Originally posted at IRS.gov in March of 2013
The Internal Revenue Service today issued its annual “Dirty
Dozen” list of tax scams, reminding taxpayers to use caution during tax season
to protect themselves against a wide range of schemes ranging from identity
theft to return preparer fraud.
The Dirty Dozen listing, compiled by the IRS each year, lists a variety of
common scams taxpayers can encounter at any point during the year. But many of
these schemes peak during filing season as people prepare their tax returns.
"This tax season, the IRS has stepped up its efforts to protect taxpayers
from a wide range of schemes, including moving aggressively to combat identity
theft and refund fraud," said IRS Acting Commissioner Steven T. Miller. "The
Dirty Dozen list shows that scams come in many forms during filing season. Don't
let a scam artist steal from you or talk you into doing something you will
regret later."
Illegal scams can lead to significant penalties and interest and possible
criminal prosecution. IRS Criminal Investigation works closely with the
Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind
them.
The following are the Dirty Dozen tax scams for 2013:
Identity Theft
Tax fraud through the use of identity theft tops this year’s Dirty Dozen
list. Identity theft occurs when someone uses your personal information such as
your name, Social Security number (SSN) or other identifying information,
without your permission, to commit fraud or other crimes. In many cases, an
identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax
return and claim a refund.
Combating identity theft and refund fraud is a top priority for the IRS, and
we are taking special steps to assist victims. For the 2013 tax season, the
IRS has put in place a number of additional steps to prevent identity theft and
detect refund fraud before it occurs. We have dramatically enhanced our systems,
and we are committed to continuing to improve our prevention, detection and
assistance efforts.
The IRS has a comprehensive and aggressive identity theft strategy employing
a three-pronged effort focusing on fraud prevention, early detection and victim
assistance. We are continually reviewing our processes and policies to ensure
that we are doing everything possible to minimize identity theft incidents, to
help those victimized by it and to investigate those who are committing the
crimes.
The IRS continues to increase its efforts against refund fraud, which
includes identity theft. During 2012, the IRS prevented the issuance of $20
billion of fraudulent refunds, including those related to identity theft,
compared with $14 billion in 2011.
This January, the IRS also conducted a coordinated and highly successful
identity theft enforcement sweep. The coast-to-coast effort against identity
theft suspects led to 734 enforcement actions in January, including 298
indictments, informations, complaints and arrests. The effort comes on top of a
growing identity theft effort that led to 2,400 other enforcement actions
against identity thieves during fiscal year 2012. The Criminal Investigation
unit has devoted more than 500,000 staff-hours to fighting this issue.
We know identity theft is a frustrating and complex process for victims. The
IRS has 3,000 people working on identity theft related cases — more than double
the number in late 2011. And we have trained 35,000 employees who work with
taxpayers to help with identity theft situations.
The IRS has a
special section on IRS.gov
dedicated to identity theft issues, including YouTube videos, tips for taxpayers
and an assistance guide. For victims, the information includes how to contact
the IRS Identity Protection Specialized Unit. For other taxpayers, there are
tips on how taxpayers can protect themselves against identity theft.
Taxpayers who believe they are at risk of identity
theft due to lost or stolen personal information should contact the IRS
immediately so the agency can take action to secure their tax account. Taxpayers
can call the IRS Identity Protection Specialized Unit at 800-908-4490. More
information can be found on the
special
identity protection page.
Phishing is a scam typically carried out with the help of unsolicited email
or a fake website that poses as a legitimate site to lure in potential victims
and prompt them to provide valuable personal and financial information. Armed
with this information, a criminal can commit identity theft or financial
theft.
If you receive an unsolicited email that appears to
be from either the IRS or an organization closely linked to the IRS, such as the
Electronic Federal Tax Payment System (EFTPS), report it by sending it to
phishing@irs.gov.
