Each year, the Internal Revenue Service (IRS) puts out a list of common tax scams—dubbed the “Dirty Dozen”—to warn taxpayers. Ranging from identity theft to return preparer fraud, the list is intended to remind tax payers to use caution preparing, filing and discussing their annual taxes. Personal and other sensitive information can get into the wrong hands if the proper precautions aren’t taken. It’s wise to periodically review the IRS’ Dirty Dozen to keep apprised of scams.
It’s more common than you may think, and it’s on the rise. About 8.6 million households in 2010 were the victims of identity theft, according to the Bureau of Justice Statistics, up from 6.4 million households in 2005. Identity theft involves the unauthorized use of credit cards and checking accounts, as well as the misuse of personal information to open new accounts and loans or commit related crimes. The IRS lists tax fraud as a result of identity theft as a top concern in 2013. This can result when someone uses your personal info, such as social security number and name without obtaining your permission, and uses it to file a fraudulent tax return, thus getting a refund illegally. The IRS attempts to combat this type of identity theft through a comprehensive strategy involving three components: prevention of fraud, early detection and assistance for victims, preventing $20 billion in fraudulent refunds from being issued in 2012.
False 1099 Refunds
The IRS lists False Form 1099 refund claims as another of its top scams. Many people believe that the federal government manages top-secret accounts for citizens of the United States and that taxpayers can tap into those accounts through filing a 1099-OID (Original Issue Discount). This is an illegal scam, and can net perpetrators penalties and jail time.
This scam takes the form of unsolicited email or a fake website claiming to be legitimate but that lures unsuspecting people in and encourages them to give up personal information about their finances. The thieves can then turn around and commit identity theft. One common way this occurs is through emails claiming to come from the IRS. The IRS NEVER contacts taxpayers via email to obtain personal info. Recipients of such emails should be aware it’s a scam and forward the email to email@example.com to protect themselves and alert the authorities.
Offshore Income Fraud
Hiding income in offshore accounts remains one of the top scams reported by the IRS. Many individuals attempt to evade paying U.S. taxes by keeping their money in offshore banks, using wire transfers as well as debit and credit to get at the funds. Of course, there are legitimate needs for many people to have offshore accounts; however, taxpayers in these situations must comply with certain reporting and disclosure laws in order to operate within the law and avoid penalties, fines and jail time.
Return Preparer Scams
According to the IRS, approximately 60 percent of taxpayers will consult with tax professionals and companies in 2013 to assist in preparing their returns. Although most of these professionals are honest, many are not. This often can result in refund fraud or identity theft, so the IRS cautions taxpayers to be especially diligent in researching the firm they hire to do their taxes. Keep in mind that your tax return is your legal responsibility no matter who prepared it. Taxpayers should check that their tax pro enters his IRS Preparer Tax Identification Number (PTIN) and signs the return. A common scam is for a tax preparer to file a tax return they prepare for a taxpayer as “Self-Prepared”. This is illegal and any paid tax preparer who attempts this should not be used, and be reported to the IRS asap.
If you have encountered any other scams in regards to your tax return, please let us know in the comments section below.