Every year the IRS releases its “Dirty Dozen” list of the year’s most prevalent tax scams. They include ploys to steal personal information, talk people out of money, or engage in questionable tax activity. Here are some of the top scams:
- Phishing. Fake emails or websites claiming to represent the IRS, for the purpose of stealing personal information. The IRS will never try to contact you via email about a bill or refund.
- Phone scams. Scammers impersonating IRS agents over the phone. These impersonators may threaten you with arrest if you don’t make immediate payment for fake tax bills. Don’t fall for it – the real IRS makes contact via a letter, and never threatens or demands immediate payment.
- Identity theft. Using a stolen Social Security number to file a fraudulent return and claim a refund. The IRS said it is making great progress on reducing this scam as identity theft reports are down 40 percent from a year ago.
- Fake charities. Some fraudsters use the mask of charitable activity to get you to donate funds to fake organizations. Only donate to legitimate charities, which are listed in the IRS database.
- Inflated refund claims. Many taxpayers are wooed by tax-refund services offering payouts that seem too good to be true. Cheap tax-preparation services that promise unrealistic refunds are illegal and often get taxpayers in trouble.
- Padded deductions. The IRS is focusing on identifying tax returns that try to reduce tax by overstating deductions such as charitable deductions or business expenses.
- Falsifying income to claim credits. Improper use of the Earned Income Tax Credit (EITC), meant for eligible low-income taxpayers. The IRS has been cracking down on EITC fraud in recent years.
- Abusive tax shelters. Some fraudsters peddle complex tax avoidance schemes known as tax shelters that they portray as legal tax strategies. Make sure you get an independent opinion on any complex tax schemes.
- Frivolous tax arguments. Frivolous arguments to avoid paying taxes (for example, arguing a personal vacation is a business expense) can be penalized by up to $5,000 per tax return.
Offshore tax avoidance. Using offshore bank accounts and complex international tax structures to avoid paying taxes is still a common scam on the radar of IRS auditors.