This year’s IRS Dirty Dozen list is out, and it covers the most common tax scams of calendar year 2019. Considering the IRS’ resources and vigilance, these shortcuts, loopholes, and tricks aren’t worth the risk for those trying to pull them off. But if you make yourself aware of the items on the list, you’ll be less likely to fall prey to tax fraud and IRS scams when you file your tax return.
- Offshore Tax Cheating
Holding cash, investments, or brokerage accounts in foreign countries is legal. However, there are strict requirements for reporting offshore assets. If the IRS determines that money or assets are being hidden overseas to avoid paying taxes, there are severe penalties. If you have investments or accounts in foreign countries, you need to know your tax obligations because this long-running scheme has been a focus of the IRS and the Justice Department in recent years.
- Abusive Tax Shelters
Creating tax shelters to avoid paying taxes is against the law. Illegal activities include forming a Limited Liability Corporation (LLC) or a Limited Liability Partnership (LLP) to hide taxable goods and income. Financial planning and protecting your assets are legal; tax evasion is not. The IRS has stepped up its efforts to stop tax avoidance schemes and those who create and sell them.
- Frivolous Tax Arguments
Frivolous tax arguments are sometimes used to make unreasonable and outlandish claims about the legality of having to pay taxes. These arguments are usually based on false moral or religious grounds and are repeatedly thrown out in court. The penalty for filing a frivolous tax return is $5,000.
- Falsified Income for Claiming Credits
To erroneously qualify for tax credits, some taxpayers report false income figures, including lowering income amounts to make themselves eligible for the Earned Income Tax Credit (EITC). Since the EITC is based on a sliding scale, the amount of income could be lowered to receive the maximum credit. Since you’re legally responsible for what is on your tax return, you should file the most accurate return possible. IRS scams like this can lead to taxpayers having to pay back taxes, interest, and penalties.
- Falsely Padding Deductions
Falsely claiming expenses or deductions on a tax return to receive a larger tax refund or pay less than what you really owe is one of the most common IRS scams. Don’t succumb to the temptation of overstating deductions, such as donations to charity or business expenses, or claiming improper credits like the Earned Income Tax Credit or Child Tax Credit. If you’re not sure which deductions you should claim, you might want to consider hiring a professional tax preparer.
- Excessive Claims for Business Credits
It’s illegal to report excessive business expenses and claims such as false mileage, personal purchases, and research credits. One recently growing scam is to improperly claim the fuel tax credit, a tax benefit usually not applicable to most taxpayers. This credit is generally limited to off-highway business use like farm vehicles. Another scheme is misusing the research credit. Incorrect claims often include failure to verify qualified research activities or meet the requirements of qualified research expenses. Most of these credits are not available to all taxpayers, so be sure to claim only credits that apply to your business. A free, easy-to-use Mileage Calculator will help you track your business mileage accurately so you don’t run the risk of overreporting.
- Inflated Refund Claims
Taxpayers should be careful to avoid anyone promising inflated tax refunds. Tax preparers who ask customers to sign a blank tax return or promise a large refund without looking at the client’s records are possibly running a scam. It’s illegal to pad tax returns to get larger refunds, and the penalty is up to $5,000.
- Fake Charities
We all receive requests online, by phone, and even door-to-door for donations to what seem like worthwhile causes, but they may not be. Groups masquerading as charities ask for donations regularly. So before you give away your hard-earned money, check to make sure the charity is legitimate, especially if you’ve never heard of it. The IRS’ database of Qualified Charitable Organizations helps verify authentic charities, and donations to those charities are tax deductible.
- Return Preparer Fraud
Liberty Tax® takes tax preparer fraud very seriously. We closely examine tax returns filed by our offices before the returns are filed with the IRS or the state. Our internal audit division also monitors anomalies in returns and sends alerts if there is unusual activity that needs to be addressed. Almost all tax preparers are honest and provide high-quality service. But there are some dishonest preparers each filing season who try to scam clients through refund fraud, identity theft, and other schemes that hurt taxpayers.
- Identity Theft
Taxpayers should be weary of schemes to steal their identities all year long, not just during tax season. Over the past two years, the IRS has made major improvements in detecting tax-related identity theft, but taxpayers are still the best way to prevent this crime. While the IRS fraud department aggressively pursues scammers who file fake tax returns with someone else’s Social Security number, the best thing you can do to prevent identity theft is file your taxes as early as possible. Each Social Security number can only be used on one tax return, so filing early prevents criminals from using yours to file a fake return.
- Phone Scams
Phone calls from scammers impersonating IRS agents are an ongoing menace to taxpayers. Criminals call and are very aggressive in trying to get your information — not just your Social Security number, but also your credit or debit card info. They also threaten taxpayers with being arrested or deported or even having their driver’s license revoked. The IRS will not call you regarding your tax return. Do not give out any personal information over the phone to anyone claiming they’re calling from the IRS.
- Phishing Schemes
Phishing is defined as trying to get confidential information by sending an email that looks like it’s from a legitimate organization but contains a link to a fake website that impersonates a real site. Scammers phish for information like passwords, credit card numbers, and other personal details from unsuspecting taxpayers. Be alert to possible fake emails or websites asking for confidential information. The IRS never begins contact with taxpayers via email about a tax bill or refund, so don’t open an email claiming to be from the IRS.
For more helpful tax information, contact Liberty Tax® directly at 1-877-at-Liberty, or visit a conveniently located Liberty Tax® office near you. For real-time updates, follow Liberty Tax® on Facebook and Twitter.