Tax filing season is a peak time for scams. Each year, the IRS puts out a “Dirty Dozen” list of 12 common tax scams. Be wary of these illegal scams, because should you buy into one of them, you could face significant penalties and interest and even criminal prosecution. This tax season, protect yourself from fraud.

Here are the tax scams that made the Dirty Dozen list this tax season:

  1. Identity Theft: Protecting taxpayers from identity theft is a top priority for the IRS. In 2012 alone, the IRS protected $20 billion dollars of fraudulent refunds.Contact the IRS immediately if your personal information has been lost or stolen and you think you are at risk of identity theft.
  2. Phishing: Phishing typically involves an unsolicited email or a fake website that seems legitimate but lures victims into providing personal and financial information. Once scammers obtain that information, they can commit identity theft or financial theft. Remember: the IRS never requests personal or financial information via electronic communication, so if you receive such request, report it to the IRS immediately.
  3. Return Preparer Fraud: Most return preparers are good, but choose one with care. Only use a preparer who signs the return they prepare for you and enters their IRS Preparer Tax Identfication number.
  4. Hiding Income Offshore: Taxpayers maintaining financial accounts abroad must meet reporting requirements or they may face penalties for tax evasion.
  5. “Free Money” for the IRS & Tax Scams Involving Social Security: Many scammers prey on those with low or no incomes, claiming bogus promises of nonexistent refunds through ads. By the time the IRS rejects the claim, the promoter is long gone.
  6. Impersonation of Charitable Organizations: Following major disasters, it’s common for scam artists to impersonate charities to get money or personal information from well-intentioned people. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. Taxpayers need to be sure they donate to recognized charities.
  7. False/Inflated Income and Expenses: Falsely claiming income you did not earn or expenses you did not pay in order to get larger refundable tax credits is tax fraud. This fraud can result in penalties or even criminal prosecution for the taxpayer.
  8. False Form 1099 Refund Claims: In this scam, the perpetrator files a fake information return, such as a Form 1099-OID, to justify a false refund claim.
  9. Frivolous Arguments: The promoters of these schemes advise taxpayers to make outlandish claims, which courts have consistently thrown out, to avoid paying taxes.
  10. Falsely Claiming Zero Wages: Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, scammers use a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 to improperly reduce taxable income to zero. Filing this type of return can result in a $5,000 penalty.
  11. Disguised Corporate Ownership: Scammers improperly use third parties form corporations that hide the true ownership of the business. They help dishonest individuals underreport income, claim fake deductions and avoid filing tax returns. They also facilitate money laundering and other financial crimes.
  12. Misuse of Trusts: There are legitimate uses of trusts in tax and estate planning. But some questionable transactions promise to reduce the amount of income that is subject to tax, offer deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits.

For more information, view the bulletin from the IRS. Contact your JMF CPA if we may answer any of your questions or assist you in any way.