TAX SCAMS BY THE DOZEN
By Rashida Lilani, CFP®
March 2014
1624 Santa Clara Drive, Suite 235
Roseville, CA 95661
916-782-7752
www.lilaniwealthmanagement.com
In order to keep taxpayers alert and informed, the IRS recently issued a list of twelve tax-season
scams that they appropriately call the “Dirty Dozen.” Some of these are produced with the
intent to scam taxpayers and the most vigilant of those can fall prey to these scams.
“Remember, if it sounds too good to be true, it probably is”, says the IRS.
The rest of the dirty dozen are the doings of taxpayers who shockingly, believe they can
outsmart the IRS and get away with it! Surprising as it sounds, those among us do exist and are
quite a creative bunch, as you will see below.
Identity theft: With over $3.6 billion paid in fraudulent tax refunds last year, it’s no wonder that
this tops the list of IRS’ tax scams this year. Identity thieves use a taxpayer’s identity to illegally
file tax returns and claim a refund. You can find more information at identity protection page
on IRS.gov. http://www.irs.gov/uac/Identity-Protection
Pervasive telephone scams: There has been a rise in scammers calling taxpayers and asking for
personal information. If you get a call from someone claiming to be from the IRS, here’s what
you need to do:
– If you owe taxes or think you might owe taxes, call the IRS at 1-800-829-1040
-
You don’t owe taxes or have no reason to think that you owe taxes, call and report the
incident to the Treasury Inspector General for Tax Administration at 1-800-366-4484.
Phishing: The IRS will never email a taxpayer or use any other kind of electronic
communication such as texting, Facebook etc. Watch out for such emails as scammers will lure
victims to fraudulent websites that will ask for personal information.
False promises of “free money” from inflated refunds: This has been an increasing problem
and scam artists will pose as tax preparers and will promise large refunds (more than what you
may be eligible for). The IRS says that “you are legally responsible for what’s on your tax
return, even if someone else prepares it” so make sure that the return that is prepared for you
is authentic and accurate.
Return preparer fraud: Then there are those licensed tax preparers who will defraud taxpayers
with refund fraud and identity theft. The IRS advises that you only use tax preparers with a
Preparer Tax Identification Number (PTIN). For tips about choosing a preparer, visit
www.irs.gov/chooseataxpro.
Hiding income offshore: Large penalties and fines can be levied if proper reporting
requirements are not followed for overseas financial accounts. “U.S. taxpayers who maintain
such accounts and do not comply with these requirements are breaking the law” says the IRS.
There is also the possibility of criminal prosecution so make sure complying with all the
reporting requirements.
Impersonation of charitable organizations: Usually followed by a natural catastrophe,
fraudulent charities crop up pilfering funds from unsuspecting donors. While making charitable
contributions, make sure you verify the authenticity of the organization and their tax-exempt
status.
False income, expenses or exemptions: Penalties and interest or criminal prosecution may
result if false claims are made for income that was not earned, or expenses that were not
made, including claims for Earned Income Credit.
Frivolous arguments: Making “unreasonable and outlandish claims” to avoid paying taxes is
prohibited. To see a list, click here.
http://www.irs.gov/Tax-Professionals/The-Truth-About-Frivolous-Tax-Arguments-Section-II
Falsely claiming zero wages or using false Form 1099: Using false or altered documents such
as a Form 4852 (to substitute Form W-2) or a “corrected” Form 1099 as a way to improperly
reduce taxable income to zero is, of course, prohibited.
Abusive tax structures: Creating fraudulent business entities using structures like LLCs, LLPs,
and International Business Companies and other financial arrangements for the purpose of
evading taxes is prohibited.
Misuse of trusts: The use of personal trusts and other estate planning vehicles to reduce
taxable income, inflate deductions, reduce estate or gift transfer taxes is prohibited.
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