As taxpayers frantically get their paperwork together to file their tax returns, scammers are in overdrive.
This is the peak season for tax scams, according to the IRS, which released its annual “Dirty Dozen” — the most common tax scams around.
Some of the schemes are old, some are new and some are returning scams with fresh twists. Some are perpetrated by dishonest tax preparers, and some by ordinary people.
Here’s a look at them all.
Phishing scams continue to target taxpayers. (pixabay.com)
Scammers use fake emails to try to trick taxpayers — and tax preparers — into revealing personal information.
Phishing isn’t new, but scammers have added several new twists.
One new scheme involves a taxpayer’s own bank account.
“After stealing client data from tax professionals and filing fraudulent tax returns, the criminals use taxpayers’ real bank accounts to direct deposit refunds,” the IRS said. “Thieves are then using various tactics to reclaim the refund from the taxpayers, including falsely claiming to be from a collection agency or representing the IRS.”
The emailer poses as a person or organization the recipient trusts or recognizes, the IRS said. To do this, the scammers may hack an email account and send mass emails under another person’s name, or they may pose as a bank, credit card company, tax software provider or government agency.
“Criminals go to great lengths to create websites that appear legitimate but contain phony log-in pages,” the IRS said. “These criminals hope victims will `take the bait’ and provide money, passwords, Social Security numbers and other information that can lead to identity theft.
Beware of phone calls from someone who says they work for the IRS. (pixabay.com)
Phone scams
Phone scams continue to be a favorite of IRS scammers.
The IRS said during filing season, it generally sees a surge in scam phone calls threatening arrest, deportation and license revocation if the victim doesn’t pay a bogus tax bill.
In these scams, the caller will impersonate an IRS official, saying the victim needs to send cash — usually through a wire transfer or prepaid debit card.
The IRS said these scammers often change caller ID numbers to make it look like the IRS or another legitimate agency is calling, and they often have private information about the intended victim to make the call sound official.
The agency said it will never call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, it said, the IRS will first mail a bill if you owe taxes.
The IRS said reports of tax-related identity theft been on the decline, but it’s still widespread enough to make the “Dirty Dozen” list.
The numbers are an improvement, with a 40 percent decline in 2017 over the previous year, the agency said, with 242,000 reports from taxpayers in 2017 compared to 401,000 in 2016.
But it still happens.
“Tax-related identity theft occurs when someone uses a stolen Social Security number or Individual Taxpayer Identification Number (ITIN) to file a fraudulent tax return claiming a refund,” the IRS said.
To protect yourself, the IRS recommends you and your tax preparer always use security software with firewall and anti-virus protections, and that you always encrypt sensitive files such as tax records. Don’t click on fishy emails, and keep your personal information safe.
Some tax preparers take advantage of their clients. Know how to find a good one. (pixabay.com)
More than half of all taxpayers use a pro to prepare their returns, but unfortunately, there are many “unscrupulous tax preparers looking to make a fast buck from honest people seeking tax assistance.”
The IRS said that while the majority of tax pros are honest, taxpayers need to be on the lookout for trouble.
It recommends you choose carefully, and don’t get taken in by a preparer who doesn’t understand tax law or who convinces you to take credits or deductions you don’t deserve.
Also check the Better Business Bureau and your state’s board of accountancy, or for an Enrolled Agent, go to IRS.gov and search for “verify enrolled agent status” or check its Directory.
Also make sure you understand a tax preparer’s fees before you hire him, and avoid preparers who base fees on a percentage of their client’s refund.
And never, ever sign a blank return.
Fake charities remain on the “Dirty Dozen” list.
“These ‘fake’ charities attempt to attract donations from unsuspecting contributors, using a charitable reason and a tax deduction as bait for taxpayers,” the IRS said.
But if the charity isn’t the real thing, a scammer gets your money and you lose out on a tax deduction.
Before you give, research the charity.
The IRS warns that some scammers use charity names that are similar to real organizations. To check, you can use the IRS’ Select Check tool. Also know that legitimate charities will give you their Employer Identification Number (EIN) so you can verify the charity.
When you give, make sure you don’t share private information like your Social Security number, and never give your credit card number unless you’ve verified the charity.
We all want the biggest possible refund, but the IRS said unsavory tax preparers — who often target low-income people, older folks and non-English speakers — may promise big refunds the taxpayer doesn’t qualify for.
“Con artists dupe people into making claims for fictitious rebates, benefits or tax credits,” the IRS said. “They may also file a false return in their client’s name, and the client never knows that a refund was paid.”
Among the scams, these criminal preparers may use fake Form 1099s or W-2s, tell taxpayers the federal government keeps “secret accounts for U.S. citizens” to claim special refunds and other chicanery.
