IRS Issues its Annual Dirty Dozen Tax Schemes 2012

Categories: Taxes

The Internal Revenue Service recently issued its annual “Dirty Dozen” ranking of tax scams to remind taxpayers to use caution during tax season

  1. Identity Theft. The IRS is seeing more identity thieves using legitimate taxpayer’s identity and personal information to file a tax return to claim a fraudulent refund. If you receive an IRS notice that more than one return was filed it may be a tip-off. If you believe that has happened immediately contact the IRS Identity Protection Specialized Unit, see the special identity theft page at www.IRS.gov/identitytheft.
  2. Phishing. Phishing is done through unsolicited email or a fake website that pretends to be a legitimate site to lure people to provide valuable personal and financial information. If you receive an unsolicited email that looks like it is from the IRS, government website, forward it to phishing@irs.gov.
  3. Return Preparer Fraud. Some fraudulent ‘professional’ tax return preparers sometimes skim off their clients’ refunds and or charge too high fees. Starting in 2012 paid tax preparers must have a Preparer Tax Identification Number (PTIN) that they enter when the return is filed. You may be dealing with a bad preparer if they: Don’t sign the return or place a Preparer Tax Identification Number on it. Don’t give you don’t get a copy of the return. Over promises a large tax refund. Get a percentage of the refund, or splits it as their fee. Ask you to use false information on your return, such as false income, expenses and/or credits.
  4. Hiding Income Offshore. Evading U.S. taxes using offshore financial accounts to hide income. Sometimes foreign trusts, employee-leasing schemes, private annuities or insurance plans are utilized for these schemes.
  5. “Free Money” from the IRS &  Tax Scams Involving Social Security. Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches. Low income and elderly people are often victims of fees using the false hope of money.
  6. False/Inflated Income and Expenses. In order to maximize refunds some people include income that was never earned, or expenses not paid
  7. False Form 1099 Refund Claims. “In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts forU.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.”
  8. Frivolous Arguments. Promoters of this scheme encourage people to make outrageous and frivolous claims to avoid paying the taxes they owe. The IRS has of some frivolous tax arguments to avoid. These arguments are false and have been thrown out of court, and some have served prison time.
  9. Falsely Claiming Zero Wages. “Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS. Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation.”
  10. Abuse of Charitable Organizations and Deductions. Tax-exempt 501(c)(3) organizations are sometime used to avoid paying tax by shielding income or assets from taxation. Some donators maintain control or receive income from donated assets, or donating overvalued assets.
  11. Disguised Corporate Ownership. Improper use of corporations to obscure the true owners to under report income and claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and other financial crimes.
  12. Misuse of Trusts. Trust promoters (not true estate planners) use ‘special’ trusts to own assets to provide income and estate tax savings. There are hundreds and maybe thousands of legitimate uses of trusts in tax and estate planning, that have protection and tax advantages, however some trust promoters use them to illegally avoid taxes and hide assets.

Source IRS.gov  

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