Tax time is prime time for scams. Scammers are using technology to their advantage, and most scams aren’t as obvious as an email from Nigeria asking you to wire someone money. Every year in February, the IRS releases a list of “Dirty Dozen Tax Scams” to help keep taxpayers aware of the newest scams. Here are this year’s Dirty Dozen.
- Identity theft — Identity thieves have many ways of making money off your identity, but one of the most common at tax time is using your identity to file a tax return and claim your refund. The IRS is expanding their efforts to protect taxpayers from identity theft, and you can learn more about it at the identity protection page on IRS.gov.
- Telephone scams — Scammers pretending to be from the IRS will ask questions about your identification information and try to get you to send money. If you know that you owe taxes and someone calls you claiming to be from the IRS, hang up and call the IRS directly at 1-800-829-1040. If you don’t owe anything, hang up and go ahead and report the incident to the Treasury Inspector General for Tax Administration at 1-800-366-4484.
- Phishing — Phishing scams take the form of fake emails or websites that are impersonating a the IRS. These fake emails or websites ask for personal and financial information. The IRS never contacts taxpayers by email or any other type of electronic communication to ask for information, however.
- Promises of extra money from inflated refunds — Scammers pose as tax preparers, luring taxpayers in with promises of larger refunds than they could get elsewhere. But you’re responsible for the information on your tax return, and if it’s false you’ll face penalties.
- Return preparer fraud — Dishonest tax preparers will use shady practices to get extra money for themselves. Make sure to choose your tax preparer carefully, and only hire someone who will sign your return and enter their IRS Preparer Tax Identification Number.
- Hiding income in offshore accounts — There are legitimate reasons to maintain financial accounts in other countries, but there are reporting requirements to ensure that income is honestly reported. Taxpayers who don’t comply with these requirements are breaking the law and are risking criminal prosecution, as well as large penalties and fines.
- Impersonation of charities and nonprofits — Scammers frequently target generous people after major disasters. They pretend to be raising money for disaster victims, while in reality they’re keeping all or most of the money for themselves. Often these scammers will also contact victims claiming to work with the IRS to assist them in filing loss claims or get tax refunds.
- False income, expenses, or exemptions — You may be encouraged to falsely claim income you didn’t earn or expenses you didn’t pay to get larger refundable tax credits. False claims are fraud, and you will be liable not only for repaying the refund, but also penalties and interest, and you may face criminal prosecution.
- Frivolous schemes — Taxpayers have tried numerous and creative ways to avoid paying the taxes they owe. Frivolous schemes urge taxpayers to make ridiculous claims or illogical arguments to avoid paying taxes. The IRS publishes a list of these frivolous tax arguments that you should avoid.
- Falsely claiming zero wages or using a false 1099 — Filing false information of any kind is illegal. Some fraudsters will use Form 4852 (Substitute Form W-2) or a “corrected” 1099 in an attempt to reduce taxable income.
- Abusive tax structures — Sham business structures and dishonest financial arrangements are sometimes used to evade taxes. Complex schemes designed to cover the who actually owns the company, the taxable income, and assets, usually involve use of Limited Liability Companies, Limited Liability Partnerships, International Business Companies, foreign financial accounts and offshore credit/debit cards.
- Misuse of trusts — There are many legitimate uses of trusts for tax and estate planning. There are also people who use shady practices involving trusts. Be sure that whoever is setting up your trust is honest, not attempting to evade taxes and hide assets from the IRS.
You know the old saying: “If it sounds too good to be true, it probably is.” Do your research and be sure that you’re not inadvertently getting involved in a scam.