Compiled by the IRS, the list discusses a variety of common scams taxpayers may encounter throughout the year, though many peak during filing season as people prepare their tax returns. “The Dirty Dozen list shows that scams come in many forms during filing season,” said IRS Acting Commissioner Steven T. Miller. “Don’t let a scam artist steal from you or talk you into doing something you will regret later.”
This year’s Dozen includes:
Identity theft occurs when someone uses your personal information such as your name, Social Security Number or other identifying information, without your permission, to commit fraud or other crimes. In many cases, a legitimate taxpayer’s identity is used to fraudulently file a tax return and claim a refund.
PhishingPhishing is typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. With this information, a criminal can commit identity theft or financial theft.
Return Preparer Fraud
While most income tax return preparers provide honest service to their clients, some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.
Hiding Income Offshore
Numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.
“Free Money” from the IRS and Tax Scams Involving Social Security
Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.
Impersonation of Charitable Organizations
Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information.
False/Inflated Income and ExpensesIncluding income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits, such as the Earned Income Tax Credit, could have serious repercussions that include repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.
False Form 1099 Refund Claims
Individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.
Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.
Falsely Claiming Zero Wages
Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.
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 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 and are used primarily as a means of avoiding income tax liability and hiding assets.An IRS Dirty Dozen video can be found here.