Each year, the Internal Revenue Service (“IRS”) compiles an annual list of the common scams taxpayers may come across. Such scams tend to peak during filing season as taxpayers are preparing their own returns or hiring someone to prepare it for them. This year, in order to raise consumer awareness, the IRS is released one Dirty Dozen scam per day. Here are the final six scams about which the IRS is warning taxpayers:
7. Fake Charities. The IRS warns consumers to be aware of groups posing as a charitable organization to attract donations from unsuspecting contributors. The IRS offers three basic recommendations to taxpayers making charitable donations: (i) Be wary of charities with names similar to familiar or nationally known organizations; (ii) Don’t give out personal financial information (Social Security number, passwords, etc.) to anyone who solicits you for a donation; and (iii) Don’t give or send cash-use check or credit card to document the gift. A variation of the fake charity is impersonators of legitimate charities which tend to proliferate after significant natural disasters. For more information regarding fake charities, click here.
8. Filing Fake Documents to Hide Income. Taxpayers should not file a false Form 1099 or other fake documents to hide actual taxable income and should be wary of any tax preparer who suggests filing fake documents as a way to reduce tax liability. The IRS is well-aware of this scam, the courts have consistently rejected attempts to use this tax dodge and perpetrators have received significant penalties, imprisonment or both. Just filing this type of return may result in a $5,000 penalty. For more information about fake tax documents, click here.
9. Abusive Tax Shelters. Abusive tax schemes have evolved from simple structuring of abusive domestic and foreign trust arrangements into sophisticated strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions. IRS Criminal Investigation (CI) has developed a nationally coordinated program to combat abusive tax schemes. CI’s primary focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme, such as accountants or lawyers. Just as important is the investigation of investors who knowingly participate in abusive tax schemes. For more details on the IRS’s efforts against abusive tax shelters, click here.
10. Falsifying Income. 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. Falsifying income in order to receive a greater refund or credit could result in taxpayers facing a large bill to repay the erroneous refunds, including interest and penalties. In some cases, they can even face criminal prosecution. Often, this scam is presented by an unscrupulous tax preparer. For more information on falsifying income and tips on choosing a tax preparer, click here.
11. Excessive Claims for Fuel Tax Credits. Improper claims for the fuel tax credit generally come in two forms. An individual or business may make an erroneous claim on their otherwise legitimate tax return. Or an identity thief may claim the credit in a broader fraudulent scheme. For the upcoming filing season, the IRS has taken additional steps to identify returns for review that claim fuel tax credits, including broadening the identification criteria to ensure a more comprehensive compliance approach in selecting questionable tax returns. For more information on the Fuel Tax Credits, click here.
12. Frivolous Tax Arguments. The IRS released the 2015 version of “The Truth about Frivolous Tax Arguments”, which describes and responds to some of the common frivolous tax arguments made by those who oppose compliance with federal tax laws. The cases cited in the document demonstrate how frivolous arguments are treated by the IRS and the courts. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. 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. For more information on frivolous tax arguments, click here.