WASHINGTON — The Internal Revenue
Service today issued its annual “Dirty Dozen” list of tax scams, reminding
taxpayers to use caution during tax season to protect themselves against a wide
range of schemes ranging from identity theft to return preparer fraud.
The Dirty Dozen listing, compiled
by the IRS each year, lists a variety of common scams taxpayers can encounter
at any point during the year. But many of these schemes peak during filing
season as people prepare their tax returns.
Illegal scams can lead to
significant penalties and interest and possible criminal prosecution. IRS
Criminal Investigation works closely with the Department of Justice (DOJ) to
shutdown scams and prosecute the criminals behind them.
The following are the Dirty Dozen tax scams for 2014:
Identity Theft
Tax fraud through the use of
identity theft tops this year’s Dirty Dozen list. Identity theft occurs when
someone uses your personal information, such as your name, Social Security
number (SSN) or other identifying information, without your permission, to commit
fraud or other crimes. In many cases, an identity thief uses a legitimate
taxpayer’s identity to fraudulently file a tax return and claim a refund.
Taxpayers who believe they are at
risk of identity theft due to lost or stolen personal information should
contact the IRS immediately so the agency can take action to secure their tax
account. Taxpayers can call the IRS Identity Protection Specialized Unit at
800-908-4490. More information can be found on the special identity protection
page.
Pervasive Telephone Scams
The IRS has seen a recent
increase in local phone scams across the country, with callers pretending to be
from the IRS in hopes of stealing money or identities from victims.
These phone scams include many
variations, ranging from instances from where callers say the victims owe money
or are entitled to a huge refund. Some calls can threaten arrest and threaten a
driver’s license revocation. Sometimes these calls are paired with follow-up
calls from people saying they are from the local police department or the state
motor vehicle department.
Characteristics of these scams
can include:
Scammers use fake names and IRS
badge numbers. They generally use common names and surnames to identify
themselves.
Scammers may be able to recite
the last four digits of a victim’s Social Security Number.
Scammers “spoof” or imitate the
IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
Scammers sometimes send bogus IRS
emails to some victims to support their bogus calls.
Victims hear background noise of
other calls being conducted to mimic a call site.
After threatening victims with
jail time or a driver’s license revocation, scammers hang up and others soon
call back pretending to be from the local police or DMV, and the caller ID
supports their claim.
In another variation, one
sophisticated phone scam has targeted taxpayers, including recent immigrants,
throughout the country. Victims are told they owe money to the IRS and it must
be paid promptly through a pre-loaded debit card or wire transfer. If the
victim refuses to cooperate, they are then threatened with arrest, deportation
or suspension of a business or driver’s license. In many cases, the caller
becomes hostile and insulting.
If you get a phone call from
someone claiming to be from the IRS, here’s what you should do: If you know you
owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The
IRS employees at that line can help you with a payment issue – if there really
is such an issue.
If you know you don’t owe taxes
or have no reason to think that you owe any taxes (for example, you’ve never
received a bill or the caller made some bogus threats as described above), then
call and report the incident to the Treasury Inspector General for Tax
Administration at 1.800.366.4484.
If you’ve been targeted by these
scams, you should also contact the Federal Trade Commission and use their “FTC
Complaint Assistant” at FTC.gov. Please
add "IRS Telephone Scam" to the comments of your complaint.
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 in potential victims and prompt them to provide
valuable personal and financial information. Armed with this information, a
criminal can commit identity theft or financial theft.
If you receive an unsolicited
email that appears to be from either the IRS or an organization closely linked
to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report
it by sending it to phishing@irs.gov.
It is important to keep in mind
the IRS does not initiate contact with taxpayers by email to request personal
or financial information. This includes any type of electronic communication,
such as text messages and social media channels. The IRS has information online
that can help you protect yourself from email scams.
False Promises of “Free Money” from Inflated Refunds
Scam artists routinely pose as
tax preparers during tax time, luring victims in by promising large federal tax
refunds or refunds that people never dreamed they were due in the first place.
Scam artists use flyers,
advertisements, phony store fronts and even word of mouth to throw out a wide
net for victims. They may even spread the word through community groups or
churches where trust is high. Scammers prey on people who do not have a filing
requirement, such as low-income individuals or the elderly. They also prey on
non-English speakers, who may or may not have a filing requirement.
Scammers build false hope by
duping people into making claims for fictitious rebates, benefits or tax
credits. They charge good money for very bad advice. Or worse, they file a
false return in a person's name and that person never knows that a refund was
paid.
Scam artists also victimize
people with a filing requirement and due a refund by promising inflated refunds
based on fictitious Social Security benefits and false claims for education
credits, the Earned Income Tax Credit (EITC), or the American Opportunity Tax
Credit, among others.
While honest tax preparers
provide their customers a copy of the tax return they’ve prepared, victims of
scam frequently are not given a copy of what was filed. Victims also report
that the fraudulent refund is deposited into the scammer’s bank account. The
scammers deduct a large “fee” before cutting a check to the victim, a practice
not used by legitimate tax preparers.
