IRS Rolls out Annual “Dirty Dozen” Tax Scams
posted Apr 13, 2018 by Paul Oliveira, CPA in the Global Tax Blog
The IRS wants to remind all taxpayers to be on guard against tax scams, this being the most vulnerable time of year. The IRS’ Annual “Dirty Dozen” represents the worst of the worst tax scams and is compiled on a yearly basis during tax season, so that taxpayers are aware of what’s at stake if they do not take steps to protect their information. Don’t fall victim to the following scams!
- Phishing- This is by far the top issue faced by taxpayers in 2018. In these email schemes, criminals disguise themselves as a person or organization the unsuspecting victim trusts or recognizes. They can hack an email account and send mass emails under that unsuspecting victim’s name. They can also pose as a bank, credit card company, tax software provider or government agency and steal information.
- Phone Scams- The IRS says phony, aggressive and sometimes threatening phone calls remain a major threat to taxpayers. Fake IRS agents will threaten police arrest, deportation, license revocation, and more, if victims do not disclose information to them over the phone or provide payment. Read our blog for tips on how to address a scam IRS phone call.
- ID Theft- Tax related identity theft remains a top issue faced by taxpayers. The IRS has continually invested in new safeguards to prevent this issue from occurring, but it is important for all taxpayers to use anti-virus protections, be aware of common phishing tricks, and to always always always protect personal data and belongings.
- Criminal tax preparers- A lot of this year’s scams center around criminal preparers. Every tax season, there are fraudsters that set up shop just to perpetrate fraud. Make sure, among other things, you hire a preparer that has an “IRS Preparer Tax Identification Number (PTIN),” which they are required to acquire from the IRS.
- Fake charities- Believe it or not, some scam artists will set up fake charities to steal your money and/or personal information, meaning taxpayers should take the time to research organizations thoroughly before donating. They have a feature called “Select Check” which allows you to search organizations to ensure they are legitimate.
- Falsely inflated refunds- IRS Commissioner John Koskinen warns that you must exercise extreme caution when a return preparer promises a particularly large refund or allows you to claim credits or benefits you’ve never been able to claim in prior years. “If it sounds too good to be true, it probably is,” John says.
- Excessive claims for business credits- The IRS is on the lookout for those who improperly claim business credits. For example, the fuel tax credit is limited generally to off-highway business use or farming use, and still the IRS finds preparers who have enticed taxpayers to claim the credit to artificially inflate their refunds.
- Falsely padding deductions- The IRS warns that falsely inflating deductions or expenses on returns can result in you paying less than what is owed and receiving a larger refund than what’s due. This could trigger an audit or worse.
- Falsifying income scam- If you falsely increase the income you report to the IRS, watch out. This con involves inflating or including income that was never earned on a tax return typically to maximize refundable credits. Criminals will report this either as wages or self-employment income.
Frivolous tax arguments-Some tax preparers will provoke their clients to avoid taxes by inciting arguments like:
- They don’t have to pay income taxes on religious or moral grounds by invoking the First Amendment;
- The only “employees” subject to federal income tax are employees of the federal government; and
- Only foreign-source income is taxable.
- Abusive tax shelters- Fraudsters will often use what are known as “abusive tax shelters”, which are investment vehicles with no purpose other than to reduce one’s tax liability. An abusive tax shelter will often take the form of a partnership or trust, and if you’re caught using one, you must pay applicable taxes plus interest and penalties.
- Offshore tax cheating- Scammers avoid taxes by hiding money or assets in unreported offshore accounts. These are subject to high penalties.
Wait, haven’t the same scams been on the list year after year? Yes, while many of these have appeared on the IRS’ list time and time again, the IRS notes that scammers often tweak the schemes from year to year. That’s especially the case in 2018 with fake charities (given recent disasters and tragedies) and phone scams (millennials are the prime target now, rather than boomers).