Dirty Tax Scams for 2017

Crime

Dirty Tax Scams for 2017

February 28, 2017

Every year, the IRS issues its list of the worst tax scams: the “Dirty Dozen.”

We go through each one below to show you the red flags and how to best defend yourself against each scam.

Remember that you are legally responsible for what’s on your tax return, and if a con artist fools you, it’s you that’s likely to be stuck with the consequences.

1. Phishing

What is it? An email or website disguised as a trustworthy entity and designed to fool you into downloading malware or giving your information away.

The red flag(s):

  • Email requests for money or private/sensitive information, or to open an attachment, often from a fake email address or web site.

Protect yourself by… verifying the sender’s email address or website. Be vigilant, as a minor spelling “error” could mean the difference between a legitimate entity or a scammer.

2. Phone Scams

What is it? Phone calls from criminals impersonating the IRS.

The red flag(s):

  • Demanding immediate payment of taxes, often in an angry manner.

Protect yourself by… immediately hanging up on anyone that shows these red flags. The IRS will never demand payment over the phone, threaten you or request payment without first mailing you a bill.

3. Identity Theft

What is it? When someone uses your information without your permission.

The red flag(s):

  • Unknown credit card accounts, misinformation on your credit report.

  • Tax return is denied because a return was already filed.

Protect yourself by… treating personal information like cash (do not leave it lying around).

4. Return Preparer Fraud

What is it? When a tax preparer falsely manipulates the figures on your income tax return to fraudulently obtain tax credits.

The red flag(s):

  • Tax preparer boasts that they can get you a larger refund than anyone else.

  • Fee is based on your refund.

Protect yourself by… choosing a reputable return preparer. Ask for their IRS Preparer Tax Identification Number (PTIN) and never sign a blank return.

5. Fake Charities

What is it? Scammers posing as a charitable organization to steal money from unsuspecting donators.

The red flag(s):

  • They try to get you to donate immediately, and don’t provide key details of organization.

  • Refuse to give you proof that a donation is tax deductible.

Protect yourself by… investigate all charities in detail before giving.

6. Inflated Refund Claims

What is it? Tax return preparers promising outlandish refunds.

The red flag(s):

  • Requests you to sign a blank return.

  • Promises a large return without even looking at your records.

  • Basing their fee on your refund.

Protect yourself by… again, choosing a reputable tax preparer. Ensure the preparer signs and includes their PTIN and make sure your return will be submitted electronically.

7. Excessive Claims for Business Credits

What is it? Illegally claiming the fuel tax credit or misuse of the research credit.

The red flag(s):

Protect yourself by… carefully reviewing the reports by tax preparers to ensure they accurately reflect your activities.

8. Falsely Padding Deductions on Returns

What is it? Falsely inflating deductions or expenses on tax returns. A dishonest tax preparer might do this if they expect a percentage of their fee to come from your refund.

The red flag(s):

  • Dishonest reporting of deductions to inflate your refund.

Protect yourself by… making sure you file a 100% accurate return. Using tax software is one recommendation from the IRS to ensure you file an accurate return.

9. Falsifying Income to Claim Credits

What is it? Claiming income that you did not earn to maximize refundable credits.

The red flag(s):

  • A tax preparer tries to talk you into claiming false income, often via fake tax forms.

  • Use of fake forms. Scamming tax preparers might provide fraudulent Form(s) 1099-MISC or Form 56, Notice Concerning Fiduciary Relationship, “to further perpetrate the scheme.”

Protect yourself by… choosing a tax preparer carefully. Remember that you are legally responsible for what’s on your return even if someone else filed it for you.

10. Abusive Tax Shelters

What is it? A scheme that promises to eliminate your tax bill.

The red flag(s):

  • A scammer tries to convince you to put your assets into a trust, LLC, LLP, IBC or foreign financial account.

  • Use of official-looking documents to make it seem legal.

Protect yourself by… getting a second opinion from a trusted, independent tax advisor regarding the services you were offered.

11. Frivolous Tax Arguments

What is it? Wild notions of what is legal when it comes to paying taxes. Scam artists will tell taxpayers they don’t owe any income tax by making the following claims.

The red flag(s):

  • Suggesting filing a tax return is voluntary., based on religious reasons or others.

Protect yourself by… understanding that these claims are false. The IRS notes that “no one has the right to… disregard their responsibility to pay taxes.”

12. Offshore Tax Avoidance

What is it? Hiding your income in offshore bank accounts.

The red flag(s):

  • An organization that promotes the idea of hiding money offshore, usually through seminars or workshops.

Protect yourself by… avoiding these organizations and illegal promoters. Don’t fall for any scheme that pushes you to avoid paying taxes.

Stay vigilant to avoid these scams. Significant fines and possible criminal prosecution are the consequences of falling prey any one of the “Dirty Dozen.” You are responsible.

Disclaimer: The above is solely intended for informational purposes and in no way constitutes legal advice or specific recommendations.