In the last post we discussed the dangers of picking the wrong tax preparer as well as the stiff consequences of hiding income and assets from the IRS via offshore accounts. Continuing the topic of this year’s “dirty dozen” scams and schemes, we will cover charity scams as well as reporting false income/exemptions and frivolous arguments to the IRS.
Impersonation of Charitable Organizations
Another common type of scam is done by those who impersonate charities and prey upon individuals who want to help victims of natural disasters. We have discussed this topic recently as a blog post; if you are considering making a charitable donation, be sure to follow the link and stay up-to-date to avoid potential scams. The IRS has a toll-free disaster assistance telephone number (866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.
False Income, Expenses or Exemptions
When reporting income on your tax return, reporting the absolutely accurate numbers is essential; anything else is a crime. Some individuals will report income that they never earned in order to maximize their refundable credits, like the Earned Income Tax Credit for example. However, these individuals face serious repercussions, such as repaying the erroneous refunds (along with interest and penalties) and prosecution in some cases. The same is true for those who file excessive claims for the fuel tax credit (or file for the claim when they are not actually eligible for it). The fuel tax credit is meant for farmers and a few others who use fuel for off-highway business purposes—but misuse of the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.
Frivolous Arguments
Like the childish lie “the dog ate my homework” schoolchildren try to use, even some taxpayers use frivolous claims and excuses to avoid their tax responsibility. The IRS has an entire list of frivolous tax arguments that taxpayers should avoid—these arguments have already been thrown out of court. Those who use such frivolous arguments get more than a hand slap or a trip to the principal’s office – this is considered a felony and is prosecuted as such. Other penalties may include an accuracy-related penalty, a civil fraud penalty, an erroneous refund claim penalty, or a failure to file penalty. Any action of willfully making and signing under penalties of perjury any return, statement, or other document that the person does not believe to be true and correct may result in the conviction of a felony.
Although no one likes to pay taxes, we are responsible to pay our share. Avoiding this through false deductions, overstating income to claim credits, or other methods is illegal and will be punished if caught. Make sure the information you file is accurate to avoid the risk of penalties, interest, and potentially a jail term.
