Common Taxpayer Scams Get IRS Attention

The IRS compiles annually The Dirty Dozen, listing a variety of common scams taxpayers may encounter any time during the year. Many of these con games peak during filing season as people prepare their tax returns or hire someone to do so. Some of the more “popular” ones this year (in no particular order) are:

1. Frivolous Tax Arguments- You have to pay income tax.  Beware of anyone trying to get you to not pay because the income tax code is not constitutional, or that you are not a government employee, or that State commercial codes override the tax code.
2. Creating False Income to Qualify for a Credit- While it might sound counterintuitive to report more income than you actually earned, some people do in order to qualify for a credit.  Reporting more than you made is just a verboten as not reporting all your income.
3. Abusive Tax Shelters- Beware of people trying to get you to invest in something that promises big tax deductions or other ways to save on taxes, without actually appearing to be an investment.  Remember, if something sounds too good to be true, it probably is.  Whether something is “too good to be true” is important to consider before buying into any arrangements that promise to “eliminate” or “substantially reduce” your tax liability. If an arrangement uses unnecessary steps or a form that does not match its substance, then that arrangement is an abusive scheme. Another thing to remember is that the promoters of abusive tax schemes often employ financial instruments in their schemes; however, the instruments are used for improper purposes including the facilitation of tax evasion.
4. Fake Charities- Know to whom you are giving charitable donations.  Unfortunately, groups ask for money, but are not charities.  Your “donation” will not be deductible and it will go to enrich potentially undeserving individuals.  You should look up the group’s Form 990 online, and if the group does not file a Form 990, then you should be suspect.
5. Unscrupulous Tax Preparers Pushing Inflated Tax Refund Claims- You should be especially wary if your tax preparer asks you to sign a blank tax return.  About 60% of taxpayers use tax professionals to prepare their returns; the vast majority of tax professionals provide honest high-quality service; and return preparers are a vital part of the U.S. tax system.  But you should be on the lookout for the unscrupulous ones.
6. Hiding Money or Income Offshore- The IRS has much more access now to information about offshore bank accounts owned by US citizens.  If you have not reported these accounts in the past, you should speak to a qualified tax advisor about how to disclose that information now.
7. Identity Theft- Criminals have been filing income tax returns showing false refunds using stolen Social Security numbers.
8. Hiding Income with Fake Documents- Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns.

If you do have questions about these issues, you can always call the IRS.  Unfortunately, the IRS’s diminished service expectations for 2015 are as follows: