The list highlights a variety of common scams, ranging from identity theft to return preparer fraud. “These schemes jump every year at tax time. Scams can be sophisticated and take many different forms. We urge people to protect themselves and use caution when viewing emails, receiving telephone calls or getting advice on tax issues,” said IRS Commissioner John Koskinen, based in Washington, D.C.
This year’s scams include:
Identity theft is when someone uses personal information such as your name, Social Security number (SSN) or other identifying information. An identity thief may use a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. The IRS has expanded its efforts to protect taxpayers and help victims. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490 or find more information here.
Pervasive Telephone Scams
The IRS has seen a recent increase in local phone scams across the country, with callers pretending to be from the IRS in hopes of stealing money or identities from victims. Some phone scams callers may say the victims owe money or are entitled to a huge refund. Other calls can threaten arrest and a driver’s license revocation. To contact the IRS about payment issues, call 800-829-1040. To report such scams, you can call the Treasury Inspector General for Tax Administration at 800-366-4484 or go to the Federal Trade Commission website (www.ftc.gov) and use its FTC Complaint Assistant feature.
Phishing is when an unsolicited email or a fake website pretends to be legitimate in order to get people to reveal personal and financial information. Criminals can use such information to commit identity or financial theft. The IRS does not contact taxpayers by email to request such information. Such scams can be reported to the IRS by emailing firstname.lastname@example.org.
False Promises of “Free Money” from Inflated Refunds
Scam artists may pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place. Scam artists may use flyers, advertisements or phony store fronts, as well as word of mouth through community groups or churches. Scammers prey on people who do not have a filing requirement, such as low-income individuals or the elderly, as well as non-English speakers.
Return Preparer Fraud
While most return preparers provide honest service to their clients, the IRS cautions that some unscrupulous preparers prey on unsuspecting taxpayers, which may result in refund fraud or identity theft. Taxpayers should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs). Tips on choosing a preparer, as well as how to complain about one, can be found here.
Hiding Income Offshore
Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then 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.
Impersonation of Charitable Organizations
Following major disasters, scam artists may 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. In addition, some scammers contact disaster victims, claiming to be working with the IRS to help the victims file casualty loss claims and get tax refunds. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible. In addition, disaster victims can speak with the IRS about disaster assistance by calling 866-562-5227.
False Income, Expenses or Exemptions
Another scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income in order to maximize refundable credits. Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit although they were not eligible.
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, since such arguments have previously been thrown out of court. More information can be found here.
Falsely Claiming Zero Wages or Using False Form 1099
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.
Abusive Tax Structures
These schemes are characterized by the use of Limited Liability Companies (LLCs), Limited Liability Partnerships (LLPs), International Business Companies (IBCs), foreign financial accounts, offshore credit/debit cards and other similar instruments. Such schemes often involve multi-layer transactions to conceal the true nature and ownership of the taxable income and/or assets.
Misuse of Trusts
The IRS has seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses, as well as to avoid estate transfer taxes. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.
More information about tax scams can be found here.
« PBGC Proposes Form 5500 Modifications