It’s that time of year again – in fact, it’s almost past that time of year again to really start thinking about your tax return. And if you want something to worry about (especially if you’re thinking about some kind of tax dodge) here’s the 2013 version of the Internal Revenue Service “Dirty Dozen” scams.
• Identity Theft. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft.This compares to $14 billion in 2011. Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should immediately contact the IRS so the agency can take action to secure their tax account. You may call the IRS’s Identity Protection Specialized Unit at 800-908-4490.
• Phishing. Phishing typically involves an unsolicited email or a fake website that seems legitimate but lures victims into providing personal and financial information. Once scammers obtain that information, they can commit identity theft or financial theft. The IRS does not initiate contact with taxpayers by email to request personal or financial information. If you receive an unsolicited email that appears to be from the IRS, send it to email@example.com.
• Return Preparer Fraud. Choose carefully when hiring someone to prepare your tax return. Only use a preparer who signs the return he or she prepares for you and enters their IRS Preparer Tax Identification Number (PTIN). For tips about choosing a preparer, visit www.irs.gov/chooseataxpro.
• Hiding Income Offshore. One form of tax evasion is hiding income in offshore accounts, and includes using debit cards, credit cards or wire transfers to access those funds. While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements taxpayers need to fulfill. Failing to comply can lead to penalties or criminal prosecution.
• “Free Money” from the IRS & Tax Scams Involving Social Security. Beware of scammers who prey on people with low income, the elderly and church members around the country. Scammers use flyers and ads with bogus promises of refunds that don’t exist.
• Impersonation of Charitable Organizations. Following major disasters, it’s common for scam artists to impersonate charities to get money or personal information from well-intentioned people. Taxpayers need to be sure they donate to recognized charities.
• False/Inflated Income and Expenses. Falsely claiming income you did not earn or expenses you did not pay in order to get larger refundable tax credits is tax fraud. In many cases the taxpayer ends up repaying the refund, including penalties and interest. In one particular scam, taxpayers file excessive claims for the fuel tax credit. Fraud involving the fuel tax credit is a frivolous claim and can result in a penalty of $5,000.
• False Form 1099 Refund Claims. In this scam, the perpetrator files a fake information return, such as a Form 1099-OID, to justify a false refund claim.
• Frivolous Arguments. Promoters of frivolous schemes advise taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These are false arguments that the courts have consistently thrown out.
• Falsely Claiming Zero Wages. Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, scammers use a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 to improperly reduce taxable income to zero. Filing this type of return can result in a $5,000 penalty.
• Disguised Corporate Ownership. Scammers improperly use third parties to form corporations that hide the true ownership of the business. They help dishonest individuals underreport income, claim fake deductions and avoid filing tax returns.
• Misuse of Trusts. There are legitimate uses of trusts in tax and estate planning. But some questionable transactions promise to reduce the amount of income that is subject to tax, offer deductions for personal expenses and reduced estate or gift taxes.
It comes down to a few simple rules. First, don’t give out any personal or financial information to someone you don’t know or don’t fully trust. Second, if the deal sounds too good to be true, it probably is. Stay away. Stay alert. Enjoy your refund.