IRS Commissioner John Koskinen has said, “If you are surprised to be hearing from us, then you're not hearing from us.”
Scams ranging from identity theft to frivolous tax arguments know no season, but they spike during tax preparation when taxpayers more focused on completing their returns by the April 15 deadline may be vulnerable to pernicious schemes.
Each year, the Internal Revenue Service compiles its "Dirty Dozen" list of tax scams. “Taxpayers need to guard against any ploys to steal their personal information, scam them out of money or talk them into engaging in questionable behavior with their taxes,” the agency cautions on its website.
Here are the Dirty Dozen for 2016:
Identity Theft: Come tax time, scammers file fraudulent tax returns using someone else’s Social Security number. Notes the IRS: “You may be unaware that this has happened until you efile your return and discover that a return already has been filed using your SSN. Or, the IRS may send you a letter saying we have identified a suspicious return using your SSN.” Victims of tax-related identity theft are encouraged to contact their financial institution or one of the three major credit bureaus (Equifax, Experian, TransUnion) to place a “fraud alert” on your credit records.
Phone Scams: Criminals call impersonating IRS agents threatening taxpayers with police arrest, deportation and license revocation, among other things. The IRS is many things, but its agents are not phone bullies. The agency does not demand immediate payments, ask for credit or debit card numbers over the phone, or threaten to call the police. IRS Commissioner John Koskinen has said, “If you are surprised to be hearing from us, then you're not hearing from us.”
Phishing: Another thing the IRS will never do is send taxpayers an out-of-the-blue email about a bill or refund. Taxpayers need to be on guard against fake emails or websites looking to steal personal information. Don’t click on one claiming to be from the IRS.
Return Preparer Fraud: Unscrupulous return preparers are an especial threat. They set up shop each filing season to perpetrate refund fraud, identity theft and other scams. Significant red flags are if a tax preparer does not have an IRS Preparer Tax Identification Number or refuses to sign the return. Ask before your use his or her services.
Offshore Tax Avoidance: Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 54,000 disclosures and the IRS has collected more than $8 billion just from this initiative. Thousands of offshore-related civil audits have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions. So probably not a good idea to try and hide money and income offshore.
Inflated Refund Claims: That old maxim about how if it’s too good to be true, it probably isn’t applies here. The IRS cautions taxpayers to be wary of anyone promising inflated refunds and who asks taxpayers to sign a blank return. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups where trust is high to find victims, the IRS notes.
Fake Charities: The IRS warns unsuspecting philanthropic-minded taxpayers to be on guard against groups masquerading as charitable organizations to attract donations. A big red flag is charities with names similar to familiar or nationally-known organizations. Do not give or send cash and do not provide personal financial information, such as a Social Security number or any passwords, to anyone who solicits you. IRS.gov has a search feature, Exempt Organizations Select Check which confirms legitimate, qualified charities to which tax deductions may be tax-deductible.
Falsely Padding Deductions on Returns: It’s tempting to want to falsely inflate deductions or expenses to underpay what you owe and receive a larger refund. Fight it. Significant penalties or criminal prosecution could be brought against you.
Excessive Claims for Business Credits: The IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is generally limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit.
Falsifying Income to Claim Credits: Scam artists often talk unwitting(?) taxpayers into inventing income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return. This scam can lead to taxpayers facing big bills to pay back taxes, interest and penalties. In some cases, they may even face criminal prosecution.
Abusive Tax Shelters: The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. Be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered, the IRS recommends.
Frivolous Tax Arguments: Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims even though they are wrong and have been repeatedly 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 or disregard their responsibility to pay taxes,” according to the IRS. The penalty for filing a frivolous tax return is $5,000
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.