The IRS reminds all taxpayers
that they are legally responsible for what’s on their returns even if it was
prepared by someone else. Taxpayers who buy into such schemes can end up being
penalized for filing false claims or receiving fraudulent refunds.
Taxpayers should take care when
choosing an individual or firm to prepare their taxes. Honest return preparers
generally: ask for proof of income and eligibility for credits and deductions;
sign returns as the preparer; enter their IRS Preparer Tax Identification
Number (PTIN); provide the taxpayer a copy of the return.
Beware: Intentional mistakes of
this kind can result in a $5,000 penalty.
Return Preparer Fraud
About 60 percent of taxpayers
will use tax professionals this year to prepare their tax returns. Most return
preparers provide honest service to their clients. But, some unscrupulous
preparers prey on unsuspecting taxpayers, and the result can be refund fraud or
identity theft.
It is important to choose
carefully when hiring an individual or firm to prepare your return. This year,
the IRS wants to remind all taxpayers that they should use only preparers who
sign the returns they prepare and enter their IRS Preparer Tax Identification
Numbers (PTINs).
The IRS also has a web page to
assist taxpayers. For tips about choosing a preparer, details on preparer qualifications and
information on how and when to make a complaint, visit
www.irs.gov/chooseataxpro.
Remember: Taxpayers are legally
responsible for what’s on their tax return even if it is prepared by someone
else. Make sure the preparer you hire is up to the task.
IRS.gov has general information
on reporting tax fraud. More specifically, you report abusive tax preparers to
the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and
fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes
a return address.
Hiding Income Offshore
Over the years, numerous
individuals have been identified as evading U.S. taxes by hiding income in
offshore banks, brokerage accounts or nominee entities and then using debit
cards, credit cards or wire transfers to access the funds. Others have employed
foreign trusts, employee-leasing schemes, private annuities or insurance plans
for the same purpose.
The IRS uses information gained
from its investigations to pursue taxpayers with undeclared accounts, as well
as the banks and bankers suspected of helping clients hide their assets
overseas. The IRS works closely with the Department of Justice (DOJ) to
prosecute tax evasion cases.
While there are legitimate
reasons for maintaining financial accounts abroad, there are reporting
requirements that need to be fulfilled. U.S. taxpayers who maintain such
accounts and who do not comply with reporting requirements are breaking the law
and risk significant penalties and fines, as well as the possibility of
criminal prosecution.
At the beginning of 2012, the IRS
reopened the Offshore Voluntary Disclosure Program (OVDP) following continued
strong interest from taxpayers and tax practitioners after the closure of the
2011 and 2009 programs. The IRS works on a wide range of international tax
issues with DOJ to pursue criminal prosecution of international tax evasion.
This program will be open for an indefinite period until otherwise announced.
Impersonation of Charitable Organizations
Another long-standing type of
abuse or fraud is scams that occur in the wake of significant natural
disasters.
Following major disasters, it’s
common for scam artists to impersonate charities to get money or private
information from well-intentioned taxpayers. Scam artists can use a variety of
tactics. Some scammers operating bogus charities may contact people by
telephone or email to solicit money or financial information. They may even
directly contact disaster victims and claim to be working for or on behalf of
the IRS to help the victims file casualty loss claims and get tax refunds.
They may attempt to get personal
financial information or Social Security numbers that can be used to steal the
victims’ identities or financial resources. Bogus websites may solicit funds
for disaster victims. The IRS cautions both victims of natural disasters and
people wishing to make charitable donations to avoid scam artists by following
these tips:
To help disaster victims, donate
to recognized charities.
Don’t give out personal financial
information, such as Social Security numbers or credit card and bank account
numbers and passwords, to anyone who solicits a contribution from you. Scam
artists may use this information to steal your identity and money.
Don’t give or send cash. For
security and tax record purposes, contribute by check or credit card or another
way that provides documentation of the gift.
Call the IRS toll-free disaster
assistance telephone number (1-866-562-5227) if you are a disaster victim with
specific questions about tax relief or disaster related tax issues.
False Income, Expenses or Exemptions
Another scam involves inflating or
including income on a tax return that was never earned, either as wages or as
self-employment income in order to maximize refundable credits. Claiming income
you did not earn or expenses you did not pay in order to secure larger
refundable credits such as the Earned Income Tax Credit could have serious
repercussions. This could result in repaying the erroneous refunds, including
interest and penalties, and in some cases, even prosecution.
Additionally, some taxpayers are
filing excessive claims for the fuel tax credit. Farmers and other taxpayers
who use fuel for off-highway business purposes may be eligible for the fuel tax
credit. But other individuals have claimed the tax credit although they were
not eligible. Fraud involving the fuel tax credit is considered a frivolous tax
claim and can result in a penalty of $5,000.
