Complete IRS "Dirty Dozen" List of Tax Scams for 2016

Tax season is here, and so are criminals ready to scam you out of your money or refunds. The IRS says, "Remember - if it sounds too good to be true, it probably is."

In an effort to educate and protect taxpayers, the IRS has compiled a list of the twelve most common scams to avoid during the 2016 filing season, called the "Dirty Dozen." Top priority are identity theft scammers and senders of false e-mail communications. The full list is summarized here:

  1. Identity theft
    We previously discussed the IRS's top priority tax scam here.
  2. Phone scams
    Be wary of callers impersonating the IRS or tax professionals and requesting personal information or making threats to coerce you to make an immediate payment. As IRS Commissioner John Koskinen says, "If you are surprised to be hearing from us, then you're not hearing from us. 
  3. Phishing
    The IRS has seen a 400% increase in this type of crime this year. Similar to phone scamming, you may receive an e-mail purportedly from the IRS asking for personally identifying information or requesting immediate payment through a false website link. Read more here.
  4. Return preparer fraud
    Not all tax return preparers are honest. Beware of "preparers that tout outlandish refunds based on federal benefits or tax credits you've never heard of or weren't eligible to claim in the past." Ask for credentials, post-filing contact information, and their preparing history. To start your search for a good tax preparer, the IRS has created a directory of credentialed and qualified preparers.
  5. Hiding money or income offshore
    The IRS does not prohibit keeping money in foreign accounts, but it does have reporting requirements related to them. There are a number of IRS programs, including the Offshore Voluntary Disclosure Program, for you to come into compliance with these requirements. Don't get caught hiding money abroad!
  6. Inflated refund claims
    Dishonest tax preparers who base their fee on a percentage of your refund may promise you larger refunds than you are due by claiming credits you are not entitled to. This can cause problems later, if the false income claims trigger a review or suspension of your federal benefits, such as Social Security income.
  7. Fake charities
    Make sure the charity you donate to is real and qualifies for deductible contributions using the IRS's Exempt Organizations Select Check tool. Ask your preferred charity for their federal identification number---fake charities will often use names similar to those of legitimate charities to steal your personal information.
  8. Falsely padding deductions
    Be honest when claiming your charitable contributions and business expenses. If you are caught overstating expenses or claiming credits you are not entitled to, you may be subject to substantial penalties and possibly face criminal prosecution.
  9. Excessive claims for business credits
    The IRS is specifically focused on fraudulent claims for fuel excise tax refunds and research tax credits.
  10. Falsifying income to claim tax credits
    Many taxpayers and tax preparers get caught making false claims about income in order to qualify for various tax credits, particularly the Earned Income Tax Credit. Whether deliberate or not, this can subject you to significant penalties, interest, and possibly prosecution.
  11. Abusive tax shelters
    Abusive tax shelters are defined as "schemes using multiple flowthrough entities to evade taxes" to conceal who owns the income or assets. These entities can be various types of businesses, trusts, or even insurance companies.  According to IRS Commissioner John Koskinen, "These schemes can end up costing taxpayers more in back taxes, penalties, and interest than they saved in the first place."
  12. Frivolous tax arguments
    "Taxpayers should avoid unscrupulous promoters of false tax-avoidance arguments because taxpayers end up paying what they owe plus potential penalties and interest mandated by law," Koskinen said. Attempting to use a frivolous argument to avoid paying taxes automatically subjects you to a $5,000 penalty.

If you know of a tax fraud, you can report it to the IRS by sending completed Form 3949-A, Information Referral, to Internal Revenue Service, Fresno, CA 93888. Download the form here or call 1-800-829-3676 to order by mail.

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