It is important to keep in mind the IRS does not initiate contact with
taxpayers by email to request personal or financial information. This includes
any type of electronic communication, such as text messages and social media
channels. The IRS has information that can help you protect yourself from email
scams.
Return Preparer Fraud
About 60 percent of taxpayers will use tax professionals this year to prepare
their tax returns. Most return preparers provide honest service to their
clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the
result can be refund fraud or identity theft.
It is important to choose carefully when hiring an individual or firm to
prepare your return. This year, the IRS wants to remind all taxpayers that they
should use only preparers who sign the returns they prepare and enter their IRS
Preparer Tax Identification Numbers (PTINs).
The IRS also has created a new web page to assist
taxpayers. For tips about choosing a preparer, red flags, details on preparer
qualifications and information on how and when to make a complaint, visit
www.irs.gov/chooseataxpro.
Remember: Taxpayers are legally responsible for what’s on their tax return
even if it is prepared by someone else. Make sure the preparer you hire is up to
the task.
IRS.gov has
general
information on reporting tax fraud. More specifically, report abusive tax
preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download
Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The
form includes a return address.
Over the years, numerous individuals have been identified as evading U.S.
taxes by hiding income in offshore banks, brokerage accounts or nominee
entities, using debit cards, credit cards or wire transfers to access the funds.
Others have employed foreign trusts, employee-leasing schemes, private annuities
or insurance plans for the same purpose.
The IRS uses information gained from its investigations to pursue taxpayers
with undeclared accounts, as well as the banks and bankers suspected of helping
clients hide their assets overseas. The IRS works closely with the Department of
Justice (DOJ) to prosecute tax evasion cases.
While there are legitimate reasons for maintaining financial accounts abroad,
there are reporting requirements that need to be fulfilled. U.S. taxpayers who
maintain such accounts and who do not comply with reporting and disclosure
requirements are breaking the law and risk significant penalties and fines, as
well as the possibility of criminal prosecution.
Since 2009, 38,000 individuals have come forward voluntarily to disclose
their foreign financial accounts, taking advantage of special opportunities to
comply with the U.S. tax system and resolve their tax obligations. And, with new
foreign account reporting requirements being phased in over the next few years,
hiding income offshore will become increasingly more difficult.
At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure
Program (OVDP) following continued strong interest from taxpayers and tax
practitioners after the closure of the 2011 and 2009 programs. The IRS continues
working on a wide range of international tax issues and follows ongoing efforts
with DOJ to pursue criminal prosecution of international tax evasion. This
program will be open for an indefinite period until otherwise announced.
The IRS has collected $5.5 billion so far from people who participated in
offshore voluntary disclosure programs since 2009.
“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 around the country. These schemes promise
refunds to people who have little or no income and normally don’t have a tax
filing requirement – and are also often spread by word of mouth as unsuspecting
and well-intentioned people tell their friends and relatives.
Scammers prey on low income individuals and the elderly and members of church
congregations with bogus promises of free money. They build false hopes and
charge people good money for bad advice including encouraging taxpayers to make
fictitious claims for refunds or rebates based on false statements
of entitlement to tax credits. For example, some promoters claim they can obtain
for their victims, often senior citizens, a tax refund or nonexistent stimulus
payment based on the American Opportunity Tax Credit, even if the victim was not
enrolled in or paying for college. Con artists also falsely claim that refunds
are available even if the victim went to school decades ago. In the end, the
victims discover their claims are rejected. Meanwhile, the promoters are long
gone. The IRS warns all taxpayers to remain vigilant.
There are also a number of tax scams involving Social Security. For example,
scammers have been known to lure the unsuspecting with promises of non-existent
Social Security refunds or rebates. In another situation, a taxpayer may really
be due a credit or refund but uses inflated information to complete the
return.
Beware: Intentional mistakes of this kind can result in a $5,000 penalty.
Impersonation of Charitable Organizations
Another long-standing type of abuse or fraud is scams that occur in the wake
of significant natural disasters.
