Every year the Internal Revenue Service (IRS) issues a list called the “Dirty Dozen.” The “Dirty Dozen” consists of the twelve most commonly used tax scams and fraudulent tax crimes of the previous year. The IRS urges all taxpayers to use caution, due to this being the most prevalent time these scams are carried out.
Below is a list and short description of each scam.
• Identity Theft is the most common tax scam and due to evolving technology, it is quickly becoming the most complex scam for the IRS to track. Thieves are collecting personal and financial information, then proceeding to file and collect tax refunds. The IRS was able to protect $1.4 billion from being wrongfully issued in 2011, in various identity theft schemes. If a taxpayer is issued a statement that more than one return has been filed, this is a red flag and the taxpayer should contact the IRS immediately.
• Phishing is a scam that is typically carried out by the use of a fictitious e-mail account. The scam artist will create an email address that will trick taxpayers into disclosing their personal and financial information, and then use this information to collect tax refunds in their name. In some cases, the scam will claim to be the IRS or an affiliate in need of personal information. Taxpayers should be aware that the IRS would never initially approach anyone through e-mail. Such e-mails should immediately be reported to the IRS at email@example.com.
• Return Preparer Fraud is a commonly used tax scam. Many taxpayers use a preparer to file their tax returns and some are scammed out of their refunds due to return preparer fraud. Two common ways preparer fraud is committed is by “skimming off” the refunds belonging to taxpayers and also some preparers charge inflated fees. Starting in 2012 there is a requirement for any preparer to enter an identification number before filing another persons’ tax return, to try to reduce the potential for fraud.
• Hiding Offshore Income is a way many wealthy Americans have gotten away with tax evasion. Americans hide a large portion of their income in offshore accounts and use mostly wire transfers to access their money. Those who commit tax evasion by hiding income offshore can be charged fines and penalties and can be criminally prosecuted by the federal government. In 2009 due to the Offshore Voluntary Disclosure Program, about 30,000 Americans came forward and cleared themselves of their tax evasions.
• “Free Money” scams are typically targeted towards the lower income sector of taxpayers and the elderly. Scam artists approach taxpayers with hopes of free money due to refunds from their social security checks. These individuals are then scammed out of their own money for the services to submit these refunds, when their claims are ultimately rejected.
• Inflated Income and Expenses are another tax scam where taxpayers claim income that was not earned or they inflated the actual amount of income in order to collect a larger sum in their refund. In other cases, taxpayers falsely claim expenses to collect a refund on them.
• False Refund Forms such as a 1099 are typically filed to justify a false refund. Many taxpayers are under the impression that the government has a secret account to issue refunds for U.S. citizens if these forms are filed. This can ultimately result in penalties and criminal prosecution.
• Frivolous Arguments is a type of scheme taxpayers who owe the government large sums of money typically try to use in their court cases. Taxpayers are allowed to contest their tax obligations, but the use of false or unreasonable claims in court can result in cases being thrown out.
• Falsely Claiming Zero Wages is a tax scam used to reduce the amount of taxes the taxpayer owes.
• Abuse of Charitable Organizations and Deductions is another scam where certain organizations claim donations of a non-cash asset at an over-valued price to ultimately collect on it.
• Disguised Corporate Ownership is a scam conducted by the formation of a third party to try and hide the ownership of the corporation. These entities are used to hide assets, income and report false deductions. Many are also used to enable money laundering.
• Misuses of Trusts are a way to evade taxes by promising a reduction of income that would be subject to tax. Some of the uses are legal however many times the IRS has found that many use this to hide assets.
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