The Internal Revenue Service (IRS) warns taxpayers to be very careful when filing their taxes so they don’t fall for one of the common IRS tax scams.
The IRS has created the “Dirty Dozen” tax scam list for 2012, identifying some of the most common scams taxpayers become vulnerable to right around tax season.
Whether they’re approached in person or contacted online, some taxpayers simply can’t tell the difference between a scam and legitimate service providers.
Here are the top 12 IRS scams of 2012:
1- Identity theft.
Identity theft cases are on the rise and the IRS reports that these scams are often the most complex types of scams to handle. Reports of fraudulent refunds and scams where taxpayers are receiving notices that more than one return has been filed have increased in recent years.
2- Phishing scams.
Fake websites that collect email addresses or individuals that send out unsolicited emails are two vehicles for conducting a phishing scam. If you receive an unsolicited email that appears to be from either the IRS or an organization linked to the IRS, you can report it to phishing (AT) irs.gov.
3- Return preparer fund.
Approximately 60% of taxpayers take advantage of professional tax preparation services to file their tax returns. However, there are reports of fraudulent tax preparers who promise inflated rates or skim off their clients’ refunds. Take the time to find a reputable taxpayer so you don’t fall for this scam.
Related Advice: 10 Tips to Select an Income Tax Return Preparer
4- Hiding income offshore.
People who evade U.S. taxes by hiding income in offshore banks or accounts are scamming the IRS and breaking the law.
5- Free money from the IRS.
Advertisements for free money from the IRS that claim you can file your taxes without proper documentation are usually some type of scam. Be careful about enlisting in these types of services so you don’t end up paying fees for bad advice.
6- False or inflated income and expenses.
Claiming income that you didn’t actually earn (or failing to account for income), as well as deducting expenses you didn’t actually pay for so you can get some type of credit is illegal and will result in penalties or prosecution.
7- False Form 1099 refund claims.
People who file a fake documents like a bogus Form 1099 Original Issue Discount (OID) to justify a false refund on a corresponding tax return are also breaking the law. Don’t let anyone encourage you to falsify information to the IRS. (By the way, a 1099 OID is a legitimate document; it’s only “fake” when someone uses it in a fraudulent manner).
8- Frivolous arguments.
Promoters of frivolous schemes to avoid paying some or all of your taxes are also scam artists. The IRS has created a list of examples of frivolous arguments here.
9- Falsely claiming zero wages.
Falsifying information on your tax return in order to lower the taxes owed to you or using a “corrected” From 1099 to reduce your taxable income to zero is a dangerous step. Make sure you’re not working with a tax preparer who is using this method (or you’re not attempting to do this yourself) to avoid penalties or even prosecution.
10- Abuse of charitable organizations and deductions.
The IRS has been investigating schemes where people are overvaluing their non-cash donations so that they can take a bigger deduction.
11- Disguised corporate ownership.
In these types of scams, third parties or entities are improperly used to request employer identification numbers and form a corporation to hide the true ownership of the business. These entities can then be used to claim a fictitious deduction, underreport income, or participate in other financial crimes.
12- Misuse of trusts.
Transferring some assets into trusts does offer some tax benefits, but some transactions can be questionable – especially those that promise a big reduction in income tax or reduced estate taxes. Be careful about shifting around your funds purely for tax savings. Seek out advice from a trustworthy and reputable tax professional before you make any major financial decisions that would affect your taxes.