Frivolous Arguments
Promoters of frivolous schemes
encourage taxpayers to make unreasonable and outlandish claims to avoid paying
the taxes they owe. The IRS has a list of frivolous tax arguments that
taxpayers should avoid. These arguments are wrong and have been thrown out of
court. While taxpayers have the right to contest their tax liabilities in
court, no one has the right to disobey the law or disregard their
responsibility to pay taxes.
Those who promote or adopt
frivolous positions risk a variety of penalties. For example, taxpayers could be responsible
for an accuracy-related penalty, a civil fraud penalty, an erroneous refund
claim penalty, or a failure to file penalty.
The Tax Court may also impose a penalty against taxpayers who make
frivolous arguments in court.
Taxpayers who rely on frivolous
arguments and schemes may also face criminal prosecution for attempting to
evade or defeat tax. Similarly, taxpayers may be convicted of a felony for
willfully making and signing under penalties of perjury any return, statement,
or other document that the person does not believe to be true and correct as to
every material matter. Persons who
promote frivolous arguments and those who assist taxpayers in claiming tax
benefits based on frivolous arguments may be prosecuted for a criminal felony.
Falsely Claiming Zero Wages or Using False Form 1099
Filing a phony information return
is an illegal way to lower the amount of taxes an individual owes. Typically, a
Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to
improperly reduce taxable income to zero. The taxpayer may also submit a
statement rebutting wages and taxes reported by a payer to the IRS.
Sometimes, fraudsters even
include an explanation on their Form 4852 that cites statutory language on the
definition of wages or may include some reference to a paying company that
refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers
should resist any temptation to participate in any variations of this scheme.
Filing this type of return may result in a $5,000 penalty.
Some people also attempt fraud
using false Form 1099 refund claims. In some cases, individuals have made
refund claims based on the bogus theory that the federal government maintains
secret accounts for U.S. citizens and that taxpayers can gain access to the
accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the
perpetrator files a fake information return, such as a Form 1099 Original Issue
Discount (OID), to justify a false refund claim on a corresponding tax return.
Don’t fall prey to people who
encourage you to claim deductions or credits to which you are not entitled or
willingly allow others to use your information to file false returns. If you
are a party to such schemes, you could be liable for financial penalties or
even face criminal prosecution.
Abusive Tax Structures
Abusive tax schemes have evolved
from simple structuring of abusive domestic and foreign trust arrangements into
sophisticated strategies that take advantage of the financial secrecy laws of
some foreign jurisdictions and the availability of credit/debit cards issued
from offshore financial institutions.
IRS Criminal Investigation (CI)
has developed a nationally coordinated program to combat these abusive tax
schemes. CI's primary focus is on the identification and investigation of the
tax scheme promoters as well as those who play a substantial or integral role
in facilitating, aiding, assisting, or furthering the abusive tax scheme (e.g.,
accountants, lawyers). Secondarily, but
equally important, is the investigation of investors who knowingly participate
in abusive tax schemes.
What is an abusive scheme? The
Abusive Tax Schemes program encompasses violations of the Internal Revenue Code
(IRC) and related statutes where multiple flow-through entities are used as an
integral part of the taxpayer's scheme to evade taxes. These schemes are characterized by the use of
Limited Liability Companies (LLCs), Limited Liability Partnerships (LLPs),
International Business Companies (IBCs), foreign financial accounts, offshore
credit/debit cards and other similar instruments. The schemes are usually complex involving
multi-layer transactions for the purpose of concealing the true nature and
ownership of the taxable income and/or assets.
Form over substance are the most
important words to remember before buying into any arrangements that promise to
"eliminate" or "substantially reduce" your tax
liability. The promoters of abusive tax
schemes often employ financial instruments in their schemes. However, the instruments are used for
improper purposes including the facilitation of tax evasion.
Misuse of Trusts
Trusts also commonly show up in
abusive tax structures. They are highlighted here because unscrupulous
promoters continue to urge taxpayers to transfer large amounts of assets into
trusts. These assets include not only cash and investments, but also successful
on-going businesses. There are legitimate uses of trusts in tax and estate
planning, but the IRS commonly sees highly questionable transactions. These
transactions promise reduced taxable income, inflated deductions for personal
expenses, the reduction or elimination of self-employment taxes and reduced
estate or gift transfer taxes. These transactions commonly arise when taxpayers
are transferring wealth from one generation to another. Questionable trusts
rarely deliver the tax benefits promised and are used primarily as a means of
avoiding income tax liability and hiding assets from creditors, including the
IRS.
IRS personnel continue to see an
increase in the improper use of private annuity trusts and foreign trusts to
shift income and deduct personal expenses, as well as to avoid estate transfer
taxes. As with other arrangements, taxpayers should seek the advice of a
trusted professional before entering a trust arrangement.
The IRS reminds taxpayers that
tax scams can take many forms beyond the “Dirty Dozen,” and people should be on
the lookout for many other schemes. More information on tax scams is available
at IRS.gov.
Source: IRS