Every year the IRS issues a “dirty dozen” common tax scams that many taxpayers have encountered over time. When filing tax returns, it is always important to remain cautious and aware of the wide range of schemes that can greatly hinder your financial security. The following list of scams can occur accidentally or purposely, however, the only way to protect yourself is to be aware and conscientious of these situations:
1) Identity Theft –perhaps the most common scam – thieves that use a taxpayer’s identity and personal information to claim a fraudulent refund
2) Phishing – unsolicited e-mail or a fake website that encourages taxpayers to provide their personal information for a “tax return” NOTE: The IRS NEVER E-MAILS taxpayers
3) Return Preparer Fraud – suspecting tax preparers have been known to charge inflated fees by promising inflated refunds, take a portion of the taxpayer’s refund as compensation, and add forms that you have never filed before. Every tax preparer should have a Preparer Tax Identification Number and you should always review your return prior to submitting it to the IRS
4) Hiding Income Offshore – every taxpayer must report financial accounts abroad, regardless of where or how the money is used
5) “Free Money’ from IRS & Tax Scams involving Social Security – flyers and advertisements saying there is free money from the IRS by filing a return with little to no documentation. These scams prey on the elderly and low-income individuals. Do not trust a flyer or non-professional individual with your finances.
6) False/Inflated Income and Expenses – entering an inflated income to earn more credits is a highly used scam among taxpayers. These intentional mistakes are easily recognized and the taxpayer must pay interest and penalties on those errors.
7) False Form 1099 Refund Claims – sometimes taxpayers knowingly submit a Form 1099 Original Issue Discount to claim a false refund. You could face criminal prosecution if this form is submitted without any justification.
8) Frivolous Arguments – promoters encourage taxpayers to make outrageous and unreasonable claims against paying taxes they owe. Every tax liability can be contested in court, however, you cannot disobey the law.
9) Falsely Claiming Zero Wages – typically a “corrected” Form 1099 or Form 4852 (substitute W-2) are used to improperly reduce income. If you have a W-2, you must submit your exact income, or you could potentially face a $5000 penalty.
10) Abuse of Charitable Organizations and Deductions – taxpayers have been known to exaggerate their charitable contributions for the year. These charities submit their own tax forms as well, so this could be detrimental to the fraudulent taxpayer.
11) Disguised Corporate Ownership – there have been cases where false employer identification numbers have been submitted to claim fictitious deductions, facilitate money laundering, or underreport income.
12) Misuse of Trusts – while some trusts protect a taxpayer’s assets, there has been substantial abuse of private annuity trusts and foreign trusts to alter income and deduct personal expenses. You should always seek the advice of professional before shifting your assets in a trust.
The attorneys at JDKatz, P.C. understand the comprehensive scamming techniques undertaken by criminals. We can assist you in resolving your financial and legal matters as a result of these unscrupulous methods of tax filing.