How to: Avoid the IRS “Dirty Dozen” Tax Scams
Just like that, tax season is already here again. For some, it’s a time of joy – a chance for a big refund check that’ll buy a new electronic device or pay off a bill. For others, tax season can be a scary time, full of unknowns and unexpected fees. No matter your feelings on the season, watch out for these twelve tax scams, often referred to as the IRS “Dirty Dozen.” They’re fraudulent schemes laid out to hurt taxpayers and make away with their money.
Types of Tax Scams
Phishing is a scam that’s around all year long, but becomes especially heavily used during tax season. In this scam, criminals will send harmful emails to unsuspecting individuals asking for sensitive information. Sometimes, phishing emails contain dangerous links to malware or damaging files. Phishing emails can look very professional and authentic, so keep in mind that any reputable organization such as the IRS will never ask you for personal information like social security numbers, credit card numbers, or bank information through email. Even if the IRS logo is present in the email, be wary that logos are easily duplicated for criminal use.
According to the Better Business Bureau, IRS phone scams accounted for 1 in 4 reported tax scams last year. In this scam, criminals will call homes posing as IRS agents. These callers often attempt to collect fake tax debts and can be very intimidating, sometimes threatening victims with arrest or jail time if the “debt” is not paid immediately. If you’re unsure if you owe a debt, call the IRS directly at 1-800-829-1040 instead of giving your personal information out to these callers.
If a criminal does get their hands on your personal information – sensitive information such as your social security number, they may try to file a fake tax return and claim your refund as their own. The IRS is working to keep pace with scammers and has new safeguards in place to protect taxpayers, such as increased screenings. In fact, this is the reason you may face getting a delayed refund. Though it’s frustrating, it’s a step put in place to protect you. If you need money while you wait or your delayed tax refund takes much longer than expected, contact AmeriCash Loans to get cash you can use now.
Return Preparer Fraud
Filing a tax return can be a daunting task, with any number of complicating factors, so the majority of tax payers file through a tax preparer. If you choose to file through a tax preparer, make sure you do your homework. Most are honest and hard-working, but some are out to make fast cash at your expense. They do this by instructing tax payers to bulk up their claims, deductions, and exemptions in order to receive a higher refund, which can get you in a lot of trouble with the IRS. To avoid this, make sure your tax preparer is reputable by finding one through the IRS list of preparers with PTINs (Preparer Tax Identification Numbers), which can be found on the IRS website.
Offshore Tax Avoidance
If you have cash or investments in foreign countries, make sure you are aware of the reporting requirements for offshore assets. Forgetting to mention this money, or worse, intentionally hiding it to avoid it being counted in a tax return is a crime, punishable by heavy fines or civil or criminal penalties. If you’ve filed and realize this money hasn’t been counted, you may use the Offshore Voluntary Disclosure program to try to correct the fraudulent situation. You’ll still have to pay money back, but at least you’ll be on the right side of the law.
Inflated Refund Claims
Making sure you get the biggest tax refund owed to you is normal and acceptable, however, when that crosses a line into lying to claim false credits, it becomes a crime. Some exploitative tax preparers win customers by promising larger refunds. They achieve larger tax refunds by taking advantage of refundable tax credits such as the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). Again, if your tax refund isn’t enough to cover your expenses, you can always get fast, reliable cash from AmeriCash Loans. Taking out a loan is a much better alternative to jail time, loss of social security or veteran’s benefits, all viable punishments for submitting a tax return with fraudulent, inflated refund claims to the IRS.
Donating to charities is not only a great thing to do for the community, but it’s a reliable and fair way to earn tax deductions on your tax return. However, beware of fake charities invented by greedy individuals to illegally obtain money from unsuspecting donors. These fake organizations may steal your money and even your identity, so when donating, remember that you don’t need to give out personal information like your social security number to obtain a receipt for your donation. If you unknowingly donate to a fake charity and list it on your return, the IRS may view it as fraudulent.
Falsely Padding Deductions on Returns
Claiming business expenses or charity donations on your tax return is a great way to increase your refund, as long as you’re honest about those deductions. When you overstate deductions, even a little, to get more money back, you’re entering into fraudulent territory. If your tax preparer encourages you to do so, tread carefully. Padding deductions or improperly claiming credits such as the Earned Income Tax Credit or Child Tax Credit can land you with jail time or criminal prosecution.
