Wednesday, May 16, 2012
The State of our Nation: The Dirty Dozen Tax Scams of 2012
The State of our Nation: The Dirty Dozen Tax Scams of 2012: Every year, the Internal Revenue Service ("IRS") releases the most common tax scams for that tax year. Here are the Dirty Dozen Tax Scams of...
The Dirty Dozen Tax Scams of 2012
Every year, the Internal Revenue Service ("IRS") releases the most common tax scams for that tax year. Here are the Dirty Dozen Tax Scams of 2012 as reported by the IRS: (1) Identity Theft, (2) Phishing, (3) Return Preparer Fraud, (4) Hiding Income Offshore, (5) "Free Money" from the IRS & Tax Scams Involving Social Security, (6) False/Inflated Income and Expenses, (7) False Form 1099 Refund Claims, (7) Frivolous Arguments, (8) Falsely Claiming Zero Wages, (9) Abuse of Charitable Organizations and Deductions, (10) Disguised Corporate Ownership, and (12) Misuse of Trusts.
Identity Theft
It is no surprise that Identity theft is number one on the list. In identity theft cases, the thief seeks ways to use a legitimate taxpayer's identity and personal information in order to file what appears to be a legitimate income tax return, in order to claim a fraudulent refund. The IRS detects this type of fraud when more than one income tax return was filed on behalf of the same taxpayer, or received wages from an unknown employer. When this event occurs, the IRS will send correspondence to the individual in order to notify them of the potential fraud or identity theft. It has also been found that this type of event occurs commonly for spouses filing separate returns. One spouse may file a joint return without the consent of the other spouse, while the unaware spouse files a separate return that does not include their spouse. If you believe that you have been a victim of identity theft, you may visit the IRS page for identity theft at: www.IRS.gov/identitytheft.
Phishing
Phishing is commonly achieved through the use of unsolicited email or a fake website that aims to acquire personal and financial information from individuals. Individuals may also receive fraudulent emails that may appear to be from the IRS or one of its affiliate organizations. It is important to know that the IRS does not communicate with taxpayers via email, text messages, or through social media channels. If you receive any such communication, you may report it to the IRS by sending a report to: phishing@irs.gov.
Return Preparer Fraud
Most taxpayers use tax professionals in order to have their income tax return prepared. However, there are some individuals or businesses that prey on unsuspecting taxpayers. Questionable return preparers may skim off their clients' refunds, charge inflated preparation fees, or by promising guaranteed or inflated refunds. It is important to choose carefully when hiring a tax preparer. Here are some ways to determine whether a preparer is likely a fraudulent preparer: (1) The preparer does not sign the return or place their Preparer Tax Identification Number ("PTIN") on the return. The IRS requires that all tax return preparers obtain a PTIN in order to prepare returns. So if this information is missing, you may be a victim of fraud. (2) The preparer does not give you a copy of your income tax return. If someone files a return on your behalf, you are entitled to a copy of the return. Any preparer who refuses to provide you with a copy of your income tax return is likely committing fraud. (3) The preparer promises that you will receive a larger refund than normal. No one can promise or guarantee you a large refund prior to preparing the actual return. If this occurs, it is likely going to be as a result of fraud. (4) The preparer charges a percentage of the refund or requires you to split the refund amount as the preparation fee. Most preparers will charge a flat fee for their service based on the type of income tax return prepared, or charge based on a fixed hourly rate. If a preparer requests to receive a percentage of your refund, you may be the victim of fraud. (5) The preparer adds forms to the return that you have never filed before. It is important that you analyze the return prior to signing the return or the consent form. If any of the forms looks suspicious, you are likely the victim of fraud. (6) The preparer encourages you to place false information on your return. Any preparer that encourages you to falsify information should not be trusted. Your willingness to comply or oversight of the falsified information will cause you to face dire consequences. It is important that you choose your tax preparer wisely in order to avoid becoming a victim of tax fraud.
Hiding Income Offshore
Hiding Income Offshore is tax evasion. There are specific guidelines and reporting obligations that follow the maintenance of financial accounts abroad. The IRS has reopened the Offshore Voluntary Disclosure Program which allows taxpayers to pay a reduced penalty for non disclosed offshore accounts. In 2011, the IRS has collected $1 billion from up front payments from the 2011 program, and is expected to increase.
"Free Money" From the IRS & Tax Scams Involving Social Security
Fliers and Advertisements that promises "free money" from the IRS is a scam. There is no such thing as "free money," especially if you expect to receive it from the IRS. The scammers prey on low income and elderly individuals. Scams involving Social Security results from promises of Social Security refunds or rebates that do not exist. In some instances where a refund may actually be due, the scammer uses inflated information to complete the return. The penalty for such returns may be as high as $5,000. It is not worth it! Do not become a victim of the "free money" tax scam.
