Tax Scams – IRS Names Dirty Dozen

taxes1 150x150 Tax Scams   IRS Names Dirty DozenWhen it comes to the annual rite known as “doing your taxes,” there are a couple of movies that come to mind: “The Good, the Bad and the Ugly” and “The Dirty Dozen.” The IRS plays off the latter in releasing its list of Dirty Dozen Tax Scams for 2013.

The Dirty Dozen listing is compiled annually by the IRS and lists a variety of common scams taxpayers can encounter anytime during the year. Many occur at alarming rates during tax season.

Here’s a quick rundown of the top 12 tax-related scams:

Identity Theft – This occurs when someone uses your personal information – name, Social Security number or other identifying information – without permission. Many times an ID thief uses taxpayer’s’ ID to fraudulently file a tax return and claim a refund.

Phishing – This scam is typically carried out via unsolicited email or fake websites that pose as legitimate sites to lure potential victims and prompt them to provide personal and financial information that will be used in identity theft.

Return Preparer Fraud – While most tax professionals are honest, some unscrupulous preparers prey on their clients with the result being refund fraud or ID theft. Use only preparers who sign returns and enter their IRS Preparer Tax Identification Numbers.

Hiding Income Offshore – Many individuals 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 funds. Others use foreign trusts, employee-leasing schemes, private annuities or insurance plans.

“Free Money” from the IRS & Tax Scams Involving Social Security – Flyers and ads for free money from the IRS have appeared in community churches, targeting low-income and elderly individuals. These schemes promise refunds to those with little or no income. Scammers also lure unsuspecting individuals with promises of nonexistent Social Security refunds or rebates.

Impersonation of Charitable Organizations – Following major disasters, scam artists impersonate charities to get money or private information from taxpayers. Sometimes they operate via phony websites, other times they may contact victims directly and claim to be working for or on behalf of the IRS to help them file casualty loss claims and get tax refunds.

False/Inflated Income and Expenses – Claiming income that was not earned or expenses that were not paid in order to secure larger refundable credits such as the Earned Income Tax Credit is another popular scam at tax time. Some taxpayers also file excessive claims for the fuel tax credit.

False Form 1099 Refund Claims – In this scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount 9OID) to justify a false refund claim on a corresponding tax return.

Frivolous Arguments – Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying taxes.

Falsely Claiming Zero Wages – Fraudsters file a phony information return typically a Substitute Form W-2 or a “corrected” Form 1099 as an illegal way to lower the amount of taxes owed. Filing this type of return may result in a $5,000 penalty.

Disguised Corporate Ownership – Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

Misuse of Trusts – While there are legitimate uses of trusts in tax and estate planning, some transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes.

Has a tax preparer ever suggested you “fudge” on your tax returns? Even just a little bit?

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About Luanne Kadlub

Luanne Kadlub, communications specialist for BBB Serving Northern Colorado and Wyoming, has been a writer/editor for newspapers, magazines and nonprofits.