Every year the IRS releases its annual list of prevalent tax scams, better known as “the Dirty Dozen”. Quite often many identical contenders show up from year to year. Pervasive ones include identity theft, phishing and phone scams. Criminals often rely on peoples’ fear of the IRS to fleece their hard-earned money away through these scams. Don’t fall victim to them yourself; that’s why we’ve posted the list below for review and reference.

Identity Theft: Identity theft scams are especially rampant during tax season. Criminals often attempt to file fraudulent returns using other peoples’ stolen Social Security numbers, in hopes of gaining tax refunds. If you find yourself a victim of identity theft, contact the IRS immediately. They will flag your account and assign you a unique PIN code. Once assigned, you won’t be able to file your tax return electronically unless that PIN number is provided.

Phone Scams: If you ever receive a phone call from someone claiming to be an IRS employee, hang up immediately. The IRS will never call you directly unless you are already in contact with a verified agent and have both agreed to phone contact. Scammers portraying IRS officials will threaten any number of actions such as arrest and deportation unless immediate payment is made on an unknown tax bill. Even if the caller identifies as the Internal Revenue Service, again hang up the call.

Phishing: Another point to remember – the IRS never sends out emails directly to taxpayers. They never do. If you ever receive an email claiming to be from the IRS, don’t click on any links or open and download attachments. They are only tricks to steal your banking and personal information. Don’t fall for it. Simply forward that scam message to phishing@irs.gov. That is the official email for the agency that accepts all phishing attempts; from there they will investigate who sent it and put the perpetrator out of business.

False Return Preparation: Most tax professionals follow the rules. However, there are always unethical preparers who try to perpetrate shady practices be they identity theft, refund fraud, etc. on unsuspecting clients. This risk is why it is important to shop for and vet tax professionals carefully. Check for reviews and seek out referrals from trusted friends and family too.

Avoiding Offshore Taxes: In recent years, the IRS’ crackdown on foreign tax cheats and the financial firms that perpetrate them has demonstrated they do not take hiding money overseas lightly anymore. For anyone who is currently doing so, the best course of action is voluntarily working with the IRS and making sure they are fully compliant with reporting all income including offshore. To help, the IRS created the Offshore Voluntary Disclosure Program (OVDP) to help people avoid prosecution and provide the agency all the necessary details about their overseas holdings. US taxpayers must declare and pay tax on all income, whether earned domestically or abroad. So any interest or dividends received from foreign accounts have to be reported on your tax returns. If your foreign account contains $10,000 or more over the year’s course, then you must file an FBAR statement by June 30th this year.

Promising Inflated Refunds: This trick falls in line with preparer fraud mentioned above. If a tax preparer promises a large refund before reviewing your records, charges his or her fee based on a percentage of your refund, or provides you a blank tax return to sign then walk away immediately. Any of these signs should disqualify you from using that person to handle your taxes.

Fake Charities: Con artists’ using fake charitable organizations is another common way they fleece taxpayers out of their hard-earned money every year. Be suspicious of organizations with similar names to well-known charities. Also, you can reference the IRS’ Charities & Non-Profits Exempt Organizations List to see if a prospective charity is legitimate 501(c)(3) or not. Also, if the charity provides goods or services in exchange for your donation, be sure to subtract the value of said good or service from your total donated amount. The IRS will then accept the difference as your donation amount.

Padding Returns with False Deductions: Besides keeping an eye out for other people looking to cheat or steal, make sure not to engage in shady behavior yourself. Don’t pad your return with inflated deductions or false expenses. The reason to avoid such padding is that the IRS is aware of industry standards when it comes to business expenses. If you try to veer off those numbers significantly, then you run the risk of an investigation or audit.

Improperly Claiming Business Credits: Alongside avoiding padded deductions, also avoid improperly claiming business credits, such as the fuel tax or research credits. As with false deductions, the IRS is aware of what kinds of activities qualify a person for these credits, and if you cannot prove so, then you will be in trouble.

Falsifying Income: Income falsification scams manipulate the Earned Income Tax Credit (EITC) for better refunds than are legal. The EITC is determined based on a sliding scale dependent on income level and quantity of dependent children. Fraudulent preparers will suggest falsifying income to get a bigger refund. The problem with this trick though is that once a taxpayer signs his or her return, he or she is responsible for the represented information, not the preparer who suggested falsifying the document. Taxpayers who get caught will face large bills and possible prosecution.

Illegal Tax Shelters: Don’t use or become involved with overly complex or shady tax avoidance business structures or investments, as well as the individuals who perpetrate them. The IRS is committed to making sure everyone pays their fair share into the system; as a result, they are always looking for supposed shelters promising impossible benefits. If you are invited to invest in an overly complex and structured financial investment, check it out with both your lawyer and tax professional to make sure it is legitimate, and you can gain a tax benefit from it.

Outrageous Tax Cases or Suits: Do not attempt to bring a frivolous case or suit against the IRS and expect to get away with it. Con artists operating schemes often push taxpayers to present outrageous claims in court to contest tax liabilities. While you do have the legal right to challenge liabilities through the court system, frivolously doing so can garner a monetary penalty of $5,000 and potentially lead to jail time. These kinds of actions are what led to Wesley Snipes to serve federal prison time.

While many of these schemes are common, the IRS does update its Dirty Dozen list from year to year, so be aware of any changes they make to it around tax season. For help on filing your taxes this year, feel free to contact us today to get in touch with our tax advisors immediately.