Following major disasters, it’s common for scam artists to impersonate
charities to get money or private information from well-intentioned taxpayers.
Scam artists can use a variety of tactics. Some scammers operating bogus
charities may contact people by telephone or email to solicit money or financial
information. They may even directly contact disaster victims and claim to be
working for or on behalf of the IRS to help the victims file casualty loss
claims and get tax refunds.
They may attempt to get personal financial information or Social Security
numbers that can be used to steal the victims’ identities or financial
resources. Bogus websites may solicit funds for disaster victims. As in the case
of a recent disaster, Hurricane Sandy, the IRS cautions both victims of natural
disasters and people wishing to make charitable donations to avoid scam artists
by following these tips:
- To help disaster victims, donate to recognized charities.
- Be wary of charities with names that are similar to
familiar or nationally known organizations. Some phony charities use names or
websites that sound or look like those of respected, legitimate organizations.
IRS.gov has a search feature, Exempt Organizations Select
Check, which allows people to find legitimate, qualified charities to which
donations may be tax-deductible.
- Don’t give out personal financial information, such as Social Security
numbers or credit card and bank account numbers and passwords, to anyone who
solicits a contribution from you. Scam artists may use this information to
steal your identity and money.
- Don’t give or send cash. For security and tax record
purposes, contribute by check or credit card or another way that provides
documentation of the gift.
Call the IRS toll-free disaster assistance telephone number (1-866-562-5227)
if you are a disaster victim with specific questions about tax relief or
disaster related tax issues.
False/Inflated Income and Expenses
Including income that was never earned, either as wages or as self-employment
income in order to maximize refundable credits, is another popular scam.
Claiming income you did not earn or expenses you did not pay in order to secure
larger refundable credits such as the Earned Income Tax Credit could have
serious repercussions. This could result in repaying the erroneous refunds,
including interest and penalties, and in some cases, even prosecution.
Additionally, some taxpayers are filing excessive claims for the fuel tax
credit. Farmers and other taxpayers who use fuel for off-highway business
purposes may be eligible for the fuel tax credit. But other individuals have
claimed the tax credit although they were not eligible. Fraud involving the fuel
tax credit is considered a frivolous tax claim and can result in a penalty of
$5,000.
False Form 1099 Refund Claims
In some cases, individuals have made refund claims based on the bogus theory
that the federal government maintains secret accounts for U.S. citizens and that
taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.
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.
Don’t fall prey to people who encourage you to claim deductions or credits to
which you are not entitled or willingly allow others to use your information to
file false returns. If you are a party to such schemes, you could be liable for
financial penalties or even face criminal prosecution.
Frivolous Arguments
Promoters of frivolous schemes encourage taxpayers
to make unreasonable and outlandish claims to avoid paying the taxes they owe.
The IRS has a
list
of frivolous tax arguments that taxpayers should avoid. These arguments are
false and have been thrown out of court. While taxpayers have the right to
contest their tax liabilities in court, no one has the right to disobey the
law.
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. Taxpayers should resist any temptation to participate
in any variations of this scheme. 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.
These entities can be used to underreport income, claim fictitious
deductions, avoid filing tax returns, participate in listed transactions and
facilitate money laundering and financial crimes. The IRS is working with state
authorities to identify these entities and bring the owners into compliance with
the law.
Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer assets
into trusts. While there are legitimate uses of trusts in tax and estate
planning, some highly questionable transactions promise reduction of income
subject to tax, deductions for personal expenses and reduced estate or gift
taxes. Such trusts rarely deliver the tax benefits promised and are used
primarily as a means of avoiding income tax liability and hiding assets from
creditors, including the IRS.
IRS personnel have seen an increase in the improper use of private annuity
trusts and foreign trusts to shift income and deduct personal expenses. As with
other arrangements, taxpayers should seek the advice of a trusted professional
before entering a trust arrangement.
