This spring, the IRS released its annual “Dirty Dozen” list of scams. In some, the taxpayer is the “scammer” and in others the taxpayer is the “scammee.”
- Identity Theft. Number one on the list and no surprise here. The IRS has come a long way in trying to stem identity theft, but the crooks are clever. There is a special identity protection page and IRS unit that deals with this crime.
- Pervasive Telephone Scams. Usually the caller demands money and makes various threats. If you think you may owe money, call the IRS at 800-829-1040, where you can find out if you owe money – or not.
- Phishing. Don’t respond to an initial contact from the IRS by email, text, or social media. That’s not how the IRS begins an inquiry. (The IRS friending you on Facebook: you think anyone actually has fallen for that? Well, maybe the folks involved in item 10 below.)
- False Promises of “Free Money” from Inflated Refunds. Remember that taxpayers who buy into one of these schemes can be penalized – very severely – for filing false returns or receiving fraudulent refunds. Intentional mistakes can result in a $5,000 penalty (at least).
- Return Preparer Fraud. There are some bad folks out there. Recently, courts have lessened the IRS’ ability to regulate tax preparers. One way to avoid this scam: hire me!
- Hiding Income Offshore. If you get caught, the fines can be enormous. There are strict reporting requirements and there is now much international information sharing about foreign accounts held by U.S. citizens and residents. Even if you accidentally forget to report offshore income or assets, you can face heavy penalties.
- Impersonation of Charitable Organizations. I am not quite sure how this got on the Tax Scam list. It is a scam without qualification.
- False Income, Expenses or Exemptions. An infraction as old as the tax code.
- Frivolous Arguments. Here the IRS does not mean simply an argument with which it does not agree. At its website IRS.gov, the IRS has a list of outlandish arguments that get you in hot water. Number one on the hit parade: “The filing of a tax return is voluntary.” These kinds of arguments can make you an involuntary guest of Uncle Sam for a while.
- Falsely Claiming Zero Wages or Using False Form 1099. With the extensive IRS information document matching system, you’d have to be dumber than a mud fence to try this.
- Abusive Tax Structures. Most of these structures involve foreign entities and foreign bank secrecy laws to hide money otherwise taxable in the U.S.
- Misuse of Trusts. The IRS must have run out scams. This is a subset of item 11.