Avoid these ‘dirty dozen’ tax scams
Every year, the Internal Revenue Service releases a list of twelve commonplace tax scams named the “dirty dozen” to illustrate the many ways taxpayers can be exploited. Here is a quick summary of the most recent “dirty dozen” tax scams so that you can avoid fraud when filing:
12 dirty dozen tax scams to avoid
1. Identity theft
What it is – There is a lot of personal information lying around during tax season, and someone may use your personal private identification information for financial gain. To avoid identity theft, make sure not to give out personal information on the phone and shred tax related documents.
What it is – Someone may solicit your personal information by sending e-mails while claiming to be a legitimate company (e.g., the Internal Revenue Service). To be the most secure online, do not give out personal information online as a rule of thumb. The IRS does not use e-mail to request personal information or financial information.
What to do – Any unsolicited email that appears to be from the IRS should be sent it to email@example.com.
3. Return preparer fraud
What it is – Be careful about who you choose to prepare your taxes. Make sure they sign the tax return and enter their IRS Preparer Tax Identification Number (PTIN).
What to do – Check www.irs.gov/chooseataxpro for tax tips on choosing a tax pro.
4. Hiding income offshore
What it is – This is a form of tax evasion where the taxpayer hides income in an offshore account. This includes using debit cards, credit cards or wire transfers to access those funds.
What to do – There are legitimate reasons for maintaining financial accounts abroad. If you are unsure about how to properly report these accounts, visit IRS.gov for more information on the Voluntary Disclosure Program.
5. “Free money” from the IRS & tax scams involving social security
What it is – You may receive a flyer or ad with promises of large refunds on taxes you did not file. If it is too good to be true, then is probably is a scam.
What to do – Avoid. Do not waste your time filing the claim and do not give out your personal information.
6. Impersonation of charitable organizations
What it is – During the tax season, scam artists may impersonate charities claiming to work on behalf of the IRS, and may even contact victims of a disaster.
What to do – Never blindly donate. Always do your research when donating to a charity or when asked for personal information.
7. False/inflated income and expenses
What it is – Attempting to get a larger refund from taxes by claiming income not earned or expenses not paid.
What to do – Make sure you are organized, do your research on tax codes, and consider hiring a tax professional if you need help.
8. False form 1099 refund claims
What it is – Attempting to file a refund claim with a fake information return. Such an information return includes a Form 1099-OID (click for more information on Form 1009-OID).
What to do – If you are unsure how to file an information return, consult a tax professional.
9. Frivolous arguments
What it is – Taxpayers may be improperly advised to make hollow, over-the-top claims to avoid paying taxes that are due, and even taking them to court.
What to do – Although tax payers have every right to contest their tax liability, one should be reasonable with their objection and their expectation.
10. Falsely claiming zero wages
What it is – Taxpayers may claim no income in order to reduce their tax responsibility.
What to do – If you are unsure of your wages, consult a tax professional. Do not purposefully file false information, because this can result in a $5,000 penalty.
11. Disguised corporate ownership
What it is – Business owners may attempt to hide the true ownership of their business by hiring a third party. Using a third party to disguise ownership often encourages underreporting income, claiming false reductions and money laundering.
What to do – Be honest about your business income, be organized, and make sure to consult a tax professional if you need help.
12. Misuse of trusts
What it is – Trusts can be misused to attempt to lower a taxpayers’ responsibility, and a deceitful promoter may suggest transfer assets into trusts for this purpose.
What to do – There are legitimate uses of trusts in tax and estate planning, but rarely do they offer excessive tax benefits.
For more on the Dirty Dozen, see the IRS news release.
Have any tips for avoiding tax scams? Comment below!