Just as dodgy tax preparers will try to get taxpayers to take deductions and credits that aren’t deserved, they will also target businesses.
The IRS said two common credits targeted for abuse by shady return preparers include the research credit and the fuel tax credit. Both are legit credits, but only if a business qualifies.
To see if your business qualifies, learn more about the research credit here, and the fuel tax credit here.
While you want to take as many deductions as possible, an unscrupulous tax preparer may recommend you overstate what you qualify for.
Common areas for “deduction inflation,” the IRS said, include overstating charitable contributions, padding business expenses or including credits that they are not entitled to receive – such as the Earned Income Tax Credit or Child Tax Credit.
“If a return preparer suggests using these options improperly, the taxpayer is at risk – and the person who provided the advice is long gone,” the IRS said.
So before you take deductions or credits, make sure you’re eligible and that you have the paperwork needed to back them up in the case of an audit.
When a taxpayer or tax preparer creates fake income from false jobs or phony self-employment — income that comes with a fake Form 1099 or W-2 — it’s usually so the taxpayer will seem to qualify for certain tax credits or deductions.
The consequences are pretty serious.
“Taxpayers can face a large bill to repay the erroneous refunds, including interest and penalties,” the IRS said. “In some cases, they may even face criminal prosecution.”
The IRS said unsavory tax preparers encourage taxpayers to make “unreasonable and outlandish legal claims to avoid paying their taxes,” the IRS said. “Time and again, these arguments have been thrown out of court.”
Among the common claims, the IRS said, is that the First Amendment allows taxpayers to refuse to pay taxes on religious or moral grounds, the only “employees” subject to federal income tax are those who work for the federal government, and only foreign-source income is taxable.
All untrue, the IRS said.
Those who file a frivolous tax return could be subject to a $5,000 fine or in some cases, criminal prosecution. You can learn more about what’s considered frivolous hereand here.
Don’t let someone pull you into a tax shelter that doesn’t follow the rules. (pixabay.com)
When you hear “tax shelters,” you probably think of complicated strategies used by the uber-rich to hide their money from Uncle Sam.
Some are legit, but others are scams.
“These scams can range from simple schemes to inflate refunds to more elaborate efforts related to tax shelters,” the IRS said. “These sophisticated schemes, particularly those involving micro-captive insurance shelters, can be peddled by promoters and others to avoid taxes.”
The scams are a perversion of tax law, which allows businesses to create so-called “captive” insurance companies to protect against certain risks, and the insured business can claim deductions for premiums paid.
But questionable versions of the shelters lack many of the attributes of genuine insurance, the IRS said.
The goal? Tax avoidance or tax evasion.
We won’t get into the nitty-gritty here, but you can read more from the IRS.
It’s probably enough to say that if anyone approaches you about a captive insurance shelter, think carefully before biting.
Don’t miss your chance to bring in money you’ve been hiding from Uncle Sam in overseas accounts. (pixabay.com)
Lots of people joke about hiding assets in offshore accounts. But for others, these accounts are tax havens used to rip off the IRS.
Holders of these accounts access the funds using debit cards, credit cards or wire transfers to get to the cash without American authorities noticing.
But the IRS is onto the cheaters, and it does notice.
The agency said it’s collected more than $11.1 billion from the Offshore Voluntary Disclosure Program (OVDP) since it opened in 2009. The program will end in September 2018, but taxpayers are still required to report these funds.
The IRS said it also conducted thousands of offshore-related civil audits resulting in the payment of tens of millions of dollars in unpaid taxes, plus criminal charges leading to billions of dollars in criminal fines and restitutions.
If you’re hiding cash, there’s still time to participate in the Offshore Voluntary Disclosure Program.
How to report scams, schemes and other tax misdoings. (pixabay.com)
If you receive an email from someone who says they represent the IRS, report it by forwarding the email to phishing@irs.gov. Tax professionals can use the same email to report any scams they see.
If you receive a call from someone who says you owe taxes and must pay immediately, just hang up.
If you think you could owe, or if you’re not sure, call the IRS directly at (800) 829-1040.
If you don’t think you owe anything, you can report the call to the Treasury Inspector General for Tax Administration (TIGTA) by using its impersonation scam reporting pageor call (800) 366-4484.
You can also report it to the Federal Trade Commission here, and add “IRS Telephone Scam” in the notes section.
And finally, you can report unscrupulous tax preparers and suspected tax fraud to the IRS. You can use Form 14157, Complaint: Tax Return Preparer. If you believe your tax preparer is filing or changing a return without your consent, also Form 14157-A, Return Preparer Fraud or Misconduct Affidavit.
