With less than a month 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. Taxpayers can fall victim to these scams at any time, but they tend to peak during tax filing season. Knowing about the scams can help you take steps to protect your personal and financial information.
Here’s the list of the IRS “Dirty Dozen” scams for 2018:
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. 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 firstname.lastname@example.org. 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-2018-39.
2. Phone Scams. Callers posing as agents from the IRS attempting to collect bogus tax debts remain a serious threat to taxpayers: The Treasury Inspector General for Tax Administration (TIGTA) reports they have become aware of over 12,716 victims who have collectively paid over $63 million as a result of phone scams since October 2013. 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 scam is constantly evolving. The best tack? If you’re not expecting a call from the IRS, don’t pick up.
For more information, check out IR-2018-40.
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 last two 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-2018-42.
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 more information, check out IR-2018-45.
5. Fake Charities. Watch out for groups masquerading as charitable organizations. 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 deduction count, click here.
For more information, check out IR-2018-47.
6. 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 potentially, 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 which are too good to be true.
For more information, check out IR-2018-48.
7. 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-2018-49.
8. 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, or improperly claiming credits, such as the Earned Income Tax Credit or Child Tax Credit.”
For more information, check out IR-2018-54.
9. 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-2018-55.
10. Frivolous Tax Arguments. Frivolous tax arguments may be used to avoid paying tax. Examples of frivolous tax arguments include refusal to pay taxes on religious or moral grounds by invoking the First Amendment; that only federal employees are subject to federal income tax; and that only foreign-source income is taxable. 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-2018-58.
11. Abusive Tax Shelters. Abusive tax shelters don’t have to be multi-million 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, seek an independent opinion not tied to a particular arrangement or product.
For more information, check out IR-2018-62.
12. 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. 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, you may want to consider the Offshore Voluntary Disclosure Program (OVDP) to catch up on filing and payment requirements and avoid heavy fines and criminal prosecution – but hurry, the program is ending soon.
For more information, check out IR-2018-64.