WASHINGTON — The Internal Revenue Service today issued its annual
“Dirty Dozen” list of tax scams, reminding taxpayers to use caution
during tax season to protect themselves against a wide range of schemes
ranging from identity theft to return preparer fraud.
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.
"This tax season, the IRS has stepped up its efforts to protect
taxpayers from a wide range of schemes, including moving aggressively to
combat identity theft and refund fraud," said IRS Acting Commissioner
Steven T. Miller. "The Dirty Dozen list shows that scams come in many
forms during filing season. Don't let a scam artist steal from you or
talk you into doing something you will regret later."
Illegal scams can lead to significant penalties and interest and
possible criminal prosecution. IRS Criminal Investigation works closely
with the Department of Justice (DOJ) to shutdown scams and prosecute the
criminals behind them.
The following are the Dirty Dozen tax scams for 2013:
Identity Theft
Tax fraud through the use of identity theft tops this year’s Dirty
Dozen list. 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. In many cases, an identity thief uses a legitimate
taxpayer’s identity to fraudulently file a tax return and claim a
refund.
Combating identity theft and refund fraud is a top priority for the
IRS, and we are taking special steps to assist victims. For the 2013 tax
season, the IRS has put in place a number of additional steps to
prevent identity theft and detect refund fraud before it occurs. We have
dramatically enhanced our systems, and we are committed to continuing
to improve our prevention, detection and assistance efforts.
The IRS has a comprehensive and aggressive identity theft strategy
employing a three-pronged effort focusing on fraud prevention, early
detection and victim assistance. We are continually reviewing our
processes and policies to ensure that we are doing everything possible
to minimize identity theft incidents, to help those victimized by it and
to investigate those who are committing the crimes.
The IRS continues to increase its efforts against refund fraud, which
includes identity theft. During 2012, the IRS prevented the issuance of
$20 billion of fraudulent refunds, including those related to identity
theft, compared with $14 billion in 2011.
This January, the IRS also conducted a coordinated and highly
successful identity theft enforcement sweep. The coast-to-coast effort
against identity theft suspects led to 734 enforcement actions in
January, including 298 indictments, informations, complaints and
arrests. The effort comes on top of a growing identity theft effort that
led to 2,400 other enforcement actions against identity thieves during
fiscal year 2012. The Criminal Investigation unit has devoted more than
500,000 staff-hours to fighting this issue.
We know identity theft is a frustrating and complex process for
victims. The IRS has 3,000 people working on identity theft related
cases – more than double the number in late 2011. And we have trained
35,000 employees who work with taxpayers to help with identity theft
situations.
The IRS has a
special section
on IRS.gov dedicated to identity theft issues, including YouTube
videos, tips for taxpayers and an assistance guide. For victims, the
information includes how to contact the IRS Identity Protection
Specialized Unit. For other taxpayers, there are tips on how taxpayers
can protect themselves against identity theft.
Taxpayers who believe they are at risk of identity theft due to lost
or stolen personal information should contact the IRS immediately so the
agency can take action to secure their tax account. Taxpayers can call
the IRS Identity Protection Specialized Unit at 800-908-4490. More
information can be found on the
special identity protection page.
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 theft or financial theft.
If you receive an unsolicited email that appears to be from either
the IRS or an organization closely linked to the IRS, such as the
Electronic Federal Tax Payment System (EFTPS), report it by sending it
to
phishing@irs.gov.
It is important to keep in mind the IRS does not initiate contact
with taxpayers by email to request personal or financial information.
This includes any type of electronic communication, such as text
messages and social media channels. The IRS has information that can
help you protect yourself from email scams.
Return Preparer Fraud
About 60 percent of taxpayers will use tax professionals this year to
prepare their tax returns. 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.
It is important to choose carefully when hiring an individual or firm
to prepare your return. This year, the IRS wants to remind all
taxpayers that they should use only preparers who sign the returns they
prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).
The IRS also has created a new web page to assist taxpayers. For tips
about choosing a preparer, red flags, details on preparer
qualifications and information on how and when to make a complaint,
visit
www.irs.gov/chooseataxpro.
Remember: Taxpayers are legally responsible for what’s on their tax
return even if it is prepared by someone else. Make sure the preparer
you hire is up to the task.
IRS.gov has
general information
on reporting tax fraud. More specifically, you report abusive tax
preparers to the IRS on Form 14157, Complaint: Tax Return Preparer.
Download Form 14157 and fill it out or order by mail at 800-TAX FORM
(800-829-3676). The form includes a return address.
Hiding Income Offshore
Over the years, numerous individuals have been identified as evading
U.S. taxes by hiding income in offshore banks, brokerage accounts or
nominee entities, using debit cards, credit cards or wire transfers to
access the funds. Others have employed foreign trusts, employee-leasing
schemes, private annuities or insurance plans for the same purpose.
The IRS uses information gained from its investigations to pursue
taxpayers with undeclared accounts, as well as the banks and bankers
suspected of helping clients hide their assets overseas. The IRS works
closely with the Department of Justice (DOJ) to prosecute tax evasion
cases.
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.
Since 2009, 38,000 individuals have come forward voluntarily to
disclose their foreign financial accounts, taking advantage of special
opportunities to comply with the U.S. tax system and resolve their tax
obligations. And, with new foreign account reporting requirements being
phased in over the next few years, hiding income offshore will become
increasingly more difficult.
