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John Bair
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Avoiding Tax Scams as April Approaches

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This week, the Internal Revenue Service (IRS) announced its “Dirty Dozen” list of tax scams. The annual list highlights schemes taxpayers may encounter throughout the year, many of which peak during tax-filing season.

Taxpayers must be diligent in guarding against ploys to steal “…personal information, scam them out of money or talk them into engaging in questionable behavior with their taxes,” the IRS notes in a recent press release. That means staying stay alert to new and evolving schemes like those listed below.

IRS Dirty Dozen

Read the full press release here.

Here are this year’s “Dirty Dozen” scams:

Phishing

In these email scams, criminals pose as a person or organization the taxpayer recognizes. They may hack an email account and send mass emails under another person’s name.  They may pose as a bank, credit card company, tax software provider or government agency.

What to Do

Be on guard against fake emails or websites looking to steal personal information. Don’t click on one claiming to be from the IRS, because the IRS will never initiate contact with taxpayers via email about a bill or refund.

Phone Scams

In these phone calls, criminals impersonate IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things.

What to Do

Don’t be fooled by unexpected phone calls by someone who claims to be an IRS agent and threatens or promises of a big refund if you provide them with personal information. “If you’re surprised to get a call from the IRS, it almost certainly isn’t the real IRS,” said IRS Commissioner John Koskinen.

Identity Theft

Some criminals file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front, but taxpayers still need to be extremely cautious and do everything they can to avoid being victimized.

What to Do

Watch out for identity theft especially around tax time. Pay attention to your credit card bills and bank account statements now and year-round, and alert the proper financial institution if something isn’t right.

Return Preparer Fraud

The vast majority of tax professionals provide honest high-quality service, some dishonest preparers perpetrate refund fraud, identity theft and other scams that hurt taxpayers.

What to Do

Be on the lookout for unscrupulous return preparers. Choose your tax return preparer carefully by asking for an IRS Preparer Tax Identification Number (PTIN). You can also check the preparer’s qualifications through the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

Fake Charities

Groups masquerade as charitable organizations to attract and steal “donations” from unsuspecting contributors.

What to Do

Be wary of groups with names similar to familiar organizations. IRS.gov has the tools to check out the status of charitable organizations. Don’t give or send cash, and do not give out personal financial information, such as Social Security numbers or passwords, to anyone who solicits a contribution.

Inflated Refund Claims

Fraudsters use flyers, advertisements, phony storefronts and word of mouth via community groups where trust is high to find victims who will fall for the promise of inflated refunds.

What to Do

Taxpayers should be on the lookout for anyone promising inflated refunds. Be wary of anyone who asks taxpayers to sign a blank return, promises a big refund before looking at records or charges fees based on a percentage of the refund.

Excessive Claims for Business Credits

Business credit is usually limited to off-highway business use, including use in farming. Improper claims often involve failures to participate in or substantiate qualified research activities and/or satisfy the requirements related to qualified research expenses.

What to Do

Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers.

Falsely Padding Deductions on Returns

Falsely inflating deductions or expenses on their returns, to pay less than what is owed or potentially receive larger refunds, is illegal.

What to Do

Think twice before overstating deductions such as charitable contributions and business expenses or improperly claiming credits such as the Earned Income Tax Credit or Child Tax Credit.

Falsifying Income to Claim Credits

Taxpayers are sometimes talked into doing this by con artists. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties, and even criminal prosecution.

What to Do

File the most accurate return possible. You are legally responsible for what is on your return.

Abusive Tax Shelters

Some criminals use abusive tax structures and sell “tax shelters” they say will allow a person to avoid paying taxes.

What to Do

Be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered.

Frivolous Tax Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims even though they have been repeatedly thrown out of court.

What to Do

Don’t use frivolous tax arguments to avoid paying tax. 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.

Offshore Tax Avoidance

The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore.

What to Do

Come in and get caught up on tax-filing responsibilities. The IRS offers the Offshore Voluntary Disclosure Program to enable people to catch up on their filing and tax obligations.

Perpetrators of illegal schemes can face significant fines and possible criminal prosecution by the IRS Criminal Investigation and the Department of Justice. Taxpayers should keep in mind that they are legally responsible for what is on their tax return, even if it is prepared by someone else.

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