Beware These “Dirty Dozen” Tax Scams
The IRS recently released its “dirty dozen” tax scams to watch out for in 2014.
Here is a rundown of this year’s list:
1. Identity (ID) theft: This 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.
2. Telephone scams: Someone may pretend to call from the IRS or another government agency as a way of stealing money or your identity. Among the many variations, the caller might say that you owe money or you are entitled to a tax refund.
3. Phishing: The scammer sends an unsolicited e-mail or uses a fake Web site to coerce victims into providing personal and financial information. This often results in ID theft or other fraud.
4. False promises of inflated refunds: Scam artists routinely pose as tax preparers during tax time, promising large or unexpected tax refunds. They may use flyers, advertisements, phony storefronts or word of mouth to find targets.
5. Tax return preparer fraud: Most tax return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or ID theft.
6. Hiding income offshore: Numerous individuals have tried to evade taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access funds.
7. Impersonating charitable organizations: It is common for scam artists to impersonate a charity to obtain money from taxpayers. Some may contact people by telephone or e-mail claiming to work for the IRS or another official organization.
8. False income, expenses or exemptions: To maximize refundable credits, another scam involves inflating or including on a tax return income that was never earned as wages or as self-employment income.
9. Frivolous arguments: Promoters encourage taxpayers to make unreasonable claims to avoid paying tax they owe. The IRS has posted a list of frivolous tax arguments.
10. Falsely claiming zero wages or using a false Form 1099: This is an illegal way to cut a tax bill. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used to fraudulently reduce taxable income to zero.
11. Abusive tax structures: Sophisticated strategies may take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit and/or debit cards issued from offshore financial institutions.
12. Misuse of trusts: Unscrupulous promoters continue to urge taxpayers to transfer large amounts of assets into trusts. These assets include not only cash and investments but also successful ongoing businesses.
Caution: The “dirty dozen” tax scams can trigger penalties and interest — even criminal prosecution. Keep your wits about you, and use a healthy dose of common sense.