The IRS has released its annual list of the top 12 tax related schemes, described in detail here. In summary, the list includes the following warnings for taxpayers:
- Identity Theft
Tax fraud related to identity theft is at the top of the list. For instance, a fraudster may use a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.
- Phishing
Phishing schemes utilize an unsolicited email or a fake website to extract valuable personal and financial information. The IRS, like many organizations, does not initiate contact with taxpayers by email to request personal or financial information. Any such requests should be reported to phishing@irs.gov.
3. Return Preparer Fraud
Tax preparers can prey on clients via refund fraud or identity theft. The IRS warns taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).
4. Hiding Income Offshore
Financial accounts maintained abroad still have reporting and disclosure requirements. The IRS has pursued numerous individuals for evading U.S. taxes by hiding income offshore.
5. “Free Money” from the IRS & Tax Scams Involving Social Security
Scammers have used flyers in community churches and advertisements targeting low income and elderly individual, advertising free money from the IRS and suggesting that the taxpayer can file a tax return with little or no documentation. These fraudsters then charge people for advice suggesting false statements of entitlement to tax credits or non-existant Social Security refunds or rebates.
6. Impersonation of Charitable Organizations
Especially following natural disasters, fraudsters may impersonate charities to get money or private information, either by soliciting from taxpayers or contacting disaster victims with an offer to help them file casualty loss claims and get tax refunds.
IRS tips for avoiding this type of scam include:
- Donate to recognized charities.
- Be wary of charities with names that are similar to familiar or nationally known organizations. 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.
- Don’t give out personal financial information to anyone who solicits a contribution from you.
- Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
- Contact the IRS using the toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.
7. False/Inflated Income and Expenses
Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam., as is filing excessive claims for the fuel tax credit.
8. False Form 1099 Refund Claims
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.
9. Frivolous Arguments
The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court.
10. 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.
11. Disguised Corporate Ownership
Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business and are used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering and financial crimes.
12. Misuse of Trusts
Some highly questionable transactions promise the use of trusts will result in 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 from creditors, including the IRS.
