The IRS compiles and publishes Dirty Dozen listing every year that highlights a variety of major scams that taxpayers are likely to encounter in the year. Most of the frauds usually launch into full gear during the filing season and preparation of returns. Taxpayers are reminded to shield themselves from some of these schemes that range from tax returns fraudsters to identity theft.
Engaging in illegal tax scams can lead to serious interests and penalties, and even criminal prosecution. Scams are shut down and the criminals behind them, prosecuted by the IRS Criminal Investigation Division that works hand-in-hand with the Department of Justice. The IRS’s 2012 top 5 Dirty Dozen tax scams are discussed below.
1. Identity Theft: There has been an increase in identity theft cases, which are among the most complicated cases the taxman has to deal with. This has triggered the IRS to embark on a serious strategy whose core focus is to prevent, detect, and resolve any identity theft cases within the shortest time possible. Wrong or fake tax returns are now highly targeted as the internal reviews have also been stepped up to scrutinize these returns well.
Many taxpayers are falling victims of identity thieves who fake a legitimate taxpayer’s identity, as well as personal information to file tax returns and claim a refund fraudulently. An individual only realizes that he/she has been victimized after receiving a notice from the IRS alleging multiple filing of returns in their name or false allegation that the taxpayer was paid some wages by an unidentified employer. If you suspect that your identity has been stolen and used for tax intentions, please contact the IRS identity Protection Specialized Unit immediately.
2. Phishing: Taxpayer can receive unsolicited email or a link to a phony website posing as a legitimate site to tempt them into sharing personal and financial details. The private information in the hands of a swindler can easily be used to either commit identity or financial theft. Any suspicious emails should be sent to email@example.com. Please bear in mind that IRS doesn’t request personal or financial information from taxpayers, via virtual means, including text messages and social media.
3. Fake Tax Returns Preparers: Close to 60% taxpayers rely on tax pros to prepare and file their returns for them. As much as there are some genuine providers, there is a breed of scammers who prey on unsuspicious individuals who prey on refunds, promise huge unrealistic refunds to attract new clients and also charge exorbitant fees. To avoid being conned, ensure that the preparer has a Preparer Tax Identification Number (PTIN), which must be entered into the returns he or she prepares for you.
4. Tax Evasion: Many individuals evade taxes by hiding lots of money in foreign bank accounts. As much as you can maintain foreign accounts legally, ensure that the necessary paper work and reporting is appropriately done. Failure to report and meet disclosure requirement calls for dire penalties, fines and even criminal prosecution.
5. Free IRS Money Scams: Don’t be swayed by advertisers claiming they can file your returns with little or no documentation at all. The likely targets are the low-income earners and the seniors who end up losing their hard-earned cash for very bad advice. There are scams revolving around Social Security as well with taxpayers being promised non-existent refunds.
This list is not comprehensive. The complete Dirty Dozen Tax Scams for 2012 is available in the IRS website.