Published On: Mar 27 2013 01:50:52 PM EDTUpdated On: Jan 21 2015 03:00:37 AM EST
The IRS warns taxpayers to be on high alert for common tax scams that pop up during tax season. Take a look at the annual "dirty dozen" list released by the IRS.
1. Identity theft. Identity thieves are increasingly getting hold of taxpayers' names, Social Security numbers, birth dates and other information, then fraudulently claiming tax refunds in their names.
2. Phishing. Have you received an e-mail that appears to be from the IRS? It's probably not. Instead, it could be from a scammer. The IRS does not use e-mail, texts or social media to contact taxpayers for personal or financial information, so relay any such messages to email@example.com.
3. Fraudulent tax preparers. When choosing a preparer, make sure he or she has an IRS Preparer Tax Identification Number (PTIN). And watch out for preparers who base fees on the size of your refund or promise refunds that sound too good to be true.
4. Illegal offshore bank accounts. The IRS has been cracking down on taxpayers illegally hiding income abroad. Launched in 2009, the agency's voluntary disclosure program has already raked in $5.5 billion from tax cheats for illegally hiding assets in offshore accounts.
6. Bogus charities. In the wake of disasters like Superstorm Sandy, scammers come out of the woodwork and solicit donations for bogus charities. Some will even impersonate the IRS and contact disaster victims, claiming to be able to help them file casualty loss claims or obtain refunds.
7. Exaggerated income and expenses. Reporting higher income or expenses so that you qualify for bigger refundable credits may sound tempting, but doing this can get you in big trouble with the IRS.
8. Phone scams.A new scam is gaining popularity, where fraudsters call and pretend to be from the IRS. Some callers demand tax payments and even threaten arrest or other law enforcement action if the person refuses. Others tell victims they are owed large refunds and ask for personal information in order to steal their identity.
9. Frivolous arguments. Claiming that filing a tax return is voluntary, that only gold-based money is taxable, or that your state isn't part of the United States won't get you out of paying your taxes. These are considered frivolous arguments and will be swiftly rejected.
10. Pretending to earn zero income. Taxpayers who fall prey to schemes convincing them to file Form 4852 (a substitute W-2 form) or a corrected Form 1099 in order to falsely reduce their taxable income to zero could face a penalty of $5,000.
11. Evading taxes. Some shady investment advisers and tax preparers are creating and promoting complicated tax structures and shelters that clients can use to evade taxes -- often involving multiple entities and offshore accounts.
12. Misuse of trusts. Schemes recommending that you transfer money into trusts to reduce your income and avoid paying taxes are common, and the IRS has seen a growing number of people improperly stashing money in private annuity and foreign trusts.