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The 2017 IRS "Dirty Dozen" List of Tax Scams

For the past three years, the IRS has compiled its annual “Dirty Dozen” list of tax schemes and scams that tend to peak during tax time. For 2017, the IRS has identified these “Dirty Dozen” as the ones to watch out for:

 

1. PHISHING

Phishing is a scam that involves the use of fake emails or websites. These bogus emails ask for personal information or entice you to click on a link in order to install spyware or other malware on your computer. Remember that the IRS doesn’t initiate contact with taxpayers by email to request personal or financial information.

Phishing Phone Scams


2. PHONE SCAMS

Since 2013, phone scams with callers pretending to be from the IRS has collectively netted over $54 million to scammers. Phone calls from criminals impersonating IRA agents remain an ongoing threat. Calls tend to occur after hours or during times when it might be inconvenient to contact the IRS for verification. Remember that the IRS will never call to demand immediate payment. Generally, the IRS will first mail a bill.

 

3. IDENTITY THEFT

The IRS has really taken significant steps to detect and prevent tax-related fraud. In 2016, the number of taxpayers reporting stolen identities on federal tax returns fell by more than 50 percent, with nearly 275,000 fewer victims compared to a year ago. Even though tax-related identity theft has dramatically decreased, it remains on the list as a top priority. Scammers use your personal identifying information to fraudulently file a tax return and claim a refund.

 

4. RETURN PREPARER FRAUD

Most tax preparers are honest people but some deceitful preparers may try to encourage taxpayers to claim improper credits, deductions, or exemptions in hopes of boosting refunds. Remember that you are responsible for the information on your tax return and cannot hide behind a tax professional’s signature.

Fake Charities

 

5. FAKE CHARITIES

Fake charities take advantage of taxpayers’ generosity in order to steal your money and potentially, your identity. Fake charities often pop up after disasters. Remember that you don’t need to give out personal information, like your Social Security number, for the purpose of obtaining a receipt for your charitable donation.  

You can also check the status of charitable organizations online.

 

6. INFLATED REFUND CLAIMS

You need to be on the lookout for anyone asking you to sign a blank return, promising a big refund before looking at your records, or charges fees based on a percentage of the refund. 

 

7. EXCESSIVE CLAIMS FOR BUSINESS CREDITS

Claiming excessive business credits in order to illegally reduce your taxes is improper. Two schemes, in particular, have attracted the attention of the IRS: fraud involving the fuel tax credit and the research credit.

 

8. FALSELY PADDING DEDUCTIONS

Taxpayers are entitled to claim legitimate deductions on their tax returns including those for education, mortgage interest, and charity. Taxpayers are often tempted or enticed to claim “just a little bit more” for charitable deductions or business miles that they did not travel. However, overstating deductions, even just a little, can lead to significant civil penalties and criminal prosecution.

 

9. FALSIFYING INCOME TO CLAIM TAX CREDITS

Misrepresenting income to erroneously claim tax credits such as the Earned Income Tax Credit is against the law. Taxpayers who engage in this behavior not only have to pay back the erroneous refunds, including interest and penalties but may face criminal prosecution.

 

10. ABUSIVE TAX SHELTERS

Abusive tax shelters involve trying to hide ownership of the taxable income and/or assets. Remember that when something feels “too good to be true,” it probably is: you generally can’t legally avoid taxation by creating multiple layers of companies or trusts or by manipulating the ownership of assets. Legitimate tax planning is not the same as tax evasion.

 

11. FRIVOLOUS TAX ARGUMENTS

The IRS warns against using common frivolous tax arguments made by those who oppose compliance with federal tax laws. Examples of frivolous tax arguments include contentions that taxpayers can refuse to pay taxes on religious or moral grounds by invoking the First Amendment.

 

12. HIDING MONEY OR INCOME OFFSHORE

It is not illegal to have cash or other investments in foreign countries. It is, however, illegal to use those accounts to evade U.S. taxes by hiding that income. There are significant reporting requirements for offshore assets. Taxpayers who do not properly report and disclose those accounts are breaking the law. 


About the Author:Desmond Henry, a financial planner in Topeka, KS 

Desmond Henry is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and founder of Afflora Financial Life Planning in Topeka, Kansas. He helps the retiring/retired plan their finances and invest their money. CLICK HERE to learn more.