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IRS Unveils the Dirty Dozen: Tax Scams Everyone Should Know About

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The Internal Revenue Service (IRS) recently released its list of the top twelve tax scams for 2016.1 But beware: although these scams happen most frequently during tax season, they can transpire at any time of the year.

  1. Tax-related identity theft is the process of filing a tax return in order to claim a fraudulent refund by stealing a taxpayer’s Social Security number. Despite repeated efforts by the IRS to detect identity theft, this continues to be a headache for taxpayers. The IRS has offered two programs (Security Summit initiative and Security. Together. Campaign) to work toward decreasing identity theft with state and taxpayer help.
  1. Phones scams rank high on the list. Criminals have perfected their tactics in fooling the taxpayer to believe they are truly IRS agents. Here is a list of what IRS workers can never request via phone:
    • Demand an immediate payment
    • Asking about taxes owed, without first having sent the bill
    • Requesting a payment without an opportunity to question or appeal
    • Requiring the use of a specific payment method
    • Asking for credit or debit card numbers
    • Threatening to bring in the local police
  1. Phishing comes in at number three. Have you ever received an unsolicited email seeking your personal and/or financial information? Not only will these scammers try to trick you into offering up information, but they can also secretly infect your computer with malware. This malware enables a criminal to access stored files and track keyboard strokes, which puts the taxpayer at risk.
  1. Return preparer fraud is when dishonest preparers steal their client’s information with the intent to commit refund fraud and identity theft. These tips can help people choose a tax preparer and avoid preparer fraud.
  1. Hiding income offshore is when taxpayers avoid paying U.S. taxes by hiding income in offshore banks and then accessing their funds through debit cards, credits cards or wire transfers. Legal reasons exist for storing money abroad, but there are specific reporting requirements that must be complied with.
  1. Inflated refund claims is an example of why it’s important for taxpayers to remember that they are ultimately responsible for their tax return. Taxpayers should be vigilant if someone is asking them sign a blank return, promising a big refund before looking at records, or charging fees based on a percentage of the refund. These scam artists should be reported to the IRS immediately.
  1. Fake charities act like real organizations in order to get your contributions. The IRS reports that this incident frequently happens when natural disasters occur. It’s important to ask charities for their employer identification numbers, which can be crosschecked with the IRS’ Exempt Organizations
  1. Falsely padding deductions is number eight on the list. Although most taxpayers adhere to accurate tax returns, there are some that provide false information each year, which may include overstating deductions, padding their claimed business expenses or alleging credits they are not authorized to receive.
  1. Excessive claims for business credits involve two false claims – fuel tax credit scams (off-highway business use or farming) and research credit scams. Thankfully, the IRS has filters that have successfully stopped the fuel tax scam.
  1. Falsifying income to claim tax credits is when income is falsely created to qualify for tax credits. Taxpayers are legally responsible for what’s on their return and should be as accurate as possible. By falsifying income, they could face back taxes, interest and penalties. Some may even face criminal prosecution.
  1. With abusive tax shelters, multiple flow-through entities are used that are designed to conceal the true nature of the taxable income or assets. These schemes can end up costing the taxpayer more in penalties than they originally saved:
    • Limited Liability Companies (LLCs)
    • Limited Liability Partnerships (LLPs)
    • International Business Companies (LBCs)
    • Foreign financial accounts
    • Offshore credit/debit cards
  1. Last are frivolous tax arguments. In this scenario, scam artists urge taxpayers to make “unreasonable or outlandish” claims to avoid tax obligations. It’s important to remember that you have the right to contest your tax liabilities in court, but you can’t disobey the law and avoid paying taxes all together. Those who do may face a penalty of $5,000.

The IRS is warning taxpayers to review these scams before they file and urges everyone to keep their guard up against any plots to steal information or take money. Taxpayers and businesses alike should review the best practices on the IRS’ website and become familiar with the steps they can take to avoid getting into a risky situation. Be sure to also reference the American Institute of CPAs website for helpful tips on how to hire a tax preparer, including how to verify their credentials, ask them about fees and learn about their overall process. Hiring the right tax preparer is the first step in protecting yourself from the scams noted above.

For employers, ADP’s Data and Protection website shares additional tips on how to protect your organization against scams.

Learn More About ADP SmartCompliance®
1IRS Wraps Up the “Dirty Dozen” List of Tax Scams for 2016 – https://www.irs.gov/uac/Newsroom/IRS-Wraps-Up-the-Dirty-Dozen-List-of-Tax-Scams-for-2016

 

 


The information provided in this blog post is for informational purposes only and not for the purpose of providing accounting, legal, or tax advice.  The information and services ADP provides should not be deemed a substitute for the advice of any such professional.  Such information is by nature subject to revision and may not be the most current information available.



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