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. Identity Theft
    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.
  2. Phone Scams
    Scammers make unsolicited calls claiming to be IRS officials and demand victims pay a false tax bill via a prepaid debit card or wire transfer. The IRS will never demand immediate payment, require you to use a specific payment method, ask for credit or debit information via phone, or threaten to contact law-enforcement groups if you do not comply.
  3. Phishing:
    Phishing scams are typically carried out 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.
  4. Return Preparer Fraud
    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. Offshore Tax Avoidance
    Several taxpayers are persuaded to evade U.S. taxes by:

    • Hiding income in offshore banks, brokerage accounts or nominee entities, 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.

    Be sure to comply with reporting and disclosure requirements to avoid penalties and fines.

  6. Inflated Refund Claims
    Be wary of tax preparers who ask you to sign a blank return, promise a big refund before looking at your records or charges fees based on a percentage of the refund.
  7. Fake Charitable Organizations
    Scam artists impersonate charities to get money or private information from taxpayers by using a variety of tactics, including:

    • Contacting people by phone or email to solicit money or financial information for bogus charities
    • Attempting to obtain personal financial information to steal the victims’ identities or financial resources
    • Creating bogus websites to solicit funds

    For security and tax record purposes, contribute to charitable organizations by check or credit card to document the gift.

  8. False/Inflated Deductions and Expenses
    Avoid temptations of overstating deductions such as charitable contributions or businesses expenses to secure larger refundable credits. This could result in repaying the erroneous refunds, including interest and penalties.
  9. 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.
  10. Falsifying Income to Claim Credits
    Taxpayers are sometimes talked into inventing income to wrongly qualify for tax credits. Consequences include facing big bills to pay back taxes, interest and penalties. In some cases, they may even face criminal prosecution.
  11. 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.
  12. 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.

If you are in need tax assistance, contact Doeren Mayhew’s tax advisors.