The Internal Revenue Service (IRS) issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution and protect themselves against these schemes. This year’s 12 common tax scams include:

  1. Phishing: Phishing scams are typically carried through unsolicited emails or fake websites that prompt taxpayers to provide valuable personal and financial information. The IRS will never request personal or financial information via email, text message, social media or any other form of electronic communication.
  2. Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. There has been a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things. Always remember, the IRS will never demand immediate payment, require you to use a specific payment method, or ask for credit or debit information via phone.
  3. Identity Theft: Taxpayers should be especially on the lookout for identity theft this time of year. Identity theft occurs when personal information such as your name, Social Security number or other identifying information is used without your permission. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.
  4. Return Preparer Fraud: Be on the lookout for unscrupulous return preparers. To avoid refund fraud, identity theft or other scams, taxpayers are encouraged to use trusted tax advisors who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers.
  5. Fake Charities: Scam artists impersonate charitable organizations to attract donations from unsuspecting contributors. Take a few extra minutes to ensure your donation goes to legitimate and currently eligible charities. For security and tax record purposes, contribute to charitable organizations by check or credit card to document the gift.
  6. Inflated Refund Claims: Be alert to unscrupulous tax return preparers touting inflated tax refunds. Scammers typically ask taxpayers to sign a blank return, promise a big refund before looking at their records or charge fees based on a percentage of the refund.
  7. Excessive Claims for Business Credits: Don’t allow your tax preparer to improperly claim business credits such as the fuel tax and research credits, a tax benefit generally not available to most taxpayers. Frivolous tax claims may result in a $5,000 penalty.
  8. False/Inflated Deductions and Expenses: Avoid temptations of falsely inflating deductions or expenses to pay less than what you owe or potentially receive larger refunds. This could result in repaying the erroneous refunds, including interest and penalties.
  9. Falsifying Income to Claim Credits: Taxpayers are sometimes talked into inventing income to wrongly qualify for tax credits. This scam may result in facing large bills to pay back taxes, interest and penalties, and in some cases, may lead to criminal prosecution.
  10. Abusive Tax Shelters: Take caution against preparers peddling tax shelters that sound too good to be true. Whether something is “too good to be true” is important to consider before buying into any arrangements that promise to “eliminate” or “substantially reduce” your tax liability. If an arrangement uses unnecessary steps or a form that does not match its substance, then it is an abusive scheme.
  11. Frivolous Tax Arguments: Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying owed taxes. When in doubt, seek a trusted tax advisor regarding complex products they are offered. The penalty for filing a frivolous tax return is $5,000.
  12. Offshore Tax Avoidance: Several taxpayers are persuaded to evade U.S. taxes by:
    • Hiding income in offshore banks, brokerage accounts or nominee entities, then using debit cards, credit cards or wire transfers to access the funds.
    • Employing foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

According to the IRS, offshore compliance remains a top priority and the organization has collected $10 billion in back taxes in recent years. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions. If you are in need tax assistance, contact Doeren Mayhew’s tax advisors.