IRS Dirty Dozen Tax Scams During Tax Season
By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott
IRS has released its annual list of the “Dirty Dozen” tax scams just in time for you to try and avoid them during their peak tax season. Beware of these scams and check back here for Tax Planning Week through Friday.
- Identity Theft – Scammers may use your information to fraudulently file a tax return and collect the refund before you file your legitimate return. IRS has a special group called the IRS Identity Protection Specialized Unit to deal with identity theft issues.
- Telephone Scams – There are a variety of phone scams you need to watch out for. Scammers can spoof your caller ID to appear to be calling from IRS. They tend to use common first names and surnames. They often threaten to have driver’s licenses revoked or send you to jail. They may request that you pay with a pre-loaded debit card or a wire transfer. If you truly owe money to IRS, their first communication with you is generally by letter, not by phone, so be extra cautious anytime you get a call from “the tax man.”
- Phishing – This scam is carried out by email or a fake website. The scammers are generally trying to get your personal information. IRS will never ask for your personal information in any sort of electronic communication.
- “Free Money” from Inflated Refunds – Scam artists promise the moon – large tax refunds or refunds you did not know existed. Refunds often go into the preparer’s bank account and they take a cut of the refund before giving the taxpayer any funds. Victims of these scams are often not provided with a copy of the tax return that is filed. A good return preparer will generally ask for proof of income or proof of eligibility for deductions and credits. They will sign the return and have an IRS Preparer Tax ID Number (PTIN). They will give you a copy of the return.
- Return Preparer Fraud – IRS again reminds taxpayers that a preparer should sign the return and have a PTIN.
- Hiding Income Offshore – While there are legitimate reasons to move assets offshore, there are reporting requirements on those assets. Individuals who do not do the proper reporting could be subject to significant penalties and fines.
- Impersonation of Charitable Organizations – Scam artists will impersonate charities, especially after natural disasters. They may contact you through email or telephone. They may try to get your personal information. IRS recommends that you only donate to recognized charities. Watch out for charities with names that are similar to well-known charities. Don’t give out personal information and don’t give cash.
- False Income, Expenses, or Deductions – This one’s pretty straight-forward. Lying about your expenses or deductions is never a good idea.
- Frivolous Arguments – Promoters of these schemes convince individuals that they do not have to pay income taxes. The arguments have repeatedly been thrown out of Court. Individuals who take this path can be subject to IRS penalties, civil penalties, and criminal prosecution and penalties.
- Falsely Claiming Zero Wages or Using False Form 1099 – This is another no-brainer. You cannot lie on your tax return. Bad things happen when you do.
- Abusive Tax Structures – These have been getting more and more sophisticated. Promoters charge hefty fees for their advice on these schemes. They generally involve multiple entities, such as LLCs, LLPs, international business companies, foreign accounts, offshore credit or debit cards, etc. IRS says form over substance is the important factor in these transactions. If you can’t do it directly, but need multiple entities, it probably is abusive.
- Misuse of Trusts – The transfer of assets into a trust to achieve reductions of taxable income, inflated deductions or reduction of taxes can be a misuse of a trust.
IRS reminds taxpayers that they are responsible for the information on their tax returns and the proper payment of all taxes due – even if someone else prepares the return. Additional taxes, penalties, interest, and civil or criminal penalties must, in most cases, be paid by the individual. The tax preparer will pay penalties only if they willfully engage in fraudulent conduct.
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to email@example.com for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at firstname.lastname@example.org or (516) 536-8282 with any questions.