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IRS Dirty Dozen Tax Scams for 2017

Posted on April 2nd, 2017

Compiled annually by the IRS, the “Dirty Dozen” is a list of common scams taxpayers may encounter in the coming months. While many of these scams peak during the tax filing season, they may be encountered at any time during the year. Here is this year’s list:

  1. Identity Theft

Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. Taxpayers should use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues because scams can take on many sophisticated forms, according to IRS Commissioner John Koskinen.

  1. Phone Scams

Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers. In recent weeks, the agency has seen a surge of these phone scams as scam artists threaten police arrest, deportation, license revocation and other things.

  1. Phishing

Phishing schemes using fake emails or websites are used by criminals to try to steal personal information. Criminals create websites that appear legitimate but contain phony log-in pages, hoping that victims will take the bait so they can steal the victim’s money, passwords, Social Security number and identity.  Scam emails and websites also can infect your computer with malware without you even knowing it.

  1. Tax Return Preparer Fraud

There are some dishonest tax preparers who set up shop each filing season. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to in order to increase their fee. Illegal scams can lead to significant penalties and interest and possible criminal prosecution.

  1. Hiding Money or Income Offshore

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 requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

  1. Inflated Refund Claims

Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place. Because taxpayers are legally responsible for what is on their returns (even if it was prepared by someone else), those who buy into such schemes can end up being penalized for filing false claims or receiving fraudulent refunds.

  1. Fake Charities

Taxpayers should be aware that phony charities use names or websites that sound or look like those of respected, legitimate organizations. Scam artists use a variety of tactics including contacting people by telephone or email to solicit money or financial information.

  1. Falsely Padding Deductions on Tax Returns

Falsely claiming deductions, expenses or credits on tax returns is on the “Dirty Dozen” tax scams list for the 2017 filing season. The IRS warns taxpayers that they should think twice before overstating deductions such as charitable contributions, padding their claimed business expenses or including credits that they are not entitled to receive.

  1. Excessive Claims for Business Credits

Improper claims for business credits such as the fuel tax and the research credit are also on the IRS “Dirty Dozen” list this year. The fuel tax credit is generally limited to off-highway business use or use in farming, and is not available to most taxpayers. Still, the IRS routinely finds unscrupulous tax preparers who erroneously claim the credit to inflate their refunds.  The research credit is also an important feature in the tax code to foster research and experimentation by the private sector; however, the IRS does see a significant amount of misuse of the research credit each year.

  1. Falsifying Income to Claim Credits

This scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income, usually in order to maximize refundable credits. Just like falsely claiming an expense or deduction you did not pay, claiming income you did not earn in order to secure larger refundable credits could have serious repercussions.

  1. Abusive Tax Shelters

Phony tax shelters and structures to avoid paying taxes may use Limited Liability Companies (LLCs), Limited Liability Partnerships (LLPs), International Business Companies (IBCs), foreign financial accounts, offshore credit/debit cards and other similar instruments. Trusts also commonly show up in abusive tax structures. Another abuse involving a legitimate tax structure involves certain small or “micro” captive insurance companies. Taxpayers should steer clear of these types of schemes as they can end up costing taxpayers more in back taxes, penalties, and interest than they saved in the first place

  1. Frivolous Tax Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe, such as on religious or moral grounds by invoking the First Amendment.  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.

Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else.

For more details, read the full article here:  IRS Dirty Dozen Tax Scams for 2017.


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