IRS Announces the “Dirty Dozen” Tax Scams
Throughout the year there are a number of scams being perpetrated by criminally minded people that want to steal sensitive information and ultimately money from unsuspecting individuals.
Although such behavior is a part of life it appears that during tax season the intensity of such scams increases. From identity theft to phone scams there is no shortage of methods for fraudulent behavior. In fact, many of these activities become so pervasive during tax season the IRS publishes an annual list, “The Dirty Dozen” to keep taxpayers aware and informed in the event they become a target. Below is a summary of the most common scams provided by Hanson & Company, including:
- Phone Scams – Topping this year’s list are phone scams. Typically callers pretend to be from the IRS in hopes of getting money from victims. There are many variations of the phone scam including callers telling victims they owe money, are entitled to a large refund, and even some where callers threaten to arrest and revoke a driver’s license. In some cases, it has been reported that caller id has been modified to appear as if the caller is actually from the IRS. The IRS will never call you on the phone to discuss an issue as the policy is to always send such communications in writing.
- Identity Theft –Unfortunately, tax season presents a prime opportunity for identity theft resulting in a quick payout. Although the scams vary, in most cases, a legitimate social security number is stolen and a false tax return is filed. Once the return is filed the refund is redirected to the criminal. This deception generally goes unnoticed until the taxpayer files a legitimate return and discovers the issue.
- Phishing - This scam typically carried out using unsolicited email or a fake website that poses as a legitimate site to lure people into providing sensitive financial information. If you receive any unsolicited email that appears to be from a bank, IRS, or an organization such as the Electronic Federal Tax Payment System (EFTPS), do not respond and report it to the IRS immediately. Keep in mind that the IRS does not initiate contact with taxpayers via email or any other type of electronic communication.
- False Promises of “Free Money” from Inflated Refunds - Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place. Using such tactics as flyers, ads, phony office locations, and word of mouth, scammers use a wide net to capture their next victims. Unfortunately, you are responsible for what’s on your tax return so be careful who you entrust to complete your filings.
- Return Preparer Fraud - About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. However there are some unscrupulous preparers that prey on unsuspecting taxpayers resulting in fraud. Choose carefully when working with an individual or firm to prepare your return.
- Hiding Income Offshore - It is well known that some individuals evade U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose. While there are valid reasons for keeping financial accounts abroad, be mindful that there are reporting requirements that need to be fulfilled. U.S. taxpayers who have such accounts and who do not comply with reporting requirements are breaking the law. The IRS has implemented several disclosure programs that allow taxpayers to come into compliance with new reporting requirements. If you are thinking about participating in one of these programs be sure to contact us to determine which program is best for you.
- Impersonation of Charitable Organizations – Another common and very unfortunate scam are those that occur in the wake of large natural disasters. Once a major event occurs people are generally inclined to want to make donations to send relief in the form or supplies and other items to the victims. Sadly it’s often these well intentioned individuals that become victims themselves. It’s common for scammers to impersonate charities to get money or private information from well-intentioned taxpayers. They use a variety of tactics including contacting taxpayers by phone or email to solicit money and financial information.
- False Income, Expenses or Exemptions - Another scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income in order to maximize refundable credits. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits could have serious repercussions.
- Frivolous Arguments - Scammers also promote frivolous schemes that encourage taxpayers to make unreasonable and outlandish claims to avoid paying owed taxes. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes.
- Falsely Claiming Zero Wages or Using False Form 1099 - Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS. If you partake in such schemes, you could be liable for financial penalties and possibly face criminal prosecution.
- Abusive Tax Structures - Abusive tax schemes have evolved from simple structuring of abusive domestic and foreign trust arrangements into sophisticated strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions. If you have any concern about tax structures contact our firm and we can help determine the legitimacy.
- Misuse of Trusts - Trusts also commonly show up in abusive tax structures. They are highlighted here because unscrupulous promoters continue to urge taxpayers to transfer large amounts of assets into trusts. Assets include not only cash and investments, but also successful on-going businesses. In tax and estate planning there are legitimate uses of trusts, but the IRS regularly sees highly questionable transactions.. Before entering a trust arrangement, taxpayers should always seek the advice of a well-established and professional Certified Public Accounting firm.
Unfortunately, these are only the most common scams that are run during tax season. That means that there are many others that taxpayers should be concerned about. If you believe you have been a victim of one of these or other tax scams, click here to visit the IRS Tax Scam Reporting resources.
If you have any questions or concerns about the information presented above then contact your Hanson & Company advisor today. For additional information please contact us at (303) 388-1010, or click here for email. We are happy to address any concerns you may have.