Each year, the IRS produces a list of its “Dirty Dozen” tax scams. These scams tend to spike from December through April, but they can—and do—happen year-round. It’s wise to stay on top of the latest list of common issues—and take some simple steps to stay safe from them.
Here’s a recap of this year’s IRS Dirty Dozen, along with tips to protect yourself against the consequences of them:
Be hyper-alert for fake emails or websites looking to steal personal information, especially during tax season. The IRS will never send taxpayers an email about a bill or refund out of the blue.
- Don’t click on one claiming to be from the IRS
- Be wary of emails and websites that may be nothing more than scams to steal personal information
Phone calls from criminals impersonating IRS agents remain an ongoing threat. The IRS has seen a surge of these phone scams in recent years as scam artists threaten taxpayers with police arrest, deportation, and license revocation, among other things.
- Never give out information—especially your Social Security Number—to someone claiming to represent the IRS
- If you must, call the IRS directly; you can get the number from IRS.gov or a phone directory at your local library
Watch out for identity theft especially around tax time. The IRS continues to aggressively pursue criminals that file fraudulent returns using someone else’s Social Security number. Though the agency is making progress on this front, taxpayers still
need to be extremely careful and do everything they can to avoid being victimized.
- Treat your Social Security Card as carefully as your credit card
- File your tax return early to prevent a fraudster from beating you to it—and your refund too
Return Preparer Fraud
Be on the lookout for unscrupulous return preparers. Legitimate tax professionals are a vital part of the U.S. tax system. The vast majority provide honest, high-quality service. There are some dishonest preparers who operate each filing season to scam
clients, perpetuate refund fraud, identity theft and other scams that hurt taxpayers.
- Get a preparer recommendation from a person you trust
- Turn to a well-known brand preparer company
Inflated Refund Claims
Be on the lookout for anyone promising inflated refunds. Those preparers who ask clients to sign a blank return, promise a big refund before looking at taxpayer records or charge fees based on a percentage of the refund are probably up to no good. To
find victims, fraudsters may use flyers, phony storefronts, or word of mouth via community groups where trust is high.
- Don’t sign anything unless you know its contents, whether it’s a contract, a tax return, or a check
- Recognize that if it sounds too good to be true, it’s probably not true
Falsifying Income to Claim Credits
Don’t invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers are sometimes talked into doing this by con artists. Taxpayers should file the most accurate return possible because they are legally responsible
for what is on their return. This scam can lead to taxpayers facing large bills to pay back taxes, interest, and penalties. In some cases, they may even face criminal prosecution.
- Be truthful and accurate about what you report on your return
Falsely Padding Deductions on Returns
Avoid the temptation to falsely inflate deductions or expenses on returns to pay less than you owe or potentially receive larger refunds.
- Think twice before overstating deductions, such as charitable contributions and business expenses
- Don’t improperly claim credits such as the Earned Income Tax Credit or Child Tax Credit (See the previously noted Falsifying Income to Claim Credits)
Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally-known organizations.
- Take a few extra minutes to ensure your hard-earned money goes to legitimate and currently eligible charities
- Use tools on IRS.gov to check out the status of charitable organizations
Excessive Claims for Business Credits
Most businesses won’t qualify for the fuel tax credit, which is usually limited to off-highway business use, including use in farming. Also understand what qualifies for the research credit. Improper claims often involve failures to participate
in or substantiate qualified research activities and/ or satisfy the requirements related to qualified research expenses.
- Avoid improperly claiming the fuel tax credit
- Avoid misuse of the research credit
Offshore Tax Avoidance
The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows it’s a bad bet to hide money and income offshore.
- Come in to the IRS voluntarily and catch up on tax- filing responsibilities, using the IRS’s Offshore Voluntary Disclosure Program (OVDP)
Frivolous Tax Argument
Promoters of frivolous schemes to avoid paying taxes encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes; these claims have repeatedly been thrown out of court. The penalty for filing a frivolous tax return
- File your tax return and pay any tax that’s owed
Abusive Tax Shelters
The IRS is committed to stopping complex tax-avoidance schemes, as well as the people who create and sell them. Abusive tax structures include trusts and syndicated conservation easements. The vast majority of taxpayers pay their fair share.
- Don’t use abusive tax structures to avoid paying taxes
- When in doubt, seek an independent opinion regarding complex products
Janney Montgomery Scott LLC Financial Advisors are available to discuss the suitability and risks involved with various products and strategies presented. We will be happy to provide a prospectus, when available, and other information upon request. Please note that the information provided includes reference to concepts that have legal, accounting, and tax implications. It is not to be construed as legal, accounting, or tax advice and is provided as general information to you to assist in understanding the issues discussed. Neither Janney Montgomery Scott LLC nor its Financial Advisors (in their capacity as Financial Advisors) give tax, legal, or accounting advice. We would urge you to consult with your own attorney and/or accountant regarding the application of the information contained here to the facts and circumstances of your particular situation.