The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns. The following are the Dirty Dozen tax scams for 2013:
- Identity Theft – Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes.
- Phishing – Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity or financial theft.
- Return Preparer Fraud – Most return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.
- Hiding Income Offshore – While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.
- “Free Money” from the IRS & Tax Scams Involving Social Security – Scammers build false hopes and charge people good money for bad advice including encouraging taxpayers to make fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
- Impersonation of Charitable Organizations – Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers
- False/Inflated Income – Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam
- False Form 1099 Refund Claims – Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.
- Frivolous Arguments – Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid (http://www.irs.gov/Tax-Professionals/The-Truth-About-Frivolous-Tax-Arguments-Introduction)
- Falsely Claiming Zero Wages – Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. Filing this type of return may result in a $5,000 penalty.
- Disguised Corporate Ownership – Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business. These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering and financial crimes.
- Misuse of Trusts – While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.
Make sure you always consult with a TRUSTED advisor so you don’t do something illegal unintentionally. No matter who helps you with your tax filings, ultimately it is you, the taxpayer, who will be held liable for penalties and interest on taxes due.
If you don’t have a CPA you can trust, we can be a resource for you. Don’t hesitate to contact us for a referral. We can be reached at 310-534-5577 or [email protected].
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