The following list is the top ten tax scams that the IRS has identified and will be looking for:
1. Phishing – This is used by internet scammers to trick people into giving away their personal information so that the scammers can steal identities, access bank accounts, make credit card charges, and even take out loans in the person’s name. Lesson = Don’t feel bad for that poor little prince in Nigeria who happens to shoot you an e-mail.
2. Hiding Income Offshore – The IRS is looking for people who are hiding income in offshore bank accounts, brokerage accounts, or through other business entities. Of course, there won’t be a problem if the individual alerts the IRS about their foreign transactions. Lesson = Be sure to tell Uncle Sam about those frequent trips to see the Bank of Switzerland.
3. False or Misleading Tax Forms – As always, scammers are filing misleading or fradulent tax returns in order to get tax refunds that they should not have been entitled to. Yes its an old trick, but its still used to this day. Lesson = Ever heard of the $5,000 refundable credit for people who go to church on a regular basis? Neither has the IRS.
4. Charitable Deductions Abuse – Income tax evaders are donating money and other property to tax exempt organizations, but the donors are still maintaining control over the items they donated. Not only do the scammers get a tax deduction for their donation, but they get to keep their stuff as well. Lesson = It is not a donation when you give a piece of artwork to your local art gallery, but you display it for all to see in your upstairs bedroom.
5. Return Preparer Fraud – Scammers are skimming off of the tops of taxpayers’ refunds in order to get a little extra money out of the taxpayer for preparing their income tax returns. Tax return preparers have also been known to make wild promises to the taxpayers about extraordinary income tax refunds that the taxpayer is falsely entitled to. Lesson = If you got a $4,000 tax refund last year, but this year you are getting a $106,000 refund, there may be signs that something is awry.
6. Frivolous Arguments – The IRS has a list of frivilous arguments that should not be made by taxpayers when dealing with the IRS. But if you are feeling lucky and want to make the argument anyways, the IRS will most likely impose a $5,000 penalty to you. The list can be found here. Lesson = Feel free to yell, scream, and inform the world that you know income taxes are unconstitutional, just make sure not to tell the IRS.
7. Abusive Retirement Plans – Scammers are coming up with transactions and other methods of avoiding the controbution limits to IRAs and other retirement plans. A popular transaction that the IRS is looking for is transferring appreciated assets into a retirement account for less than the assets’ fair market value. Lesson = Don’t tell your neighbor your house is worth $350,000 on Monday, and tell your IRA that its worth $95,000 on Tuesday.
8. Disguised Corporate Ownership – Scammers are forming corporations or other business entities in order to hide financial transactions, hide the true ownership of the business, engage in money laundering, or even fund terrorist activities. Lesson = Try not to open up a business in your own name just because Al-Caida told you to.
9. Zero Wages – Scammers are filing phony income related information with the IRS, instead of using their real income information, in order to lower the amount of their taxes. This scam is most commonly performed by issuing corrected or substitute Form W-2s. Lesson = It is probably not a good idea to scratch out the numbers on your Form W-2 and write in $0 because you think making $19 an hour does not fall under the definition of “wages”.
10. Fuel Tax Credit Scams – Scammers are claiming unreasonable fuel tax credits that do not fit the taxpayers’ lifestyles. In order to claim a specific fuel tax credit certain requirements must be met and a taxpayer must satisfy those requirements in order to be eligible for the tax credit. Lesson = If you live in a loft in a downtown metropolitan area, chances are you will not qualify for the farmer fuel tax credit for the use of fuel for off-highway business purposes.