authorities say taxpayers should resist any temptation to participate in the scheme.

• Abuse of Charitable Organizations and Deductions

IRS examiners continue to uncover the intentional abuse of charitable organizations to shield income or assets from taxation. Many times investigators look into the donation of non-cash assets, which are over-valued.

• Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

• Misuse of Trusts

Unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts, some transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes.

The scams can lead to significant penalties and possible prosecution.