By Peter Reiss
IRS Releases 2017 “Dirty Dozen” Tax Scams
Every year around tax return filing time, IRS releases its list of the most egregious tax scams it encounters. IRS cautions taxpayers to guard against ploys to steal their personal or bank information, scam them out of money or induce them into engaging in questionable behavior with their tax returns (sometimes known as “tax fraud”). Here is 2017’s list:
1. “Phishing”: fake emails or websites seeking personal information (for example, your social security number). Remember that IRS never contacts taxpayers by email about a bill or refund. Never click on an email purporting to be from IRS.
2. Phone Scams: In recent years there have been thousands of telephone calls from criminals or con artists representing themselves as IRS agents and threatening taxpayers with arrest, deportation or license revocation, among other things. These are never real, as IRS does not do this.
3. Identity Theft: Criminals use your social security number to file fraudulent returns seeking refunds to be sent to their address. IRS is working on this but it continues to be a problem. Guard your personal information vigilantly.
4. Return Preparer Fraud: Beware unscrupulous return preparers. They set up shop each year to perpetrate return fraud, identity theft and other scams that hurt taxpayers. They may promise substantial refunds, prepare fraudulent returns and steal your personal and bank information.
5. Fake Charities: Watch out for fake charities with names similar to nationally known charitable organizations that can get your credit card information and take your money by soliciting donations that purport to give you valuable tax deductions. Check out charities on www.irs.gov if you have reason to doubt the veracity of an organization soliciting contributions.
6. Inflated Refund Claims: Beware preparers promising inflated refunds or charging fees based on the amount of your refund. Scam artists use flyers, ads, fake storefronts and sometimes word of mouth through community groups where trust is high to find victims. While you may get a large refund, it may be a year or so later when IRS gets around to checking your return and you end up with a large bill for back taxes, penalties and interest. By then, the phony preparers are long gone.
7. Excessive Claims for Business Credits: Most taxpayers are not eligible for the fuel tax credit (limited to off-highway business use, usually in farming) or the research credit.
8. Falsely Padding Deductions on Returns: Don’t falsely inflate your deductions, for example for business expense or charitable contributions, to increase your refund or decrease how much you owe. It may take IRS a year or so to examine deductions it deems suspiciously high, but if you can’t substantiate them, you will be on the hook for back taxes, interest and penalties.
9. Falsifying Income to Claim Credits: Unscrupulous return preparers may encourage you to invent income to qualify for tax credits such as the Earned Income Credit. You may be responsible for back taxes, interest and penalties, and you may possibly be subject to criminal prosecution.
10. Abusive Tax Shelters: Beware of complicated tax avoidance schemes that promise deductions far in excess of your “investment”. If it sounds too good to be true, it probably is. Once IRS becomes aware of one of these tax shelters, it will audit every investor. Have any such potential investment checked out by an independent professional before becoming involved.
11. Frivolous Tax Arguments: Promoters encourage taxpayers to avoid paying legitimate taxes by making frivolous claims such as that the income tax is unconstitutional. Be wary of these, as they have been consistently thrown out in court. The penalty for filing a frivolous return is $5,000.00. – on top of back taxes, interest, penalties and attorney fees.
12. Offshore Tax Avoidance: It is a bad idea to try to hide assets or income in foreign countries. In most cases, you will be caught, and the penalties can far exceed the total amount of fraudulently concealed assets. There are strict rules for reporting offshore accounts or income. The Offshore Voluntary Disclosure Program helps taxpayers catch up on their filing and tax obligations.
This article is not legal advice and is provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction.