IRS: 12 most common tax scams
Blake Ellis
With less than two weeks to go before Tax Day, scammers are hard at work coming up with ways to score every last penny. That means stealing identities, filing fake tax forms, hiding income offshore and exaggerating charitable donations.
On Thursday, the IRS released its "dirty dozen" tax scams, detailing the most common ways taxpayers try to cheat the system.
"Don't fall prey to these tax scams," IRS Commissioner Doug Shulman said in a statement on Thursday. "They may look tempting, but these fraudulent deals end up hurting people who participate in them."
The people who do choose to participate in them risk facing hefty fines and imprisonment, the IRS said.
Here are the 12:
Hiding your money offshore: If you have an offshore bank account, brokerage account, credit card or even an offshore insurance plan, the IRS urges you to come forward voluntarily in order to limit the possibility of criminal prosecution.
As part of its ongoing crackdown on hidden offshore accounts, the agency announced an initiative earlier this year that gives taxpayers a reduction in penalties -- and no jail time -- if they fess up to any undisclosed overseas accounts by the end of August.
Identity theft and phishing: The IRS warns that criminals can use your personal information to file a fraudulent tax return and collect the refund that you should be receiving.
Scammers can get this info from e-mails, phone calls, faxes or social media. If you receive a message from someone claiming to be from the IRS, don't open any attachments or click on links included in the e-mail. Instead, forward the message to the IRS at phishing@irs.gov.
If you believe someone stole your personal information for tax purposes, call the IRS Identity Protection Specialized Unit at 1-800-908-4490.
Shady tax preparation: It's easy for an accountant or tax preparer to take advantage of you, especially if you're unfamiliar with the tax code or paperwork involved with filing a return.
There are many preparers out there who will skim a portion of a client's refunds, charge more than they should for services and lure taxpayers to their offices by promising unattainable refunds.
It's up to the taxpayer to be careful when selecting a preparer, but the IRS is also cracking down. Next year, all paid preparers will be required to register with the IRS to receive an identification number so customers can verify if they are legitimate.
Preparers will also be required to take competency tests and participate in continuing professional education, unless they are attorneys, certified public accountants or enrolled agents.
Filing false or misleading forms: Scam artists are trying to get fatter refunds than they deserve, fabricating information on their returns and claiming made-up withholding credits, the IRS said.
"The IRS continues to see instances in which people file false or fraudulent tax returns to try to obtain improper tax refunds," said the agency. "The IRS takes refund fraud seriously, has programs to aggressively combat it and stops the vast majority of incorrect refunds."
Arguing with the tax man: Have a bone to pick with the IRS? Be careful.
Taxpayers are being convinced by scam artists to argue with the IRS in order to get back some of the taxes they owe to the agency.
"Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe," the IRS said. "While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance."
The agency has a list of legal positions that have been "thrown out of court" and cannot be used against the IRS, so pick your fights carefully this tax season.
Inflating your withholding credit: You could be fined $5,000 this year if you exaggerate your withholding when reporting nontaxable Social Security benefits, which would result in your falsely reporting zero income to the IRS.
Exaggerating your charitable donations: It can be tempting to overvalue items you give away when reporting them on your return -- especially for non-cash donations such as furniture or artwork -- but the IRS is keeping an eye out for suspiciously high-valued donations this year.
The agency is also looking out for taxpayers who abuse charitable deductions by donating money or items to tax-exempt organizations temporarily, just to shield the money for taxation.
Fishy retirement plans: The IRS is on the hunt for taxpayers who abuse their retirement plan arrangements, including individual retirement accounts (IRAs). Many of these taxpayers are finding ways to exceed the contribution limit of IRAs or aren't reporting early distributions.
While illegal, this abuse is often encouraged by advisers, so taxpayers should be wary of such advice, the IRS said.
Disguising your company: It's time to fess up to that business you own. The IRS is currently working with state authorities to identify corporations and other entities that disguise the ownership of a business.
These entities are often disguised through using a third party to request an employer identification number, and the businesses or financial services can be used for the underreporting of income, fictitious deductions, money laundering, financial crimes and even terrorist financing.
Giving yourself a pay cut: In an attempt to lower the amount of taxes owed, some taxpayers file phony wage-related information returns instead of the required returns. This is typically done by filing Form 4852 (a substitute W-2 form) or a "corrected" Form 1099 to fraudulently lower a person's taxable income to zero.
"Taxpayers should resist any temptation to participate in any of the variations of this scheme," said the IRS, adding that false filings could result in a $5,000 fine.
Abusing trusts: An increasing number of people are transferring money into trusts to reduce their taxable income, deductions for personal expenses and estate taxes.
"Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS," the agency said.
Claiming gas costs: Gas is pricey these days, but that doesn't make you eligible for the fuel tax credit. In fact, trying to claim this credit when you don't deserve it could cost you a $5,000 fine from the IRS.
While taxpayers such as farmers who use fuel off highways as a means of carrying on their trade or business may qualify for the fuel tax credit, you can only claim the credit if your use of fuel and income level meet specific IRS requirements.
With less than two weeks to go before Tax Day, scammers are hard at work coming up with ways to score every last penny. That means stealing identities, filing fake tax forms, hiding income offshore and exaggerating charitable donations.
On Thursday, the IRS released its "dirty dozen" tax scams, detailing the most common ways taxpayers try to cheat the system.
"Don't fall prey to these tax scams," IRS Commissioner Doug Shulman said in a statement on Thursday. "They may look tempting, but these fraudulent deals end up hurting people who participate in them."
The people who do choose to participate in them risk facing hefty fines and imprisonment, the IRS said.
Here are the 12:
Hiding your money offshore: If you have an offshore bank account, brokerage account, credit card or even an offshore insurance plan, the IRS urges you to come forward voluntarily in order to limit the possibility of criminal prosecution.
As part of its ongoing crackdown on hidden offshore accounts, the agency announced an initiative earlier this year that gives taxpayers a reduction in penalties -- and no jail time -- if they fess up to any undisclosed overseas accounts by the end of August.
Identity theft and phishing: The IRS warns that criminals can use your personal information to file a fraudulent tax return and collect the refund that you should be receiving.
Scammers can get this info from e-mails, phone calls, faxes or social media. If you receive a message from someone claiming to be from the IRS, don't open any attachments or click on links included in the e-mail. Instead, forward the message to the IRS at phishing@irs.gov.
If you believe someone stole your personal information for tax purposes, call the IRS Identity Protection Specialized Unit at 1-800-908-4490.
Shady tax preparation: It's easy for an accountant or tax preparer to take advantage of you, especially if you're unfamiliar with the tax code or paperwork involved with filing a return.
There are many preparers out there who will skim a portion of a client's refunds, charge more than they should for services and lure taxpayers to their offices by promising unattainable refunds.
It's up to the taxpayer to be careful when selecting a preparer, but the IRS is also cracking down. Next year, all paid preparers will be required to register with the IRS to receive an identification number so customers can verify if they are legitimate.
Preparers will also be required to take competency tests and participate in continuing professional education, unless they are attorneys, certified public accountants or enrolled agents.
Filing false or misleading forms: Scam artists are trying to get fatter refunds than they deserve, fabricating information on their returns and claiming made-up withholding credits, the IRS said.
"The IRS continues to see instances in which people file false or fraudulent tax returns to try to obtain improper tax refunds," said the agency. "The IRS takes refund fraud seriously, has programs to aggressively combat it and stops the vast majority of incorrect refunds."
Arguing with the tax man: Have a bone to pick with the IRS? Be careful.
Taxpayers are being convinced by scam artists to argue with the IRS in order to get back some of the taxes they owe to the agency.
"Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe," the IRS said. "While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance."
The agency has a list of legal positions that have been "thrown out of court" and cannot be used against the IRS, so pick your fights carefully this tax season.
Inflating your withholding credit: You could be fined $5,000 this year if you exaggerate your withholding when reporting nontaxable Social Security benefits, which would result in your falsely reporting zero income to the IRS.
Exaggerating your charitable donations: It can be tempting to overvalue items you give away when reporting them on your return -- especially for non-cash donations such as furniture or artwork -- but the IRS is keeping an eye out for suspiciously high-valued donations this year.
The agency is also looking out for taxpayers who abuse charitable deductions by donating money or items to tax-exempt organizations temporarily, just to shield the money for taxation.
Fishy retirement plans: The IRS is on the hunt for taxpayers who abuse their retirement plan arrangements, including individual retirement accounts (IRAs). Many of these taxpayers are finding ways to exceed the contribution limit of IRAs or aren't reporting early distributions.
While illegal, this abuse is often encouraged by advisers, so taxpayers should be wary of such advice, the IRS said.
Disguising your company: It's time to fess up to that business you own. The IRS is currently working with state authorities to identify corporations and other entities that disguise the ownership of a business.
These entities are often disguised through using a third party to request an employer identification number, and the businesses or financial services can be used for the underreporting of income, fictitious deductions, money laundering, financial crimes and even terrorist financing.
Giving yourself a pay cut: In an attempt to lower the amount of taxes owed, some taxpayers file phony wage-related information returns instead of the required returns. This is typically done by filing Form 4852 (a substitute W-2 form) or a "corrected" Form 1099 to fraudulently lower a person's taxable income to zero.
"Taxpayers should resist any temptation to participate in any of the variations of this scheme," said the IRS, adding that false filings could result in a $5,000 fine.
Abusing trusts: An increasing number of people are transferring money into trusts to reduce their taxable income, deductions for personal expenses and estate taxes.
"Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS," the agency said.
Claiming gas costs: Gas is pricey these days, but that doesn't make you eligible for the fuel tax credit. In fact, trying to claim this credit when you don't deserve it could cost you a $5,000 fine from the IRS.
While taxpayers such as farmers who use fuel off highways as a means of carrying on their trade or business may qualify for the fuel tax credit, you can only claim the credit if your use of fuel and income level meet specific IRS requirements.
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