Pesticides on produce aren’t the worst kind of dirty dozen you need to be aware of. The IRS is focusing on twelve popular scams that they’ve branded The Dirty Dozen. Journal of Accountancy explored the full list, and we’re sharing here what you need to know about each one.
- Phone Scams — Phone scams are the ones people tend to fall for the most. Scammers impersonate the IRS (even making Caller ID show an IRS number) and threaten victims with arrest, deportation, or some other serious action if they don’t wire money to the caller. If you receive a call from someone claiming to be from the IRS, the best thing to do is hang up and call the agency directly. The IRS will never call to demand immediate payment and certainly won’t make threats.
- Phishing — Phishing follows as a close second to phone scams. In phishing schemes, taxpayers receive emails asking for financial or personal information. The IRS will never send you an email asking for this information. Send any suspicious emails to email@example.com.
- Identity Theft — Criminals will use a taxpayer’s Social Security number to file a false tax return and receive a refund. The IRS has put new measures in place to prevent identity theft, but scammers are constantly trying new techniques to outsmart the precautions.
- Return Preparer Fraud — There are tax preparers who lure in individuals in order to steal their identities or file fraudulent returns. Always do your research to make sure the preparer you choose is trustworthy.
- Hiding Income Offshore — Offshore accounts aren’t illegal, and there may be legitimate reasons for some companies to have them. But because many offshore accounts aren’t regulated the same way as U.S. banks, it’s easy to hide money in them. Taxpayers trying to avoid paying their fair share of taxes will use offshore accounts to hide money. If you have money overseas and want to make sure you don’t fall under suspicion, you can participate in the Offshore Voluntary Disclosure Program.
- Inflated Refund Claims — This one is similar to return preparer fraud, except in these cases the goal of the tax preparers is to keep a share of the taxpayer’s return. Not all inflated refund claims are intentional. Some preparers don’t know tax law and aren’t qualified — they lead people to believe they can take credits or deductions they aren’t entitled to. These tax preparers usually base their fees on a percentage of the refund.
- Fake Charities — Scammers will set up organizations that pose as nonprofits in order to steal contributions. Sometimes these scammers will impersonate real, well-known charities, complete with imitation websites. Don’t make any contributions without first making sure the website and organization are genuine.
- Filing False Documents to Hide Income — Unscrupulous tax preparers or taxpayers can file “corrected” W-2s or 1099s to report zero income. These scams are rarely successful, and courts hand out harsh penalties for those attempting them.
- Participation in Abusive Tax Shelters — Abusive tax shelters use multiple flowthrough entities in order to evade taxes.
- Falsifying Income to Claim Tax Credits — This one most often includes claiming higher that actual earned income in order to qualify for the the EITC credit.
- Excessive Claims for Fuel Tax Credits — Fuel tax credits are only allowed for fuel used in off-highway business activities such as farming. But taxpayers or fraudulent tax preparers will try to claim this credit to increase refunds.
- Frivolous Tax Arguments — The IRS has now classified frivolous arguments (such as that the taxpayer should not have to pay taxes due to religious reasons) as a scam. If someone tries to get you to present an extreme argument to back up a questionable tax return, don’t fall for it. The IRS automatically assesses a $5,000 penalty for frivolous arguments.
Scammers most often prey upon natural human emotion, such as fear, in order to get their victims to take quick action without thinking. But there’s never any need to make snap decisions or take immediate action. You can always spend the few hours you need to do your research or call your CPA for help.