Some are good old-fashioned schemers out to make a fast buck, and often leave you holding the bag. The meaner sort prey on vulnerable, often clueless, people who don’t know what hit them.
The IRS on Tuesday released its annual “Dirty Dozen” list of tax scams that taxpayers can encounter at any point during the year. Many of these schemes peak during filing season as people prepare their tax returns, the IRS said in a statement.
It said illegal scams can lead to significant penalties and interest and possible criminal prosecution, noting that IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.
Following are the Dirty Dozen tax scams for 2013:
1. Identity Theft
Use of someone’s name, Social Security number or other identifying information, without his or her permission, to commit fraud or other crimes tops this year’s Dirty Dozen list. Often, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.
The IRS said that last year it prevented the issuance of $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.
In January, the IRS conducted a coast-to-coast enforcement sweep against identity theft suspects that led to 734 enforcement actions. It currently has 3,000 people working on identity-theft-related cases and has trained 35,000 employees who work with taxpayers to help with identity theft situations.
The agency has a special section on IRS.gov dedicated to identity theft issues. It said taxpayers who believe they are at risk of identity theft because of lost or stolen personal information should contact the IRS immediately at 1-800-908-4490 so the agency can secure their tax account.
The IRS says it doesn’t initiate contact with taxpayers by email to request personal or financial information. That doesn’t stop scammers from phishing for taxpayer information so they can steal their money or identities.
Phishing is typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to entice potential victims and prompt them to provide valuable personal and financial information.
The agency said anyone who receives an unsolicited email that appears to be from either the IRS or a closely linked organization, such as the Electronic Federal Tax Payment System, should report it to [email protected].
3. Return Preparer Fraud
Most return preparers provide honest service to their clients, but some unscrupulous preparers take advantage of unsuspecting taxpayers, and the result can be refund fraud or identity theft. These scammers have a large pool of potential victims to prey on, as about 60% of taxpayers will use tax professionals this year to prepare their tax returns.
The IRS reminded taxpayers that they are legally responsible for what’s on their tax return even if it’s prepared by someone else. They should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers.
The IRS offers tips about choosing a preparer, red flags, details on preparer qualifications and information on how and when to make a complaint on www.irs.gov/chooseataxpro.
4. Hiding Income Offshore
No one likes to pay taxes, but some people go a long way—literally—to avoid doing so. Over the years, the IRS has identified numerous individuals as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, 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 is not amused, and aggressively pursues taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. It works closely with the Justice Department to prosecute tax evasion cases.
Legitimate reasons exist for maintaining financial accounts abroad, but reporting requirements need to be fulfilled, the agency said. U.S. taxpayers who maintain such accounts and fail to comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.
Since 2009, the IRS has given errant taxpayers special opportunities to comply with the tax system and resolve their tax obligations. It has collected $5.5 billion from 38,000 individuals who have come forward voluntarily to disclose their foreign financial accounts.
5. ‘Free Money’ from the IRS & Tax Scams Involving Social Security