“Dirty Dozen” Tax Scams

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IRS Commissioner Doug Shulman recently stated “taxpayers should be careful and avoid falling into a trap with the Dirty Dozen. Scam artists will tempt people in-person, on-line and by e-mail with misleading promises about lost refunds and free money. Don’t be fooled by these scams.”

The Dirty Dozen are the 12 most prevalent scams detected by the IRS. Taxpayers should take precautions to avoid these and other suspicious activities of scam artists. The following scams make up the IRS’s 2012 “Dirty Dozen” listing.

  1. Identity Theft. Topping this year’s list is identity theft. The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer’s identity and personal information to file a tax return and claim a fraudulent refund.
  2. Phishing. Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure potential victims and prompt them to provide valuable personal and financial information that can be used to commit identity or financial theft.
  3. Return Preparer Fraud. Questionable return preparers have been known to skim off their clients’ refunds, charge inflated fees for return preparation services, and attract new clients by promising guaranteed or inflated refunds.
  4. Hiding Income Offshore. Individuals continue to try to avoid paying U.S. taxes by illegally hiding income in off-shore accounts or using offshore debit cards, credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities, or insurance plans.
  5. “Free Money.” Scammers have been preying on low-income individuals and the elderly by posting flyers in community churches promising that tax returns can be filed with little or no documentation to receive “free money” from the IRS or Social Security Administration.
  6. False/Inflated Income and Expenses. This tactic is used by scam artists who file false or misleading returns to claim refunds they are not entitled to receive. One popular scam is to report income that was never earned to obtain refundable credits.
  7. False Form 1099 Refund Claims. In this scam, the perpetrator files a fake information return reporting false with-holding amounts that are subsequently used to file erroneous refund claims.
  8. Frivolous Arguments. Frivolous scheme promoters encourage people to make unreasonable and unfounded claims to avoid paying taxes.
  9. Falsely Claiming Zero Wages. Filing a phony wage-related or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed.
  10. Abuse of Charitable Organizations and Deductions. Misuses of tax-exempt organizations include arrangements to improperly shield income or assets from taxation, attempts by donors to maintain control over donated assets or income from donated property, and overvaluation of contributed property.
  11. Disguised Corporate Ownership. In this scam, domestic corporations and other entities are formed to disguise the ownership of a business. They are then used to under-report income, claim fictitious deductions, avoid the filing of tax returns, or participate in listed transactions, money laundering, financial crimes, and even terrorist financing.
  12. Misuse of Trusts. Unscrupulous promoters have urged taxpayers to transfer assets into trusts, promising reduced taxable income, deductions for personal expenses, and reduced estate or gift taxes that don’t deliver as promised.