Each year, the IRS publishes its list of the “Dirty Dozen”, the top tax scams that criminals seek to carry out. Criminals carry out the scams by taking advantage of people’s fears or misunderstanding of the tax law.
The IRS has published the “Dirty Dozen” for 2015. The following is a summary of the “Dirty Dozen”. By familiarizing yourself with them, you can help make sure that you do not become a victim.
Misuse of Trusts
Trusts can be legitimate entities used for financial and tax planning purposes. However, many advertise trust that will reduce your total tax liability.
In reality, many such trusts are illegally hiding assets from the IRS in order to avoid tax liability, which will result in fines and penalties against the taxpayer.
Abusive Tax Structures
This category refers to business entities—limited liability partnerships, limited liability companies, and others—that use foreign bank accounts to hide legitimate ownership of assets to avoid tax liability.
Both those who set up these entities and who invest in them are subject to criminal prosecution.
Claiming No Income
Many businesses issue W-2 and 1099 forms to employees, with copies also sent to the IRS so that they know how much income a given individual earned. Some individuals will offer to create fictitious income statements to support lower reported wages, and they will attempt to claim the amount of income reported on the W-2 by the employer was in error.
Those who claim less income than they actually earned will owe tax on the unreported income, as well as a fine.
There are some who believe that the IRS does not have the authority to tax income, and therefore they will not file an income tax return or pay taxes on it. Remember the tax code clearly defines what is considered taxable income, and the court system has upheld the right of the IRS to levy and collect an income tax.
Reporting False Income and Expenses
Some individuals actually report more income to the IRS than what they actually earned so that they qualify for a tax credit, which will reduce their overall tax liability. In addition, others will inflate their expenses to reduce their taxable income.
In either case, those individuals are subject to penalties and interest, as well as possibly jail time.
Phony Charitable Organization
There are many who will set up fictitious charitable organizations, especially in times of natural disasters, to get donations from people as well as personal information for use in identify theft. Donations made to fictitious charitable organizations are not tax deductible.
Remember that the IRS maintains a list of legitimate charitable organization, for which a donor can claim a deduction for federal income tax purposes. Be sure before you make a charitable donation that the organization is on the IRS’ list.
Hidden Offshore Accounts
Money can be invested in accounts outside of the United States, but income from those accounts must be reported to the IRS. Historically it was far easier to keep offshore income hidden than it has become in recent years. Recently the IRS has increased its partnership with foreign governments and banks to make sure that such income does not stay hidden.
Tax Return Preparer Fraud
Millions of Americans will get help with preparing their federal income tax returns. The vast majority of these preparers are honest individuals. However, there are a select few who commit fraud when preparing tax return. These individuals steal tax refunds from their clients, charge high fees, and promise their clients lower tax liabilities than they could get from others.
Some con artists will promise to get their clients “free” money from the IRS by filing for false Social Security benefits or tax credits. However, once they collect fees from their clients, they will disappear before the IRS responds indicating the filing has been rejected.
Phishing involves a con artist using e-mails or web sites in a manner such that they look like legitimate communication from the IRS. However, they are actually an effort to obtain personal information from the victim.
Once the con artist obtains the victim’s personal information, they will use that information to obtain the victim’s tax refund or use their credit to take our loans.
Con artists also contact victims via the telephone, offering them “refunds” if they provide certain personal information or threatening them with fines or even jail time if they do not pay money. Both scams play on the emotions of individuals.
Identity theft increases during income tax season, when scam artists file a bogus tax return on behalf of the victim. The scam artist walks away with the victim’s refund, and the victim is unaware until he files a tax return and is informed by the IRS that he already has a return on file.
What else can I do to help make sure I do not fall victim to tax scams?
You can speak with a reputable tax attorney. A tax attorney will know the tax laws and can make sure you follow them when preparing your tax return, without falling victim to the “Dirty Dozen”.
You can speak with a tax attorney by calling the phone number located at the top of this web site or by completing the form below. The first consultation is free of charge and all conversations with a tax attorney are confidential, so you have every reason to make the call to get help today.
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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.