False/Inflated Income and Expenses
This type of scam involves including income on the tax return that was never earned, or misclassifying income as either wages or self-employment. It also involves the act of claiming expenses that were never paid in order to reduce one's income or to qualify for credits such as the Earned Income Tax Credit or the Fuel Tax Credit. This type of fraud can result in a penalty of $5,000. Do not engage in acts that seek to falsify information.
False Form 1099 Refund Claims
This type of scam involves the fradulent issuance of a Form 1099 Original Issue Discount (OID), tro justify a false refund claim on a corresponding income tax return. Some indivduals have made refund claims under the false assumption that the government maintains secret accounts for each individual and that taxpayers can gain access to these accounts by issuing 1099-OID forms to the IRS. Do not become deceived by notions that appear to good to be true. Never claim credits or deductions for you are not entitled, or that requires you to falsify information or documentation. This type of fraud may result in financial penalties as well as criminal prosecution.
Frivolous Arguments
This type of tax scam involves the use of unreasonable claims in order to either avoid paying their taxes, or to obtain funds to which they are not legitimately entitled. The IRS has a list of frivolous tax arguments, and they have not been upheld in Tax Court. Do not rely on fictious arguments to disobey the law.
Falsely Claiming Zero Wages
The typical zero wages scam involves the filing of a Substitute Form W-2 by filing a Form 4852. Through the use of this form, the taxpayer seek to reduce their taxable income to zero and may also submit a statement or statutory explanation refuting wages and taxes reported by a payer to the IRS. This type of fraud amy result in a $5,000 penalty. So do not seek to falsify your income, it is not worth it.
Abuse of Charitable Organizations and Deductions
This type of fraud typically involves an attempt by donors to maintain control over assets or income that were allegedly donated to a 501(c)(3) organization. The donations may also be highly overvalued which results in a larger deduction for the donor. The Pension Protection Acto fo 2006 imposed increased penalties for inaccurate appraisals and sets new standards for qualified appraisals. haritable Organizations may also lose their exempt status for engaging in such acts.
Disguised Corporate Ownership
This type of fraud involves the use of third parties in order to request employer identification numbers and form corporations that seek to hide the identity of the true owners. Common acts commited by this type of fraud involves underreported income, claiming of fictitious deductions, avoidance of filing tax returns, money laundering, and other financial crimes. The IRS is actively working with State Official in order to ensure compliance with the law.
Misuse of Trusts
This type of scam involves the transer of assets into trust accounts that are highly questionable. Promoters may promise that the transaction will result in a reduction of taxable income, deductions for personal expenses, or a reduction in the estate or gift taxes. These type of scams may also be used to avoid paying income tax liability to the IRS or to hide assets from creditors. However, such trusts rarely deliver the tax benefits promised by the promoter. Taxpayers are encouraged to seek competent advice from trusted and qualified professionals prior to entering into a trust arrangement because the consequences may be more detrimental than the benefit they seek to derive from it.
Reference:
Internal Revenue Service, (2012). IRS Releases the Dirty Dozen Tax Scams for 2012. Retrieved on May 16, 2012 from: http://www.irs.gov/newsroom/article/0,,id=254383,00.html?portlet=107.
Identity Theft
It is no surprise that Identity theft is number one on the list. In identity theft cases, the thief seeks ways to use a legitimate taxpayer's identity and personal information in order to file what appears to be a legitimate income tax return, in order to claim a fraudulent refund. The IRS detects this type of fraud when more than one income tax return was filed on behalf of the same taxpayer, or received wages from an unknown employer. When this event occurs, the IRS will send correspondence to the individual in order to notify them of the potential fraud or identity theft. It has also been found that this type of event occurs commonly for spouses filing separate returns. One spouse may file a joint return without the consent of the other spouse, while the unaware spouse files a separate return that does not include their spouse. If you believe that you have been a victim of identity theft, you may visit the IRS page for identity theft at: www.IRS.gov/identitytheft.
Phishing
Phishing is commonly achieved through the use of unsolicited email or a fake website that aims to acquire personal and financial information from individuals. Individuals may also receive fraudulent emails that may appear to be from the IRS or one of its affiliate organizations. It is important to know that the IRS does not communicate with taxpayers via email, text messages, or through social media channels. If you receive any such communication, you may report it to the IRS by sending a report to: phishing@irs.gov.
