The IRS explains, while taxpayers may encounter these schemes at any time – you’re at a higher risk during tax filing season. An important reminder for taxpayers: you are legally responsible for what is on your tax return, even if it was prepared by someone else.
Aptly named, the ‘Dirty Dozen’ – here are the top 12 tax scams to be mindful of now, and throughout the year.
1. Phishing
Phishing is a cybercrime that targets consumers via email, phone or texting. The IRS says that taxpayers should be alert of these potential fake emails or websites as they’re looking to steal personal information. Know this: The IRS will never initiate contact with you via email about a bill or tax refund. Don’t click on one that claims to be coming from the IRS.
2. Phone scams
Ever get a voicemail from someone claiming to be from the IRS? Phone calls from criminals impersonating IRS agents are an ongoing threat to consumers. The IRS actually has seen a surge of these phone scams in recent year. Crooks threaten taxpayers with things like: arrest, deportation, and license revocation.
3. Identity theft
This is one that you should be aware of all year long. The IRS and the Security Summit partnership of state tax agencies and the tax industry have made major improvements in detecting tax return-related identity theft. However, you as a consumer can help prevent this crime. Here’s how:
- Always use security software with firewall and antivirus protections.
- Learn to recognize and avoid phishing emails. Don’t click on links or download attachments.
- Protect personal data. For example, don’t routinely carry around a Social Security card.
For more on identity theft specifically, click here.
4. Return preparer fraud
Be alert to unethical return preparers. For the most part, tax professionals provide honest, high-quality service. But there are some dishonest preparers out there who operate each filing season to scam clients, commit refund fraud, and identity theft.
5. Inflated refund claims
Take notice of anyone promising inflated tax refunds. If your preparer asks you to sign a blank return, promises a big refund before looking at records, or charges fees based on a percentage of the refund – he/she is likely up to no good. Fraudsters may use flyers, phony storefronts or community groups where trust is high to find their victims.
6. Falsifying income to claim credits
Criminals may convince unsuspecting taxpayers to invent income to erroneously qualify for tax credits (ex. Earned Income Tax Credit). The IRS states that you should file the most accurate tax return possible. This scam could lead you to face large bills to cover back taxes, interest, and penalties.
7. Falsely padding deductions on returns
The IRS states that taxpayers should avoid the temptation to falsely inflate deductions or expenses on tax returns. Think twice before overstating deductions (ex. charitable contributions) or improperly claiming credits.
8. Fake charities
Be wary of charities with names similar to familiar or nationally-known organizations out there to solicit donations. If you’d like to contribute, just take a few extra minutes to ensure your money is going to a legitimate organization. The IRS has tools you can use to check out the status of charitable organizations.
9. Excessive claims for business credits
The IRS says to avoid improperly claiming the fuel tax credit (a benefit generally not available to most taxpayers). Typically, the credit is limited to off-highway business use in farming. Another credit to avoid misusing is the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities.
10. Offshore tax avoidance
Enforcement actions against offshore cheating prove it’s a bad idea to hide money and income offshore. People involved in offshore tax avoidance are best served by coming in voluntarily and fulfilling tax-filing responsibilities.
11. Frivolous tax arguments
The IRS explains frivolous tax arguments may be used to avoid paying tax. Frivolous schemes encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes (despite being repeatedly thrown out in court). This scheme will really cost you – The penalty for filing a frivolous tax return is $5,000.
12. Abusive tax shelters
Abusive tax structures, including trusts and syndicated conservation easements, are sometimes used to avoid paying taxes. Most taxpayers pay their fair share, and the IRS says that everyone should be on the lookout for people peddling tax shelters that sound too good to be true. (They likely are).
If you’d like to read more on these scams, check out the IRS’ website. Each scam has its own publication describing it in detail.
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