Global Tax Insights
The IRS Discloses Annual ‘Dirty Dozen’ Tax Scams for 2016March 29, 2016
Are you doing all you can to avoid tax fraud? Read up on how you can avoid being the victim, or the perpetrator of a tax crime.
Every year, the IRS publishes a list of the most threatening tax scams that taxpayers of all ages must steer clear of. For 2016, phishing scams and tax return fraud top the list, read on to see what other scams are prevalent in this day and age.
12 tax scams of 2016
- Fraudulent Return Filing- Though the IRS has dedicated much of their time and resources to detect and prevent tax-related identity theft scams, this is still a serious issue that can only be helped by making sure you guard your personal data both online and in print. For more on this topic read our blog, "IRS Responds to The Growing Problem of Identity Theft”.
- Phony preparers- Though the majority of tax return preparers are honest people, there are a few that come out every tax filing season to steal identities, refunds, etc. Make sure your tax preparer is highly regarded and has good references in your community.
- Fake IRS calls- If you are surprised to be hearing from the IRS, then you’re probably not hearing from the IRS. Our blog, “Be On the Lookout for IRS Scam Phone Calls” covers more on this.
- Phishing- This has become a growing problem in recent years and involves hackers posing as someone from an organization you recognize and requesting personal information from you. The IRS warns that they will never send taxpayers an email about a bill or refund out of the blue, so stay on guard to make sure you are not opening or forwarding strange emails or websites.
- Using foreign accounts unlawfully- There is an increasing number of individuals using offshore accounts to evade US taxes. If you maintain financial accounts abroad, make sure that you are meeting reporting requirements or you risk incurring penalties and hefty fines, and possibly even criminal prosecution!
- Fake charities- It has become increasingly important to be on guard when making charitable contributions. The IRS suggests you be wary of charities with names that are close to well-known organizations, refrain from giving out social security numbers and passwords, and for security and tax record purposes-- donate through check or credit card rather than cash.
- Overstated refund claims- Phony tax preparers, as mentioned above, will often lure victims with promises for large refunds, so make sure your preparer gives you a copy of your return for your review—if he/she doesn’t provide this for you, that is a serious red flag.
- Overstated deductions- The IRS is on the lookout for taxpayers who claim deductions they’re not entitled to receive, like the Earned Income Tax Credit or the Child Tax Credit. Incorrect tax returns are subject to 20% of the disallowed amount for filing a deduction they were not entitled to.
- Overstated business credits- Similarly, some taxpayers will overstate business credits or claim credits they’re not entitled to, which may also trigger a hefty IRS penalty.
- Claiming tax credits through false income- To maximize refundable credits, taxpayers will attempt to inflate their income on their returns. This often leads to significant penalties and interest, and prosecution by the Department of Justice.
- Abusive Tax Shelters- Avoiding tax obligations through abusive tax structures is not a smart idea! Tax avoidance schemes and perpetrators of such schemes are on high IRS watch.
- Frivolous Tax Arguments- The IRS has seen an increase in taxpayers attempting to avoid their legal filing and tax obligations by making outlandish arguments, like “Paying federal income tax is voluntary”. Keep in mind that if you instigate a frivolous tax argument, you will have to pay what you owe plus potential penalties mandated by law.
As you can see, the IRS is doing all they can to catch and prosecute tax criminals, but it is equally important to ensure that you are not evading taxes, whether purposefully or unwittingly. Contact us for further guidance.