Tax fraud is estimated to be a multibillion-dollar industry in the United States, but so is fraud on taxpayers. The IRS has a bad enough reputation with American taxpayers. It doesn’t need scammers posing as IRS workers adding to the disdain. Therefore, in an effort to educate taxpayers about tax scams, the IRS recently released its annual “Dirty Dozen” list of tax scams for 2015 that includes both scams attempted on taxpayers along with some common things taxpayers try to do to reduce their taxes illegally.
One of the most common type of scams is the phone scam. Often aggressive or threatening, these scammers impersonate an IRS agent or government official. The scammers try to scare individuals into giving up sensitive personal information by threatening arrest, deportation, or license revocation. The key takeaway: Never give up any personal data to anyone calling you by phone.
Email scams, much like the phone scams, usually involve some sort of false representation as a government or IRS official. As with the telephone, be cautious about giving out personal data over the Internet.
When personal data such as a Social Security number is obtained by these scammers, identity theft and fraudulent tax returns are the result. Identity theft is a fast-growing concern, and not only in regard to your taxes. Always be hesitant with personal information, especially with companies that may not dutifully protect that data.
About 60% of taxpayers use professionals to file their returns, but even here scammers lurk. While most tax preparers do an honest job, some do a less honest job—withholding payments and stealing identities among other things. Other tax preparers will promise inflated returns, possibly without even looking at your records. When a smooth-talking sales pitch offers you a US$20,000 refund despite you only having earned US$40,000, something’s up. If it’s too good to be true, it probably isn’t true. Beware of tax preparers charging a percentage of your refund, as this could be a sign that your refund is inflated. By the time you have to pay the IRS back and go looking for the scammer to ask for your refund, he’ll likely be long gone.
Some scammers out and out own up to their activities. If your tax preparer is suggesting you falsify documents in order to suppress your earnings or inflate your reductions, cease working with that individual. Some scammers even try and get you to increase, rather than decrease, your income. This is often done to gain tax credits. Whether increasing or decreasing your income, either way can get you into legal trouble. In the end, taxpayers are legally responsible for their own return.
Some tax preparers might not explicitly say that you should falsify your return, but they may still be suggesting you do something illegal. Frivolous arguments based on outlandish and unreasonable claims to avoid paying taxes won’t stand a chance in a court of law. One of the invalid items most common on a tax return is a claim for the fuel tax credit. This credit is generally limited to off-highway businesses, most often farming.
One of the most morally reprehensible scams on the list is the fake charity scam. Groups front as a charitable organization to attract big money from unsuspecting donors who think they’re helping a starving kid in Ethiopia or a blind old lady in Honduras. Always do some background checking before donating money to a charity you’ve never heard of and beware of charities with names that closely resemble large, well-established charities. “Unite The Way” or the “Salvation Infantry” are most likely not related to the legitimate charities the United Way and Salvation Army.
If you’re living overseas, it’s harder for the scammers to call you directly to try to solicit your personal information, but always keep any information you store electronically protected as well.