IRS Warns: “Dirty Dozen” Tax Scams to Watch Out For

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IRSWherever there is money involved, chances are a scam isn’t that far behind. The more money there is available, the bigger and grander the scams. So it should come as no surprised that at a time, tax time, when people are focused on money and the complicated nature of our taxes, scams make their biggest splash. These tax scams range from implying that you won’t receive your tax refund, to unscrupulous tax preparers charing you a fee to help you “hide” your money (otherwise known as “tax evasion”).

The IRS, in order to warn you about tax scams, provides an annual “Dirty Dozen” list of the most popular scams. For 2012, here are the top 12 tax scams to be on the watch for:

  1. Identity Theft: Many fraudsters look for ways to steal your identity — and then file a return in your name and get a tax refund. This can result in you not getting the return your are entitled to. Or, the scammers can use false information to get a huge refund while you are stuck with the (possible) tax audit.
  2. Phishing: Some scammers will try to get your information by convincing you to go to a fake web site, or respond to an official looking email, with personal information. Once you respond, the fraudsters can steal your identity. Remember that the IRS won’t contact you by email to ask for personal information.
  3. Tax Preparer Fraud: The IRS points out that most tax preparers are reputable, and provide good services. However, there are some who try to scam you out of your return with different tactics. Red flags for a fraudulent tax preparer include a lack of a Preparer Tax Identification Number (required for 2012), promise of a larger refund, extra forms, and the insistence that you split the refund in order to pay the fee.
  4. Hiding Income Offshore: This is known as “tax evasion.” Whether you are hiding money in an undeclared offshore account, or employing a private annuity scheme to make it look like you have less income than you do, it is still dishonest. If the IRS finds out, you could face big fees and penalties, and possibly jail time. Be wary of someone who asks you for a larger fee to help you hide your money.
  5. “Free Money” Promises: Watch out for any scams that tell you the IRS, or the Social Security Administration, has free money available for you. Another tactic is to tell you that you can file a tax return with little documentation. Social Security claims are also a scam. You get “help” filling out the forms, pay a fee, and then have your claim rejected.
  6. Inflated Income and/or Expenses: Don’t make false claims on your tax return. In order to boost your refund, you might be tempted to deduct expenses that aren’t eligible, or inflate the amount you spent. Some even claim income that they don’t have as a way to claim more expenses.
  7. 1099 Refund Claims: Watch out for services that claim you can access a special refund by filling a 1099 OID. Anytime you file for something that you aren’t entitled to, the consequences can be expensive.
  8. Frivolous Tax Arguments: In order to avoid paying what they owe, there are those who make up arguments about why they don’t have to pay taxes. Anyone who tells you they can fight against paying taxes — for a fee, of course — is probably scamming you, and could land you in big trouble.
  9. Claiming Zero Wages: There are some out there who probably have zero wages. However, if you claim zero wages, when really you were paid, you could find yourself in costly trouble. Many people use “corrected” forms to show zero income. Don’t let a fraudster convince you to pay him or her to help you “reduce” your income to zero.
  10. Abuse of Charitable Donations: There are some scammers that claim you can donate to an approved charity, set up as a 501(c)(3), and then get your assets back later — after you’ve made your deduction. Additionally, be wary of claiming more than you actually paid.
  11. Hiding Corporate Ownership: In some cases, entities might try to hide ownership of assets or under-report income. This is done by requesting EINs improperly.
  12. Misuse of Trusts: Trusts can be great estate planning tools that help ensure that your assets are disposed of according to your wishes. However, you do need to be careful of those who insist that trusts can be used to hide income.

These are just the top twelve, there are probably ten times as many smaller scams behind them so you need to be on your toes!

(Photo: alykat)

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One Response to “IRS Warns: “Dirty Dozen” Tax Scams to Watch Out For”

  1. David M says:

    This list is from the IRS. However, I think they missed one – the home office deduction.

    The IRS website says the following:

    1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

    EXCLUSIVELY is why I think this should be included. I’m doubtful that most home offices are EXCLUSIVELY used for work. My wife works from home about 60 hours per week. However, I use the computer and room sometimes, thus, we do not take the home office deduction.

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