The Internal Revenue Service (IRS) IRS has announced its “Dirty Dozen” tax scams for 2012. There are some familiar scams making the list this year with a handful of new-ish ones thrown in for good measure. The best way to protect yourself is to know what you’re up against. Be informed. Here’s the dish on this year’s Dirty Dozen tax scams:

1. Identity Theft. It’s no surprise to see identity theft at the top of the list for 2012. There’s been a definite increase in efforts across the board to steal identities. With respect to the IRS, the information is used to file fraudulent tax returns in order to get a bogus refund. And it can happen to anyone – trust me, someone did this to my mother (grr).

As an effort to get a handle on the problem, the IRS is cracking down. Now, together with the Tax Division of the Department of Justice and local U.S. Attorneys’ offices, the IRS is actively investigating instances of fraud and identity theft and prosecuting those responsible. If you believe your personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit.

2. Phishing. Also near the top of the list: phishing. Phishing scams usually involve fake emails and bogus web sites. The idea is to get you to turn over personal information or to click on a link that may install malware on your computer that can track your keystrokes or otherwise glean access to your financial information. Recent examples can be found here and here.

I’ve preached it before: the IRS does not initiate contact with taxpayers about your tax account by email. Ever.

3. Return Preparer Fraud. Most tax pros are good people. Some are not. Some will take your refund, charge too much for services or talk you into claiming deductions or credits for which you are not entitled. I’ve seen it all. And it usually comes back to haunt you.

Make good choices when you seek out your tax professional. If you don’t feel good about your preparer, it is perfectly okay to walk away. You’re not in a committed relationship, you don’t have to lie about staying home to wash your hair. Find someone who has proper credentials, returns calls, and answers your questions. Avoid preparers who are rude and patronizing, hard to locate when you have a question, and who bases their fees on percentages of your refund. You can find more tips on finding a tax professional here.

4. Hiding Income Offshore. Offshore accounts are totally legitimate. However, using offshore accounts to hide income for tax purposes is illegal. Identifying taxpayers using offshore accounts to evade taxation is a top IRS priority. Reporting offshore income is mandatory for U.S. taxpayers. Reporting offshore accounts is required if the aggregate of those accounts reaches $10,000 in any calendar year. Failure to comply can result in some pretty nasty penalties and potential criminal prosecution.

If you need to comply and you haven’t yet done so, the IRS has a limited amnesty program available for taxpayers. Ask your tax professional for more information.

5. “Free Money” from the IRS & Tax Scams Involving Social Security. C’mon folks. If the government were giving out money, would it stay a secret for long? Be wary of scams touting “free money” from the IRS or Social Security rebates; these have been popping up all over the country but have seemed to focus on churches as a way of sucking you in. Don’t fall for it.

6. False/Inflated Income and Expenses. There are lots of ways to couch this scam. The IRS refers to it as “including income that was never earned… in order to maximize refundable credits such as the Earned Income Tax Credit.” I call it plain ol’ lying. There’s a simple way not to get caught up in this scam, often proposed by unscrupulous preparers (see #3 above): don’t make stuff up.

7. False Form 1099 Refund Claims. I can’t understand why this scam won’t die. The premise underneath this scam is that the federal government maintains secret accounts for taxpayers and all you have to do to get it is file a fake form 1099 Original Issue Discount (OID) with the IRS. Read that out loud and see if you can do it without bursting out laughing halfway through. Secret accounts. Fake tax forms. It sounds like a bad movie. If you get involved with such nonsense, you will be subject to penalties and possible criminal prosecution.

8. Frivolous Arguments. You have every right to make a legitimate argument to reduce your tax liability. You don’t have the right to just make stuff up (see again #6). The IRS has heard just about every crazy argument under the sun and time after time, these are shot down in court. They range from “The filing of a tax return is voluntary” to “Only foreign-source income is taxable” to my personal favorite, “Compelled compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment.” All bogus. So are the notions of reparation tax credits, corporation sole, Social Security refunds, and the form 1040 not being legitimate because it doesn’t have an OMB control number as required by the Paperwork Reduction Act. Don’t waste your time with these arguments. Doing so can subject you to penalties and possibly land you in prison.

9. Falsely Claiming Zero Wages. Again, if it has the word “fake” or “phony” or “false” in front of it, you know it’s wrong. So filing a phony information return is wrong and illegal. There is a scam that suggests that if you file a federal form 4852 (Substitute Form W-2) or a “corrected” Form 1099, you can reduce your income to zero and get a refund. Um, no. This never works. Ask Wesley Snipes.

10. Abuse of Charitable Organizations and Deductions. There are a couple of scams stemming from charitable deductions. In one arrangement, donors don’t really relinquish control over assets for which they claim a deduction. Let me help you out on this: if you don’t actually give it to anyone, not a gift, ‘kay? And when you do make a legitimate donation, make sure the value is stated correctly. Nobody’s paying $100 for those nasty acid-washed jeans. And that china set that’s missing a few teacups and a serving platter, not a full set anymore. Let’s be honest: there’s a reason you’re getting rid of most of that stuff. Note it appropriately.

11. Disguised Corporate Ownership. Lawyers like me like to set up corporate entities for all kinds of reasons from liability protection to gifting opportunities. Setting up corporate entities to try and confuse the IRS for purposes of tax avoidance or money laundering, however, is not a legitimate corporate purpose. The general rule here is that you can’t do something one way for tax purposes that you couldn’t do another: you can’t make something deductible simply by tossing it into a company.

12. Misuse of Trusts. I love trusts. I think they can be really great ways to plan for incapacity, consolidate and manage assets, provide privacy for beneficiaries, and effectuate distribution from an estate. Structured properly, trusts can even assist with asset protection and tax savings. They can’t be used to hide assets from creditors or avoid paying legitimate taxes on income and estates. If it sounds too good to be true, it probably is. Make sure you understand the real benefits of any trusts before you sign on the dotted line.

Inevitably when a taxpayer comes to me after getting pulled into one of these type scams, they start out by saying something like, “It didn’t sound right but…”  Stop right there. That’s all you need. If it doesn’t sound/feel/smell right, walk away. Or ask for a second opinion. I know an extra phone call feels like a hassle but look at it this way: would you rather be calling your tax lawyer now or your criminal lawyer later… from prison? I think we know the answer to that one.

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Kelly Erb is a tax attorney, tax writer and podcaster.

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