“Dirty Dozen”: IRS releases top 2012 Tax Scams
It’s two months to tax day and as the IRS begins to process returns, it is on the look-out for the top tax scams, and reminding taxpayers to protect themselves against bogus tax activities ranging from identity theft to misleading charitable donations.
Making this year’s IRS “Dirty Dozen” tax scams are:
· Identity theft – As identity thieves continue their attempt to use a taxpayer’s personal information to file a fake tax return and gain an illegitimate refund, the IRS is stepping up its efforts to crack down on these illegal activities. In 2011, the IRS stopped more than $1.4 billion in refunds from being issued to the wrong person. It already has plans in place to increase its efforts this year. If you believe your personal information has been inappropriately used for tax purposes, contact the IRS Identity Protection Specialized Unit at www.IRS.gov/identitytheft or (800) 908-4490.
· Phishing – While phishing – the use of an unsolicited email or fake webpage to gain your personal information – can occur year-round, tax season offers another avenue for scammers to approach you for your information. Scammers can gain your information from an e-mail, a website, a text message or a social media site, such as Facebook. If you receive any unsolicited e-mail appearing to be from the IRS, do not open any attachments or links. Instead, forward the e-mail to email@example.com. Remember the IRS does not initiate contact with taxpayers by email to request any personal or financial information.
· Unregistered Tax Preparers- Approximately 60% of all taxpayers work with a paid tax preparer to complete their tax returns. While the IRS recognizes the majority of return preparers provide honest and accurate work, it also encourages taxpayers to be careful when selecting their preparers. Unethical preparers have been known to skim off refunds, charge inflated fees or to promise unrealistic refunds.
To help taxpayers identify legitimate tax preparers, all paid preparers must now have a Preparer Tax Identification Number (PTIN) and include it on each return they prepare. IRS officials warn about preparers that:
o Do not sign the return or do not place a Preparer Tax Identification Number on the return
o Charge a percentage of the refund amount as a preparation fee
o Add forms that you previously did not file
o Do not provide you with a copy of your tax return forms.
· Offshore income – While the IRS recognizes there can be legitimate reasons to have offshore accounts, it has stepped up its efforts to pursue taxpayers that attempt to evade taxes by hiding income in offshore banks or other accounts, including debit and credit cards. As a part of its efforts, the agency is again offering taxpayers the opportunity to voluntarily disclose any foreign accounts. Since the effort began in 2009, over 30,000 individuals have stepped forward. The program is open for an extended period.
· No “Free” Money – Whether hearing about it word of mouth or through a flyer at a local coffee shop or church, new scams entice taxpayers by claiming they can file a return with little or no documentation. Often targeting the elderly or low-income individuals, these scams frequently end with the return being rejected, the taxpayer owing money and/or penalties and the scammer long gone. The IRS warns that a false return can result in a $5,000 penalty.
· Over-inflated income or expenses – Scammers often encourage taxpayers to fabricate income or expenses to earn a larger refund. However, according to the IRS, claiming income you did not earn or expenses you did not pay to secure a large refundable credit, such as the Earned Income Tax Credit. Fabricating income or expenses can result in the repaying of the refund, including interest and penalty and, in some cases, prosecution.
· False Forms – In a related scam, the IRS notes some people may file a fake information return to receive a false refund or that they may allow another individual to use their information to file a false return. The IRS notes that anyone filing a false form for such a scheme could face financial penalties or even criminal prosecution.
· Unallowable arguments – A scammer may tell you they have the greatest scheme to keep you from having to pay your income taxes. Don’t believe it! The IRS maintains a list of frivolous tax arguments that have thrown out of court and cannot be used against the IRS.
· Zero wages – Attempting to lower the amount of taxes owed by filing a fake “corrected” wage form is illegal. While a form does exist for special circumstances, use of the form to falsely reduce your wages for tax purposes may result in a penalty up to $5,000.
· Inflating charitable donations – It seems easy to overvalue the items donated to a charitable organization; however, the IRS keeps a close watch on charitable deductions, especially any high-value deductions. The agency is especially wary of non-cash assets, which can be used to shield money from taxation. Current regulations impose stiff penalties for inaccurate appraisals and set standards for qualified appraisals.
· Covering corporate ownership – Persons owning corporations that attempt to hide their true ownership may want to re-think that action. Corporations with vague – ownership have been used to underreport income, claim false deductions, avoid filing tax returns or other financial crimes, and the IRS is working with state authorities to identify corporations hiding their ownership paths.
· Improper use of trust – An appropriately executed trust can be a proper financial tool, especially in the estate planning arena. However, some scammers promise tax benefits from trusts that are outside the areas of their legitimate use. As with any financial and legal action, taxpayers should seek the advice of a trusted and experienced professional when entering in a complex legal arrangement such as a trust.