Life is complex enough without con artists trying to separate you from your hard earned dollars. It can be very costly if you become a victim of a scam that trades on the image or the mission of the IRS. Everyone should be vigilant in protecting personal, financial and tax information. The IRS published information on these so called tax scams that they frequently see. The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.
IRS Tax Scams – The Last Thing You Need
“Taxpayers should be on the lookout for tax scams using the IRS name,” said IRS Commissioner John Koskinen. “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 e-mails, receiving telephone calls or getting advice on tax issues.”
The IRS has these tips to avoid falling prey to con artists.
Watch your personal and financial information very closely, particularly during electronic transactions. The IRS is among a growing group of government agencies and corporations whose names and Web sites are being copied by imposters posing employees conducting official business and seeking your personal information. Be aware that the IRS does not use e-mail to initiate contact with taxpayers about their accounts. Do not open links in unsolicited messages claiming to come from the IRS.
Common IRS tax Scams
- Identity Theft – Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information, such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.
- 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
- Phishing – Phishing is a scam 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. Armed with this information, a criminal can commit identity theft or financial theft.
- False Promises of “Free Money” from Inflated Refunds- Scam artists routinely 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.
- Return Preparer Fraud – About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But, some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.
- 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 – Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters. Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.
- 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. 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. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.
- Frivolous Arguments – 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. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes.
- 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 – Abusive tax schemes have evolved from simple structuring of abusive domestic and foreign trust arrangements into sophisticated strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions.
- Misuse of Trusts – Trusts also commonly show up in abusive tax structures. They are highlighted here because unscrupulous promoters continue to urge taxpayers to transfer large amounts of assets into trusts. These assets include not only cash and investments, but also successful on-going businesses. There are legitimate uses of trusts in tax and estate planning, but the IRS commonly sees highly questionable transactions. These transactions promise reduced taxable income, inflated deductions for personal expenses, the reduction or elimination of self-employment taxes and reduced estate or gift transfer taxes. These transactions commonly arise when taxpayers are transferring wealth from one generation to another. Questionable 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.
Not all scams come by way of the Internet or email. The telephone is a low-tech source of scams. Do not give away personal information to callers claiming to be from the IRS unless you have verified their caller’s identity. You can confirm an IRS contact by calling 800-829-1040.
Thieves can use stolen personal data to access your financial accounts, run up charges on credit cards or apply for new loans. With a stolen identity a con-artist might try to use your Social Security Number to intercept your refund or falsify employment records leaving the IRS with the impression that you do not report all of your income.
Some con artists earn their living by preparing false, and illegal, tax returns. Make certain that all of the information on your tax return is accurate since you are responsible for its content regardless of who prepares your return.
Dishonest return preparers, promising unreasonably large refunds, can cause many headaches for you. Such preparers attract new clients by promising large refunds while skimming a portion of the inflated refunds and charging high fees for preparation services. Choose carefully when you hire a tax preparer. As the saying goes, if it sounds too good to be true, it probably is.
In contrast to shady tax preparers, some con artists openly tell you that you do not have to pay taxes. Be wary of anyone who encourages you to side-step your responsibility to file an income tax return or to pay the proper amount of tax due. The IRS reminds taxpayers that tax scams can take many forms beyond the “Dirty Dozen,” and people should be on the lookout for many other schemes.
Some promoters make outlandish claims that taxes are not legal, that wages are not income, that a voluntary tax system means you can choose not to file or pay and that income tax returns violate your protection against self-incrimination or the right to privacy. Often these promoters will use techniques that are strikingly similar to any other con-artist to charge a high fee to share their “secrets” with you. Such arguments are false and have been repeatedly thrown out of court. You may end up paying for this mistake twice, first when you pay for the bad advice and second when you are faced with a higher tax bill plus penalties and interest.
Don’t be scammed when it comes to your taxes. For more information about these and other tax scams visit the IRS Web site at IRS.gov.