12 Tax Scams to Avoid in 2012
Beware of the Dirty Dozen Tax Scams
This time of year is not only tax filing time, but also the time of year that tax scams are rampant. You will often hear or read about ways you can obtain lost refunds or keep from paying any income taxes at all. Don’t believe everything you hear or read!
Each year, the IRS releases a “Dirty Dozen” ranking of tax scams. This past week the IRS released the following Dirty Dozen Tax Scams for 2012:
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Identify Theft – The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer’s identity and personal information to file a tax return and claim a fraudulent refund. An IRS notice informing a taxpayer that more than one return was filed in the taxpayer’s name or that the taxpayer received wages from an unknown employer may be the first tip off the individual receives that he or she has been victimized. Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit. For more information, visit the special identity theft page at www.IRS.gov/identitytheft.
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Phishing—This is carried out via unsolicited e-mails or fake websites that lure you into providing your personal and financial information. These e-mails will usually ask for your personal information, such as date of birth, social security number and bank account numbers. Keep in mind that IRS will not e-mail you. If they need to contact you they will send you a letter.
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Return Preparer Fraud—Unfortunately there are some return preparers who are unscrupulous and they will try to skim off part of your tax refund or encourage you to use false information on your return so you will obtain a larger refund. For more information, visit Tips for Choosing a Tax Preparer on the IRS website.
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Hiding Income Offshore—Some individuals have evaded U.S. income taxes by hiding income offshore or using foreign trusts and then not fulfilling the reporting requirements for assets held offshore. There are significant penalties for not filing the proper reports and the possibility of criminal prosecution.
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“Free Money” from the IRS & Tax Scams Involving Social Security—Be suspicious of advertisements, flyers and “friends” suggesting you can file a tax return with little or no documentation and obtain a refund. Scammers will also try to lure you in with a promise of a non-existent Social Security refund in order to obtain your Social Security number.
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False/Inflated Income and Expenses—Under this scam, you are lead to believe that by claiming income that you did not earn on your tax return, you will qualify for the Earned Income Tax Credit. If you fall for this, you could have serious repercussions such as having to repay the refund, plus penalties and interest and perhaps even criminal prosecution.
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False Form 1099 Refund Claims—Don’t be misled into thinking you can file a fake Form 1099-OID, report it on your return and receive a refund. This is based on a bogus theory that the government maintains secret accounts for U.S. citizens and that you can gain access to the accounts by issuing a Form 1099-OID to the IRS.
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Frivolous Arguments—Promoters of these schemes encourage you to make an unreasonable claim in order to avoid paying taxes you owe. Click here for an IRS listing of frivolous tax arguments you should avoid.
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Falsely Claiming Zero Wages—This scheme encourages you to file a phony information return, such as a substitute W-2 or corrected 1099 to reduce or zero out your income. Filing this type of return or form could result in a $5,000 penalty.
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Abuse of Charitable Organizations and Deductions—The IRS is actively investigating schemes that involve the donation of non-cash assets that are highly overvalued and attempts by donors to maintain control of donated assets or the income from donated property.
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Disguised Corporate Ownership—This scam encourages you to setup a corporation that obscures the true ownership of the business and then to underreport income, claim bogus deductions, facilitate money laundering or perform other financial crimes.
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Misuse of Trusts—There are legitimate uses of trusts, but the IRS is seeing an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. Before setting up a trust, be sure to obtain the advice of a trusted professional.
For more details about the 2012 “Dirty Dozen”, you can read the full IRS article. Please note that the official IRS website is: http://www.irs.gov.
Would you like more information about about tax scams? Contact me at Connie.Cushing@warrenaverett.com or 850.435.7400 if you have any questions or wish to discuss a particular topic in more detail.