Excessive Claims for Business Credits
For tax payers who travel a lot for work or work at home and use their personal property for business purposes, there are many tax credits that will offer a break to pay you back for those expenses. However, it’s very important to confirm that you’re properly qualified for that business credit and that you’re not padding it to get more than what’s owed in your refund. A qualified tax preparer can help you determine if you meet all of the requirements for these credits, and that you’re properly claiming them. This year, the IRS is focusing heavily on misuse of the fuel tax credit and the research credit.
Falsifying Income to Claim Credits
We’ve all heard about high-profile cases and not-so-high-profile cases alike in which someone claims they’ve earned less than they have in order to qualify for more tax breaks. However, some people do the opposite, making up income or pretending to earn more to inflate their tax refund. Either way, if you lie about your income, the IRS will more than likely find out, and the consequences are costly. Filing the most accurate return possible will help you receive the most accurate tax refund possible, and that makes everyone happy.
Abusive Tax Shelters
Individuals who run tax shelters will try to convince taxpayers that they can legitimately hide their money by burying it under layers of organizations or Limited Liability Companies. The IRS stresses that, if it sounds too good to be true, it probably is. If you’re not sure if a tax planning scheme is legitimate or not, contact a third party or the IRS directly to find out. It’s much better to “ask permission” and make sure something is legal than it is to ask forgiveness, especially from an entity like the IRS.
Frivolous Tax Arguments
Taxpayers are entitled to contest their tax liabilities in court, but should first make sure their claims are legitimate, non-frivolous, and have not been contested and thrown out of court before. For instance, refusing to pay taxes for religious, moral, or cultural grounds will get you nowhere, except $5,000 in debt to the IRS.
How to Avoid a Tax Scam
Emails, Phone Calls, and Unannounced Visits
If the IRS wants to get in touch with you, the vast majority of the time they will do so through traditional mail. Though snail mail is generally reliable, it’s advisable to still use caution and contact the IRS directly about any communications you’ve received. The IRS is not likely to email you, call you, or show up at your house unannounced demanding money and attempting to intimidate you. The legitimate IRS will never initially reach out over the phone or ask for personal, financial, or any other sensitive information in an email or over the phone. If you’re in a situation in which you feel you may become the victim of a scam or one that just seems off, you’re encouraged to call the IRS directly. There is no penalty for getting in touch with the IRS to make sure everything is legal.
Legitimate tax preparers will never estimate your tax refund or promise money without first looking at your documentation (i.e. W-2, form 1099, etc.). If someone promises you a large tax refund without proper research, it’s a big red flag.
Also, make sure your tax preparer has a secure way for you to submit your paperwork to them. Even if they have no ill will or criminal intention, hackers have grown more sophisticated and can more easily obtain information stored in unsecure email accounts.
We’re all human, and we all make spelling and grammar mistakes every now and again; However, if you receive an email or paper mail from an organization claiming to be the IRS and it’s difficult to read because of poor grammar, take heed. Many scammers speak English as a second language or use broken English to get past email spam filters.
Preparers Who Work from Home
If you do choose to hire a tax preparer, be wary of individuals who work from home. Though it’s more and more acceptable in today’s society for employees to work remotely, make sure your tax preparer is affiliated with a legitimate company and has an IRS-verified PTIN. If your preparer tries to talk you into any of the abovementioned scams, it’s wise to walk away and report them.
Empty Store Fronts
Along that same vein, some scammers will go so far as to set up a physical location to lend credibility their phony tax businesses. If you go to a physical location and it doesn’t have official, permanent signage or looks like it was thrown together in a hurry, trust your gut; it’s usually right when something feels off. You can always visit official websites of well-known tax-preparation companies to find the legitimate location nearest to you.
Cultural or Religious Deductions
Tax preparers who tell you that you can refuse tax compliance based on cultural, religious, or moral grounds are setting you up for hefty fines. There are no exemptions or deductions on these grounds and refusing to comply is considered frivolous, landing you with a $5,000 fine or worse.
Are You a Victim of a Tax Scam?
If you think you’ve become a victim of a tax scam, there are many resources you can use to right the situation.
If you believe you’ve received a phishing email, you can email email@example.com.
If you receive a call from the IRS that you believe is a scam, you can contact the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484.
If you believe your identity has been stolen, contact the IRS Identity Protection Specialized Unit at 1.800.908.4490 or visit the IRS’ special identity protection page.
For any questions or concerns, you can always contact the IRS directly.
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