Tax scams come in many guises…
Income Taxes » IRS officials have seen a dozen ways to cheat
By Lesley Mitchell
The Salt Lake Tribune
Updated: 03/26/2010 02:31:42 PM MDT
Income tax-related scams are a growing crime. Americans of all ages and incomes continue to fall for — or perpetrate –some of the oldest scams around. Here are the top scams as compiled by the Internal Revenue Service:
Tax preparer fraud
The courts are filled with actions taken against tax preparers who allegedly have taken a portion of their clients’ refunds, charged inflated fees or promised refunds too good to be true. Choose your tax preparer carefully.
Hiding income offshore
Americans continue to try to hide some of their income in offshore banks, brokerage accounts or… other fraudulent foreign accounts. For many, this may be the time to come clean: The IRS says taxpayers who voluntarily disclose such fraudulent schemes may fare better in a criminal prosecution than those who don’t come forward on their own.
Filing false or misleading forms
Some taxpayers file false or misleading returns to claim refunds they are not entitled to. Those who are caught face penalties, possibly even criminal prosecution. One common scheme involves people who receive Social Security benefits and report incorrect withholding and income amounts to avoid paying any taxes. Abuse of charitable organizations and deductions
Numerous schemes involve tax-exempt organizations. One common scheme involves overvaluing noncash donations for income tax purposes. Another involves donors who maintain a level of control over a donated item that served as a tax deduction.
Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. One of the most common schemes involves filing a phony return or reporting no income for a particular tax year. Another involves the fuel tax credit. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But others who aren’t entitled to the credit have claimed it anyway to reduce their tax liability.
Abusive retirement plans
Some taxpayers use various schemes to avoid the limits on contributions to retirement accounts, such as IRAs, or to avoid penalties on early distributions. Taxpayers also should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or who suggest strategies for avoiding annual contribution limits to retirement plans.
Disguised Corporate Ownership
Some taxpayers try to disguise the ownership of a business or financial entity to avoid paying some or all of their tax liability.
Misuse of Trusts
For years, some financial advisers have urged taxpayers to transfer assets into trusts as a way to shield income from taxes. While many trusts are legitimate parts of tax and estate planning, others are not. Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.
Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. IRS impersonation schemes flourish during the filing season and can take the form of e-mails, tweets or phony Web sites. Many times, the e-mails and other correspondence appear to be authentically from the IRS. Scammers also may use phones and faxes to reach victims. Some scam artists tell consumers they are entitled to a refund and that they must reveal personal financial information to get it.
If you get an e-mail that appears to be from the IRS but seeks personal information, do not open it or attachments or click on any links in the e-mail. Forward the e-mail to firstname.lastname@example.org.