As a little girl, I was always interested in eavesdropping on my parents’ money conversations, and I remember very well their talks during the “Ides of Tax” season, when they looked under every rock for deductions!
Sounds familiar, doesn’t it? And while my folks had five legitimate little deductions (me my brother and sisters), I was always entertained by their whispering about so-and-so who claimed extra children, or even their dogs, to get the best of Uncle Sam.
Those tax schemes were usually ratted out by neighbors or well-meaning friends, and the Internal Revenue Service didn’t have to be too sophisticated to ferret them out.
If only tax fraud were so simple these days!
Today, technology has made the proliferation of tax fraud countless times worse, with hypesters and con artists preying on people who fall victim, knowingly or unknowingly, to their schemes and scams.
The IRS has just released its annual “Dirty Dozen” list of tax scams to remind taxpayers to be cautious, and also to inform us that participation in these scams, voluntary or not, can lead to not only big penalties and interest but also a tour of the criminal court system. Let’s take a look.
First, the schemes that require your vigilance:
These are some of the most sophisticated scams identified by the IRS.
Symptoms: When you receive a notice from the IRS that multiple returns have been filed by you or wages from an unknown employer were submitted.
An unsolicited email with a fake IRS website that looks legitimate. If you click on the site, the fraudster can gain access to your computer, where your personal and financial information is stored.
Symptoms: Unsolicited emails that look like they came from the IRS or a sister organization, such as the Electronic Federal Tax Payment System (EFTPS).
Skimming refunds, higher-than-normal tax-prep fees, and inflated refunds are in this group. The IRS says about 60% of taxpayers hire someone to prepare their taxes, and preparer fraud has grown so much that in 2012, paid preparers must enter a Preparer Tax Identification Number (PTIN) on any returns they prepare.
Symptoms: No PTIN, you don’t receive a copy of your return, the guarantee of a refund that sounds too high, the fee is a percentage of your refund, the addition of new forms to your return, and suggestions to lie about your income, expenses, deductions, etc.
Next, scams you may think are legitimate but will get you in a heap of trouble with the IRS:
You should know by now there’s no such thing, yet thousands of taxpayers continue to fall for scams involving nonexistent Social Security refunds and rebates. The IRS says this is a recurring problem in community churches, where good will spreads the scam.
Hiding Income Offshore
While there are legitimate offshore accounts, you must report them to the IRS.
“The filing of a tax return is voluntary.”
“Taxpayers can refuse to pay taxes on religious or moral grounds.”
“The IRS is not an agency of the U.S.”
Want more? See The Truth About Frivolous Tax Arguments – Section I.
My advice: Forget it — these arguments don’t work!
Misuse of Trusts
This is a big one. Trusts can be excellent vehicles for managing large sums of money to be passed down to future generations, but scamsters find this a very profitable arena. Victims fall prey to promises of drastic tax reductions on income as well as reduced estate or gift taxes. It’s best to use a good trust lawyer and accountant who come with high recommendations and reasonable expectations.
Lastly, the scams you know are illegal:
False/Inflated Income and Expenses
Lying to the IRS about your income or expenses is not a good thing. Chances are they’ll find out. So just don’t do it.
False Form 1099 Refund Claims
This is one that is unfamiliar to most folks, but it involves a false return, such as a Form 1099 Original Issue Discount (OID), which usually refers to long-term instruments, such as bonds, that are originally issued at a discount, so the difference between maturity and original value is interest, which is usually reportable. But scamsters have misappropriated this form to justify a false refund claim on a corresponding tax return.
Falsely Claiming Zero Wages
This doesn’t work either. No matter how fancy you get with Form 4852 (Substitute Form W-2) or a “corrected” Form 1099, trying to zero out your taxable income is just not going to fly.
Abuse of Charitable Organizations and Deductions
More than just claiming you gave a larger amount of clothing to Goodwill this year, these schemes are much broader in scope. Donors who try to maintain control over donated assets or income (in the case of donated property), attempts to shield income or assets and highly overvalued donations are just a few of the scams you want to avoid.
Disguised Corporate Ownership
Used for the purpose of falsifying income, deductions, expenses, money-laundering, financial crimes or just avoiding filing tax returns — it’s not a good idea.
No one wants to pay Uncle Sam (except, maybe Warren Buffett). And there’s nothing wrong with trying to get as many legitimate deductions as you can. But please don’t get caught up in these scams. Just pay your taxes and work with your tax planners to take advantage of all the legal deductions that are warranted.
If you do get snared by a scam, report it at once to:
Internal Revenue Service Lead Development Center
24000 Avila Road
Laguna Niguel, California 92677-3405
Fax: (949) 389-5083