Don’t Get Tax Scammed This Year – The IRS Dirty Dozen

  • Posted by Michael Beauchemin on Thu, Feb 23, 2012 @ 09:25 AM

    Each year, the IRS comes out with a list of the top twelve tax scams.  Although taxpayers can be taken advantage of by tax scams throughout the year, the IRS warns that the scammers are in full gear during tax season. 

    This is the time of year when tax payers are most aware of how much they pay in taxes and are looking to reduce their tax burden or trying to maximize a refund.  Don’t take the scammers bait and get yourself trapped. 

    Taxpayers should be wary of promises of free money, lost or unclaimed refunds that are available to be claimed by anybody or programs that promise to eliminate your tax burden.  If it sounds too good, seek a second opinion and do additional research.  Often times these scammers will try and apply pressure for you to act immediately, i.e. you have to act now, otherwise you will miss out on the opportunity, tax credit, etc.    

    Here are the top twelve tax scams that the IRS has highlighted his year.

    1. Identity Theft
    Tax scammers may steal your identity for the purpose of filing a false tax return, so that a refund will be sent to them. Recently the IRS has stepped up its efforts to crack down on refund fraud and identity theft.  Contact the IRS at if you believe your identity was stolen and used for tax purposes.

    2. Phishing
    The IRS does not communicate via email, text or social media.  If you receive an email, text or phone call requesting personal information that appears to be from the IRS, you may report it by sending an email to [email protected].

    3. Return Preparer Fraud
    As with any profession, there are always a small percentage of preparers that are looking to prey on individuals.  The tax preparation profession is no different.  Some preparers try and take advantage, by promising a larger than normal refund, demanding a percentage of the refund for the preparation fee, encouraging falsification of information for the purpose of obtaining a larger refund and using or promoting other unethical behavior.  Do your homework and check out the reputation of the tax preparer you intend to use.     

    4. Hiding Income Offshore
    It has been common knowledge that a number of individuals have hidden income offshore in an effort to evade paying taxes on income.  In recent years the IRS has gone after individuals with offshore accounts. They implemented the Offshore voluntary Disclosure Program, allowing individuals to disclose their offshore accounts and come into compliance with US tax laws.  Since they rolled out the program, 30,000 individuals have come forward.  The IRS has let it be known, that those who do not come forward will be subject to severe penalties and possibly criminal prosecution.  With the new reporting requirements for foreign accounts it will become increasingly difficult to continue to hide money in offshore accounts. 

    5. Free Money from the IRS & Tax Scams Involving Social Security
    Beware of promises in fliers and advertisements of getting “free money” from the IRS or refunds or rebates from Social Security.  

    6. False/Inflated Income and Expenses
    The IRS has found tax returns with over inflated income or expenses for the sole purposes of getting large refundable credits.  Any taxpayer found over inflating their income or expenses, for this purpose, will not only be liable for paying the money back with interest and penalties but may also be subject to prosecution.  

    7. False Form 1099 Refund Claims
    Individuals that file a false informational tax return, such as a 1099, for the purpose of filing a refund claim on a corresponding tax return may be subject to financial and criminal penalties.  

    8. Frivolous Arguments
    Not the ones you have with your teenage children.  These are unreasonable and outlandish arguments one makes to justify not paying taxes.   

    9. Falsely Claiming Zero Wages
    Taxpayers may try and submit form 4852 (a substitute W2) or a “corrected” 1099 showing no wages.  A $5,000 penalty can be assessed if it is found that a taxpayer filed one of these incorrect forms.

    10. Abuse of Charitable Organizations and Deductions
    IRS examiners are watching closely how donations to 501(c)(3) organizations, manage the donations, making sure that donors are not maintaining control over donated assets or the organization is not improperly shielding assets or income from taxation to benefit the donor.

    11. Disguised Corporate Ownership
    Third parties that are used to try and mask the true owners of a corporation.  Often times disguised Corporations are used for underreporting income, claiming fictitious deductions, facilitating money laundering and committing financial crimes.   

    12. Misuse of Trust 
    There has been an increase in the abuse of trusts for the purpose of avoiding income tax liability and hiding assets from creditors.  Taxpayers should always work with reputable professionals to understand the purpose of setting up the trust and how it will fit into their estate and tax planning.