Dirty Dozen Tax Scams

The Internal Revenue Service has issued its annual “Dirty Dozen” tax scams
list, reminding taxpayers to use caution during tax season to protect
themselves against a wide range of schemes ranging from identity theft to
return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of
common scams taxpayers can encounter at any point during the year. But many of
these schemes peak during filing season as people prepare their tax returns.

Illegal scams can lead to significant penalties and interest and possible
criminal prosecution. The IRS Criminal Investigation Division works closely
with the Department of Justice to shut down scams and prosecute the criminals behind
them.

Here are five of the Dirty Dozen tax scams for 2012:

Identity theft  In response to growing identity theft
concerns, the IRS has embarked on a comprehensive strategy focused on
preventing, detecting and resolving identity theft cases as soon as possible.
In addition to the law-enforcement crackdown, the IRS has stepped up its
internal reviews to spot false tax returns before tax refunds are issued and is
working to help victims of identity theft refund schemes.

Identity theft cases are among the most complex ones the IRS handles, but
the agency is committed to working with taxpayers who have become victims of
identity theft.

The IRS is increasingly seeing identity thieves looking for ways to use a
legitimate taxpayer’s identity and personal information to file a tax return
and claim a fraudulent refund.

An IRS notice informing a taxpayer that more than one return was filed in
the taxpayer’s name or that the taxpayer received wages from an unknown
employer may be the first tip off the individual receives that he or she has
been victimized. Anyone who believes his or her personal information has been
stolen and used for tax purposes should immediately contact the IRS Identity
Protection Specialized Unit. For more information, visit the special identity
theft page on this website.

Phishing  These scams are typically carried out with
the help of unsolicited email or a fake website that poses as a legitimate site
to lure potential victims into providing valuable personal and financial
information. Armed with this information, a criminal can commit identity theft
or financial theft.

If you receive an unsolicited email that appears to be from either the IRS
or an organization closely linked to the IRS, such as the Electronic Federal
Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with
taxpayers by email to request personal or financial information. This includes
any type of electronic communication, such as text messages and social media
channels. The IRS has information that can help you protect yourself from email
scams.

Return preparer fraud  About 60 percent of taxpayers
will use tax professionals this year to prepare and file their tax returns.
Most return preparers provide honest service to their clients. But as in any
other business, there are also some who prey on unsuspecting taxpayers.

Questionable return preparers have been known to skim off their clients’
refunds, charge inflated fees for return preparation services and attract new
clients by promising guaranteed or inflated refunds. Taxpayers should choose
carefully when hiring a tax preparer. Federal courts have issued hundreds of
injunctions ordering individuals to cease preparing returns, and the Department
of Justice has pending complaints against many others.

In 2012, every paid preparer needs to have a Preparer Tax Identification
Number (PTIN) and must enter it on the returns he or she prepares.

Signals to watch for when you are dealing with an unscrupulous return
preparer would include that they:

  • Do not sign the return or will not include a Preparer
         Tax identification Number on it.
  • Do not give you a copy of your tax return.
  • Promise larger-than-normal tax refunds.
  • Charge a percentage of the refund amount as preparation
    fee.
  • Require you to split the refund to pay the preparation
    fee.
  • Add forms to the return you have never filed before.
  • Encourage you to place false information on your
    return, such as false income, expenses and/or credits.

For advice on how to find a competent tax professional, see Tips for
Choosing a Tax Preparer.

Hiding income offshore  Over the years, numerous
individuals have been identified as evading 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.

The IRS uses information gained from its investigations to pursue taxpayers
with undeclared accounts, as well as the banks and bankers suspected of helping
clients hide their assets overseas. The IRS works closely with the Department
of Justice to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad,
there are reporting requirements that need to be fulfilled. U.S. taxpayers who
maintain such accounts and who do not comply with reporting and disclosure
requirements are breaking the law and risk significant penalties and fines, as
well as the possibility of criminal prosecution.

“Free money” from the IRS & tax scams involving Social
Security 
Fliers and advertisements for free money from the IRS,
suggesting that the taxpayer can file a tax return with little or no
documentation, have been appearing in community churches around the country.
These schemes are also often spread by word of mouth as unsuspecting and
well-intentioned people tell their friends and relatives. Scammers prey on
low-income individuals and the elderly. They build false hopes and charge
people good money for bad advice. In the end, the victims discover their claims
are rejected. Meanwhile, the promoters are long gone. The IRS warns all
taxpayers to remain vigilant.

There are a number of tax scams involving Social Security. For example,
scammers have been known to lure the unsuspecting with promises of non-existent
Social Security refunds or rebates. In another situation, a taxpayer may really
be due a credit or refund but the scammer uses inflated amounts to complete the
return for a larger refund they’ll run off with.

These are some of the Dirty Dozen Tax Scams for 2012. For a complete list,
see IRS Releases the Dirty Dozen Tax Scams for 2012.

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