The “Dirty Dozen” tax scams; keep your money and information safe

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In recent years the IRS has seen a significant rise in refund fraud and identity theft, as scammers are looking to seek your personal information in an email, claiming to be from the IRS or makers of Turbo Tax Software. They claim they need more personal information, According to the Better Business Bureau, that’s a red flag.

“Exercise caution at the sender, call the organization, if you’re not sure if it’s from there or not, and don’t click on any links inside. That email could send you to a bogus website that might cause harm to your computer, said Janna Kiehl, Better Business Bureau.

Taxpayers involved in any tax scam are liable for actual tax due and statutory interest. But, just to be on the safe side here are the “Dirty Dozen” tax scams recently highlighted but the IRS.

1. Hiding income offshore. Some taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxes may also be evaded by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans. Taxpayers who voluntarily disclose foreign holdings reduce their risk of criminal prosecution.

2. Identity theft and phishing. Unsuspecting victims may be tricked into revealing personal or financial information online via emails, tweets, or phony web sites. If you receive suspicious email messages allegedly coming from the IRS, don’t open any attachments or click on any of the links in the email. Forward these to

3. Return preparer fraud. Dishonest return preparers derive financial gain by skimming a portion of their clients’ refunds, charging inflated fees for services and attracting new clients by promising refunds that are too good to be true. The IRS now requires paid tax return preparers to register with the IRS and obtain a preparer tax identification number (PTIN). It has also implemented competency tests and continuing professional education for most paid tax return preparers.

4. Filing false or misleading forms. Scam ¬artists may file false or misleading returns to claim refunds they are not entitled to. Under the scheme, taxpayers fabricate an information return and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

5. Frivolous arguments. Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should avoid. Those who act on frivolous positions risk a variety of civil and criminal penalties.

6. Nontaxable Social Security benefits with exaggerated withholding credit. The IRS has identified returns where taxpayers report nontaxable Social Security benefits with excessive withholding. Thus, the taxpayer doesn’t report any income on the tax return. Often both the withholding amount and the reported income are incorrect.

7. Abuse of charitable organizations and deductions. The IRS continues to find misuse of tax-exempt organizations. Abuses include arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

8. Abusive retirement plans. The IRS targets transactions that taxpayers may use to avoid the limits on contributions and abuse rules for distributions. Taxpayers should be wary of advisors who encourage them to shift appreciated assets at less than fair market value into IRAs to circumvent annual contribution limits.

9. Disguised corporate ownership. Corporations and other entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer ID number. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing.

10. Zero wages. Filing a phony wage- or ¬income-related information return to replace a -legitimate information return can lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used to improperly reduce taxable income to zero. A taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS.

11. Misuse of trusts. Unscrupulous promoters may promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid tax and hide assets from creditors, including the IRS.

12. Fuel tax credit scams. Frequently, the IRS receives excessive claims for the fuel tax credit. Some taxpayers, other than farmers who use fuel for off-highway business purposes, take the credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable

Remember — if it sounds too good to be true, it probably is. If you know of a tax fraud, you can report it to the IRS by calling 1-800-829-3676. You can also report suspected tax fraud to the IRS by using Form 3949-A, Information Referral, or by mailing a letter describing the alleged fraudulent activity. Whistleblowers may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.


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