At the beginning of 2012, the IRS reopened the Offshore Voluntary
Disclosure Program (OVDP) following continued strong interest from
taxpayers and tax practitioners after the closure of the 2011 and 2009
programs. The IRS continues working on a wide range of international tax
issues and follows ongoing efforts with DOJ to pursue criminal
prosecution of international tax evasion. This program will be open for
an indefinite period until otherwise announced.
The IRS has collected $5.5 billion so far from people who participated in offshore voluntary disclosure programs since 2009.
“Free Money” from the IRS & Tax Scams Involving Social Security
Flyers and advertisements for free money from the IRS, suggesting
that the taxpayer can file a tax return with little or no documentation,
have been appearing in community churches around the country. These
schemes promise refunds to people who have little or no income and
normally don’t have a tax filing requirement – and are also often spread
by word of mouth as unsuspecting and well-intentioned people tell their
friends and relatives.
Scammers prey on low income individuals and the elderly and members
of church congregations with bogus promises of free money. They 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. For example,
some promoters claim they can obtain for their victims, often senior
citizens, a tax refund or nonexistent stimulus payment based on the
American Opportunity Tax Credit, even if the victim was not enrolled in
or paying for college. Con artists also falsely claim that refunds are
available even if the victim went to school decades ago. In the end, the
victims discover their claims are rejected. Meanwhile, the promoters
are long gone. The IRS warns all taxpayers to remain vigilant.
There are also a number of tax scams involving Social Security. For
example, scammers have been known to lure the unsuspecting with promises
of non-existent Social Security refunds or rebates. In another
situation, a taxpayer may really be due a credit or refund but uses
inflated information to complete the return.
Beware: Intentional mistakes of this kind can result in a $5,000 penalty.
Impersonation of Charitable Organizations
Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.
Following major disasters, it’s common for scam artists to
impersonate charities to get money or private information from
well-intentioned taxpayers. Scam artists can use a variety of tactics.
Some scammers operating bogus charities may contact people by telephone
or email to solicit money or financial information. They may even
directly contact disaster victims and claim to be working for or on
behalf of the IRS to help the victims file casualty loss claims and get
tax refunds.
They may attempt to get personal financial information or Social
Security numbers that can be used to steal the victims’ identities or
financial resources. Bogus websites may solicit funds for disaster
victims. As in the case of a recent disaster, Hurricane Sandy, the IRS
cautions both victims of natural disasters and people wishing to make
charitable donations to avoid scam artists by following these tips:
- To help disaster victims, donate to recognized charities.
- Be wary of charities with names that are similar to familiar or
nationally known organizations. Some phony charities use names or
websites that sound or look like those of respected, legitimate
organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
- Don’t give out personal financial information, such as Social
Security numbers or credit card and bank account numbers and passwords,
to anyone who solicits a contribution from you. Scam artists may use
this information to steal your identity and money.
- Don’t give or send cash. For security and tax record purposes,
contribute by check or credit card or another way that provides
documentation of the gift.
Call the IRS toll-free disaster assistance telephone number
(1-866-562-5227) if you are a disaster victim with specific questions
about tax relief or disaster related tax issues.
False/Inflated Income and Expenses
Including income that was never earned, either as wages or as
self-employment income in order to maximize refundable credits, is
another popular scam. Claiming income you did not earn or expenses you
did not pay in order to secure larger refundable credits such as the
Earned Income Tax Credit could have serious repercussions. This could
result in repaying the erroneous refunds, including interest and
penalties, and in some cases, even prosecution.
Additionally, some taxpayers are filing excessive claims for the fuel
tax credit. Farmers and other taxpayers who use fuel for off-highway
business purposes may be eligible for the fuel tax credit. But other
individuals have claimed the tax credit although they were not eligible.
Fraud involving the fuel tax credit is considered a frivolous tax claim
and can result in a penalty of $5,000.
False Form 1099 Refund Claims
In some cases, individuals have made refund claims based on the bogus
theory that the federal government maintains secret accounts for U.S.
citizens and that taxpayers can gain access to the accounts by issuing
1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a
fake information return, such as a Form 1099 Original Issue Discount
(OID), to justify a false refund claim on a corresponding tax return.
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. These arguments are false and have been thrown
out of court. While taxpayers have the right to contest their tax
liabilities in court, no one has the right to disobey the law.
Falsely Claiming Zero Wages
Filing a phony information return is an illegal way to lower the
amount of taxes an individual owes. Typically, a Form 4852 (Substitute
Form W-2) or a “corrected” Form 1099 is used as a way to improperly
reduce taxable income to zero. The taxpayer may also submit a statement
rebutting wages and taxes reported by a payer to the IRS.
Sometimes, fraudsters even include an explanation on their Form 4852
that cites statutory language on the definition of wages or may include
some reference to a paying company that refuses to issue a corrected
Form W-2 for fear of IRS retaliation. Taxpayers should resist any
temptation to participate in any variations of this scheme. 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. The IRS is
working with state authorities to identify these entities and bring the
owners into compliance with the law.
Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer
assets into 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.
IRS personnel have seen an increase in the improper use of private
annuity trusts and foreign trusts to shift income and deduct personal
expenses. As with other arrangements, taxpayers should seek the advice
of a trusted professional before entering a trust arrangement.
