The Dirty Dozen Scams To Watch Out For This Tax Season

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With peak tax season well underway, IRS has released their list of the The Dirty Dozen Tax Scams 2012. The list hones in on all the ways criminals fool unsuspecting taxpayers out of tax dollars, as well as a few ways consumers attempt trick the IRS itself. 

“Taxpayers should be careful and avoid falling into a trap with the Dirty Dozen,” said IRS Commissioner Doug Shulman.

“Scam artists will tempt people in-person, on-line and by e-mail with misleading promises about lost refunds and free money.”

Here is the count down of the dozen scams you should watch out for: 

12. Misuse of trusts – Don’t be fooled, transferring assets into trusts might help with estate planning, but it won’t reduce your taxable income, at least not legally, warns the IRS. Still, that hasn’t stopped some consumers from trying to work the system. 

The IRS notes that there has been “an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses.”

11. Disguised corporate ownership – Third parties are often used to disguise the true ownership of the business and to “under report income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and financial crimes,” the IRS says.

10. Abuse of charitable organisations and deductions – The IRS continues to uncover intentional abuse of charity organisations, including donors trying to maintain control over donated assets, over-valuating any non-cash donations and organisations that receive non-cash donations, while promising that such donations can be repurchased at a later time. 

9. Claiming zero wages – Sometimes taxpayers will go so far as to file false information in order to lower their taxable income to zero. The penalty for intentionally manipulating one’s income in such a way is $5,000, says the IRS.

8. False form 1099 refund claims – The perpetrators behind this scheme file a fake 1099 to justify a false refund claim on a corresponding tax return. According to IRS, this scam is rooted in a conspiracy theory: 

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.

7. Frivolous arguments – The IRS has a list of bogus excuses consumers have tried–and failed–to use in order to justify shirking their taxes in court. The “dog ate my homework” equivalent of reasons not to pay taxes? Paying taxes is voluntary. (Note: It isn’t.)

6. False/inflated income and expenses – Some taxpayers inflate their income in order to maximise refundable credits, while others claim the fuel tax credit even though they do not use fuel for off-highway business purposes. 

5. “Free money” from the IRS and tax scams involving social security – Here’s how this scam works: Phony tax preparers lure victims in with promises of high refunds and rebates. Then they charge them for bad advice and disappear before the victims’ claims are rejected. These scams target low-income and the elderly with their promises of non-existent social security refunds.

4. Hiding income offshore – This involves individuals looking to evade taxes by “hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds.”

3. Return preparer fraud – Shady tax preparers are known “to skim off their clients’ refunds, charge inflated fees for return preparation services and attract new clients by promising guaranteed or inflated refunds.” To avoid these shady characters, check out IRS tips for choosing a tax return preparer.

2. Phishing – Beware of unsolicited email and fake websites, warns IRS, as phishing can provide criminals with information required to carry out identity or financial theft. 

1. Identity theft – Taking the cake in 2012 is identity theft, as the IRS has already prevented more than $1.4 billion in taxpayer dollars from going to the wrong hands. But they can’t catch them all. Two Long Island, N.Y. women were just indicted for allegedly using identities stolen via Craigslist ads to file false tax returns and take out loans.

The IRS will send a notice to a taxpayer if more than one return was filed in their name and identity theft is suspected.

Now see 9 easy ways to spot a fraudulent tax preparer >

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