Return Preparer Fraud
Most taxpayers use tax professionals in order to have their income tax return prepared. However, there are some individuals or businesses that prey on unsuspecting taxpayers. Questionable return preparers may skim off their clients' refunds, charge inflated preparation fees, or by promising guaranteed or inflated refunds. It is important to choose carefully when hiring a tax preparer. Here are some ways to determine whether a preparer is likely a fraudulent preparer: (1) The preparer does not sign the return or place their Preparer Tax Identification Number ("PTIN") on the return. The IRS requires that all tax return preparers obtain a PTIN in order to prepare returns. So if this information is missing, you may be a victim of fraud. (2) The preparer does not give you a copy of your income tax return. If someone files a return on your behalf, you are entitled to a copy of the return. Any preparer who refuses to provide you with a copy of your income tax return is likely committing fraud. (3) The preparer promises that you will receive a larger refund than normal. No one can promise or guarantee you a large refund prior to preparing the actual return. If this occurs, it is likely going to be as a result of fraud. (4) The preparer charges a percentage of the refund or requires you to split the refund amount as the preparation fee. Most preparers will charge a flat fee for their service based on the type of income tax return prepared, or charge based on a fixed hourly rate. If a preparer requests to receive a percentage of your refund, you may be the victim of fraud. (5) The preparer adds forms to the return that you have never filed before. It is important that you analyze the return prior to signing the return or the consent form. If any of the forms looks suspicious, you are likely the victim of fraud. (6) The preparer encourages you to place false information on your return. Any preparer that encourages you to falsify information should not be trusted. Your willingness to comply or oversight of the falsified information will cause you to face dire consequences. It is important that you choose your tax preparer wisely in order to avoid becoming a victim of tax fraud.
Hiding Income Offshore
Hiding Income Offshore is tax evasion. There are specific guidelines and reporting obligations that follow the maintenance of financial accounts abroad. The IRS has reopened the Offshore Voluntary Disclosure Program which allows taxpayers to pay a reduced penalty for non disclosed offshore accounts. In 2011, the IRS has collected $1 billion from up front payments from the 2011 program, and is expected to increase.
"Free Money" From the IRS & Tax Scams Involving Social Security
Fliers and Advertisements that promises "free money" from the IRS is a scam. There is no such thing as "free money," especially if you expect to receive it from the IRS. The scammers prey on low income and elderly individuals. Scams involving Social Security results from promises of Social Security refunds or rebates that do not exist. In some instances where a refund may actually be due, the scammer uses inflated information to complete the return. The penalty for such returns may be as high as $5,000. It is not worth it! Do not become a victim of the "free money" tax scam.
False/Inflated Income and Expenses
This type of scam involves including income on the tax return that was never earned, or misclassifying income as either wages or self-employment. It also involves the act of claiming expenses that were never paid in order to reduce one's income or to qualify for credits such as the Earned Income Tax Credit or the Fuel Tax Credit. This type of fraud can result in a penalty of $5,000. Do not engage in acts that seek to falsify information.
False Form 1099 Refund Claims
This type of scam involves the fradulent issuance of a Form 1099 Original Issue Discount (OID), tro justify a false refund claim on a corresponding income tax return. Some indivduals have made refund claims under the false assumption that the government maintains secret accounts for each individual and that taxpayers can gain access to these accounts by issuing 1099-OID forms to the IRS. Do not become deceived by notions that appear to good to be true. Never claim credits or deductions for you are not entitled, or that requires you to falsify information or documentation. This type of fraud may result in financial penalties as well as criminal prosecution.
Frivolous Arguments
This type of tax scam involves the use of unreasonable claims in order to either avoid paying their taxes, or to obtain funds to which they are not legitimately entitled. The IRS has a list of frivolous tax arguments, and they have not been upheld in Tax Court. Do not rely on fictious arguments to disobey the law.
Falsely Claiming Zero Wages
The typical zero wages scam involves the filing of a Substitute Form W-2 by filing a Form 4852. Through the use of this form, the taxpayer seek to reduce their taxable income to zero and may also submit a statement or statutory explanation refuting wages and taxes reported by a payer to the IRS. This type of fraud amy result in a $5,000 penalty. So do not seek to falsify your income, it is not worth it.
Abuse of Charitable Organizations and Deductions
This type of fraud typically involves an attempt by donors to maintain control over assets or income that were allegedly donated to a 501(c)(3) organization. The donations may also be highly overvalued which results in a larger deduction for the donor. The Pension Protection Acto fo 2006 imposed increased penalties for inaccurate appraisals and sets new standards for qualified appraisals. haritable Organizations may also lose their exempt status for engaging in such acts.
Disguised Corporate Ownership
This type of fraud involves the use of third parties in order to request employer identification numbers and form corporations that seek to hide the identity of the true owners. Common acts commited by this type of fraud involves underreported income, claiming of fictitious deductions, avoidance of filing tax returns, money laundering, and other financial crimes. The IRS is actively working with State Official in order to ensure compliance with the law.
Misuse of Trusts
This type of scam involves the transer of assets into trust accounts that are highly questionable. Promoters may promise that the transaction will result in a reduction of taxable income, deductions for personal expenses, or a reduction in the estate or gift taxes. These type of scams may also be used to avoid paying income tax liability to the IRS or to hide assets from creditors. However, such trusts rarely deliver the tax benefits promised by the promoter. Taxpayers are encouraged to seek competent advice from trusted and qualified professionals prior to entering into a trust arrangement because the consequences may be more detrimental than the benefit they seek to derive from it.
Reference:
Internal Revenue Service, (2012). IRS Releases the Dirty Dozen Tax Scams for 2012. Retrieved on May 16, 2012 from: http://www.irs.gov/newsroom/article/0,,id=254383,00.html?portlet=107.
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