Following is part 2 of the most common tax scams identified by the IRS, including steps taxpayers can take to guard against becoming victims of these scams. Scams such as these increase during tax season, but taxpayers should be on their guard throughout the year to help make sure they do not become the next victim.
Hidden Offshore Accounts and Income
Investing monies in foreign bank accounts and other overseas investments has historically been a way for taxpayers to avoid reporting that income to the IRS and paying the associated federal income tax. However, as the US government has gained increasing cooperation from foreign banks willing to provide lists of American investors with accounts, the IRS is finding it easier to identify attempts to hide income.
In 2012, the IRS opened an Offshore Voluntary Disclosure Program. The IRS is asking taxpayers who have unreported foreign income to report that income and pay their share of taxes, with the benefit of such individuals avoiding criminal prosecution.
Fictitious Charitable Organizations
Where there are needs for which charitable organizations seek to raise funds to help, there are likewise bogus charitable organization created for the sole purpose of misusing the personal information of those who donate and keeping any donations rather than using them to help those in need.
Although such bogus charitable organizations can be brought into being at any time, they are especially prevalent after disasters that generate a lot of publicity.
Taxpayers wishing to donate funds to a charitable organization should use the IRS’s web site to confirm the organization is a valid tax-exempt charitable organization before they contribute funds to that organization.
Claiming Untrue Income, Expenses, and Exemptions
Taxpayers can overstate income, expenses, or exemptions depending on the situation in order to qualify for and maximize certain tax credits. Misstating income, expenses, or exemptions, whether by the taxpayer or the tax prepare, can result in the taxpayer owing additional taxes, as well as interest and penalties. Such practices may also leave the taxpayer subject to criminal prosecution.
Taxpayers should ensure the income, expenses, and exemptions they report are accurate. In addition, taxpayers who use a tax preparer need to make sure the preparer is reputable.
Tax Scams Arguing Against Applicability of Tax Law
Some tax preparers advocate declaring deductions and using other reporting practices that are clearly in violation of the Internal Revenue Code, even though a court of law has reviewed such arguments and declared them unviable. Some tax preparers and organizations even advocate that individuals do not have to pay income tax.
Although tax preparers may face prosecution for such practices, such practices can also leave taxpayers subject to felony charges or perjury in cases where individual report income information that is not true and accurate.
Taxpayers who have questions about their federal income tax returns or tax laws should speak with a tax attorney.
Using Fake Tax Forms
Taxpayers may attempt to create fictitious W-2s, Form 1099s, Form 4852s, or other tax forms to misstate their income or expenses, reducing or eliminating their tax liability or seeking a refund. Taxpayers who submit fake forms to the IRS may find themselves subject to penalties and criminal prosecution.
Taxpayers should not use tax forms except for those legitimately issued by an employer, a financial institution, or other organizations with legitimate grounds for providing such documents.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.