With just a few weeks until Tax Day, the Internal Revenue Service (IRS) is reminding taxpayers to be on the lookout for tax scams. The IRS has issued its annual “Dirty Dozen” list of tax scams, highlighting a variety of schemes. The common thread, according to the IRS: Scams put taxpayers at risk.
Taxpayers can fall victim to these scams at any time, but scams tend to peak during tax filing season. Knowing about them can help you take steps to protect your personal and financial information. Here’s the list of the IRS “Dirty Dozen” scams for 2019:
1. Phishing. Phishing is a scam where criminals attempt to steal your financial information through the use of email or a fake website. In many cases, bogus emails ask for specific personal information or try to get you to click on a link to install spyware or other malware on your computer. Variations on these schemes are popping up all of the time, with the IRS warning just a few months ago of “a surge of new, sophisticated email phishing scams.” Remember that the IRS doesn’t initiate contact with taxpayers by email. If you receive an unsolicited email that appears to be from the IRS, you can report it by forwarding it to email@example.com. Also, be wary of emails purporting to be from individuals or companies asking for personal or payroll information. When in doubt, assume it’s a scam.
For more information, check out IR-2019-26.
2. Phone Scams. Callers posing as agents from the IRS attempting to collect bogus tax debts remain a serious threat to taxpayers. The IRS says that it has seen a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation, and license revocation. Typically, in the scheme, callers posing as IRS representatives say the victims owe money and then threaten arrest if the amount is not paid immediately. Scammers will use fake names and IRS badge numbers and “spoof” or imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling. The best tack? If you’re not expecting a call from the IRS, don’t pick up.
For more information, check out IR-2019-28.
3. Identity Theft. Identity theft, when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, is often used by scammers to fraudulently file a tax return and claim a refund. The IRS, working in the Security Summit partnership, has made major improvements in detecting tax-return-related identity theft during the past few years. Taxpayers can still take steps to protect themselves, including using strong passwords and being careful about who has access to your personal and financial information.
For more information, check out IR-2019-30.
4. Return Preparer Fraud. According to the IRS, nearly 6 in 10 taxpayers rely on professional tax preparers to assist them with their returns. Most tax preparers are good people, but some unscrupulous preparers may try to encourage taxpayers to claim improper credits, deductions or exemptions in hopes of boosting refunds. Use care when choosing a preparer and remember that taxpayers should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs). For hints on finding a tax preparer, click here.
For more information, check out IR-2019-32.
5. Inflated Refund Claims. Scam artists may promise free money tied to inflated refunds. Many focus on refundable tax credits like the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) to get a larger refund—that’s why Congress delayed issuing tax refunds tied to those credits. If you make a false claim or receive a fraudulent refund, you can be subject to a penalty and potential jail time. Tax preparers who promise a big refund before looking at taxpayer records or charge fees based on a percentage of the refund may be making promises that are too good to be true (see again #4).
For more information, check out IR-2019-33.
6. Falsifying Income to Claim Credits. It’s usual to think of taxpayers hiding income to avoid tax, but inflating income? Refundable tax credits typically require earned income to qualify, which may provide an incentive to lie about income. Taxpayers who engage in this behavior not only have to pay back the erroneous refunds, including interest and penalties but may face criminal prosecution. The bottom line? Don’t invent or inflate your income, and file the most accurate tax return possible.
For more information, check out IR-2019-35.
7. Falsely Padding Deductions on Returns. Taxpayers are entitled to claim legitimate deductions on their tax returns. However, taxpayers may be asked to claim “just a little bit more” to get a bigger refund. Overstating deductions—even just a little —is improper and can lead to significant civil penalties and criminal prosecution. The IRS warns that you should think twice before overstating deductions, such as charitable contributions and business expenses.
For more information, check out IR-2019-36.
8. Fake Charities. Fake charities take advantage of your good nature to steal your money and, potentially, your identity. To avoid being taken advantage of, donate to recognized charities and be wary of charities with names that are similar to familiar or nationally known organizations. Remember that you don’t need to give out personal information, like your Social Security number or passwords, to get a receipt for your donation. For tips on making your charitable donation count, click here.
For more information, check out IR-2019-39.
9. Excessive Claims for Business Credits. Claiming excessive or bogus business credits to reduce your taxes is improper. Two schemes, in particular, involving the fuel tax credit (usually limited to off-highway business use, including use in farming) and the research credit, have attracted the attention of the IRS. Unsupported claims for tax credits may subject taxpayers to penalties and interest.
For more information, check out IR-2019-42.
10. Offshore Tax Avoidance. It is not illegal to have cash, brokerage accounts or other investments in foreign countries. It is, however, illegal to use foreign accounts to evade U.S. taxes. There are significant reporting requirements for offshore assets, including FBAR (Report of Foreign Bank and Financial Accounts) filings and other forms relating to gifts, trusts, and foreign inheritances. Taxpayers who do not properly report and disclose those accounts are breaking the law and could face civil and criminal penalties and fines. If you need to make a disclosure because you failed to report in the past, the Offshore Voluntary Disclosure Program (OVDP) has ended, but there are still procedures that allow you to come clean (ask your tax pro for details).
For more information, check out IR-2019-43.
11. Frivolous Tax Arguments. Frivolous tax arguments may be used to avoid paying taxes. Examples of frivolous tax arguments include refusal to pay taxes on religious or moral grounds by invoking the First Amendment, claiming that only federal employees are subject to federal income tax, or declaring that only foreign-source income is taxable. Those are all bogus. The penalty for taking one of these positions on a tax return is $5,000; additional penalties may also apply, including criminal prosecution.
For more information, check out IR-2019-45.
12. Abusive Tax Shelters. Abusive tax shelters don’t have to be multimillion-dollar tax schemes. Sometimes, they can involve trust arrangements or the use of multiple pass-through companies like Limited Liability Companies (LLCs) to hide ownership of assets. You can’t legally avoid taxation by creating multiple layers of companies or trusts or by manipulating the ownership of assets. Legitimate tax planning is not the same as tax evasion. Don’t get sucked into schemes promoted by advisors who promise you that you can permanently avoid taxation by buying their shelters and products. If it sounds too good to be true, be wary.
For more information, check out IR-2019-47.