The Internal Revenue Services issued its annual “Dirty Dozen” list of tax scams. It is compiled by the IRS each year and includes a variety of common scams taxpayers can encounter at any point during the year. However, many of these schemes peak during filing season as people prepare their tax returns. The 2013 Dirty Dozen Tax Scams are:
- Identity Theft – Combating identity theft and refund is a top priority for the IRS. Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490.
- Phishing – Phishing is a scam typically carried out with the help of unsolicited email or fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Taxpayers should keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes text messages and social media channels.
- Return Preparer Fraud – It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).
- Hiding Income Offshore – While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.
- “Free Money” from the IRS & Tax Scams Involving Social Security – Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives. Scammers prey on low income individuals and the elderly and members of church congregations with bogus promises of free money. They build false hopes and charge people good money for bad advice including encouraging taxpayers to make fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
- Impersonation of Charitable Organizations – Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. As in the case of a recent disaster, Hurricane Sandy, the IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:
- To help disaster victims, donate to recognized charities.
- Be wary of charities with names that are similar to familiar or nationally known organizations.
- Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, 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.
- False/ Inflated Income and Expenses – 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.
- False Form 1099 Refund Claims – Some individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. 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.
- Frivolous Arguments – Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe.
- Falsely Claiming Zero Wages – Filing a phony information return is an illegal way to lower the amount of taxes an individual owes.
- Disguised corporate Ownership – Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.
- Misuse of Trusts – IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.
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