Watch out for this year’s ‘Dirty Dozen’
Compiled annually by the IRS, the “Dirty Dozen” is a list of common scams taxpayers may encounter in the coming months. While many of these scams peak during the tax filing season, they may be encountered at any time during the year. Here is this year’s list:
1. Identity Theft: Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. Taxpayers should use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues, because scams can take on many sophisticated forms.
2. Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers. In recent weeks, the agency has seen a surge of these phone scams as scam artists threaten arrest, deportation, license revocation and other things.
3. Phishing: Phishing schemes using fake emails or websites are used by criminals to try to steal personal information. Typically, criminals pose as a person or organization you trust and/or recognize.
4. Tax Return Preparer Fraud: About 60 percent of taxpayers use tax professionals to prepare their returns. The vast majority of tax professionals provide honest, high-quality service, but there are some dishonest tax preparers who set up shop each filing season. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to in order to increase their fee.
5. Hiding Money or Income Offshore: Through the years, offshore accounts have been used to lure taxpayers into scams and schemes. 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.
6. Inflated Refund Claims: Taxpayers should be on the lookout for unscrupulous tax preparers pushing inflated tax refund claims. 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.
7. Fake Charities: Taxpayers should be aware that phony charities use names or websites that sound or look like those of respected, legitimate organizations. For instance, after major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers.
8. Falsely Padding Deductions on Tax Returns: The vast majority of taxpayers file honest and accurate tax returns on time every year. However, each year some taxpayers can’t resist the temptation of fudging their information. That’s why falsely claiming deductions, expenses or credits on tax returns is on the “Dirty Dozen” tax scams list. The IRS warns taxpayers that they should think twice before overstating deductions such as charitable contributions, padding their claimed business expenses or including credits that they are not entitled to receive.
9. Excessive Claims for Business Credits: Improper claims for business credits such as the fuel tax and the research credit are also on the IRS “Dirty Dozen” list this year.
10. Falsifying Income to Claim Credits: This scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income, usually in order to maximize refundable credits. Just like falsely claiming an expense or deduction you did not pay, claiming income you did not earn in order to secure larger refundable credits could have serious repercussions.
11. Abusive Tax Shelters: Phony tax shelters and structures to avoid paying taxes continue to be a problem, and taxpayers should steer clear of these types of schemes as they can end up costing more in back taxes, penalties and interest than they saved in the first place.
12. Frivolous Tax Arguments: Taxpayers are also warned against using frivolous tax arguments to avoid paying their taxes. Examples include contentions that taxpayers can refuse to pay taxes on religious or moral grounds by invoking the First Amendment or that the only “employees” subject to federal income tax are employees of the federal government; and that only foreign-source income is taxable.
Keep a few things in mind: Be wary of tax results that sound wonderful — part of making money is paying taxes; the IRS will never call or e-mail you, only contact you by mail; and use a reputable tax preparer. These few pieces of advice can save you from potential costly mistakes!