IRS’ ‘Dirty Dozen’: 12 Tax Fraud Schemes to Avoid

Every year at the beginning of the tax season, the IRS publishes its “dirty dozen” list of schemes that taxpayers may encounter at any time, but many of which proliferate during the tax-filing period.

The list reads much the same each year, but still bears attending to. “Taxpayers can and should stay alert to new schemes which seem to constantly evolve,” the agency’s commissioner, John Koskinen, said in a statement.

“We urge them to do all they can to avoid these pitfalls — whether old or new.”

The scams on the IRS list fall into four broad categories: those in which criminals go after individuals’ personal information; ones whereby scammers gull the vulnerable or uninformed to participate; purposefully incorrect filings; and high-end tax avoidance.

Following is this year’s “dirty dozen” as prepared by the IRS:

1. Phishing

Taxpayers need to be on guard against fake websites or emails from criminals posing as a person or organization the taxpayer trusts or recognizes, looking to steal personal information.

 “These email schemes continue to evolve and can fool even the most cautious person,” Koskinen said. “Email messages can look like they come from the IRS or others in the tax community.”

The IRS said it would never initiate contact with taxpayers via email about a bill or refund, and no one should click on an email claiming to be from the IRS.

2. Identity Theft

Identity theft is especially prevalent around tax time, and taxpayers need to be extremely cautious and do everything they can to avoid being victimized. The IRS continues to aggressively pursue criminals who file fraudulent returns using someone else’s Social Security number.

The IRS, state tax agencies and the tax industry have joined as the Security Summit and enacted  safeguards that are showing results. According to the agency, the number of taxpayers reporting stolen identities on federal tax returns in 2016 fell by more than 50%, with nearly 275,000 fewer victims compared with a year ago.

3. Phone Scams

Phone calls from scammers impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has reported a surge of these phone scams in recent years as con artists have threatened taxpayers with police arrest, deportation and license revocation, among other things.

The Treasury Inspector General for Tax Administration reported that some 10,000 victims have collectively paid more than $54 million as a result of phone scams since October 2013.

4. Preparer Fraud

The vast majority of tax professionals provide honest, high-quality service, but some unscrupulous ones also ply the trade. They set up shop each filing season to perpetrate refund fraud, identity theft and other scams.

The IRS suggests several things to avoid working with a fraudulent preparer:

• Ask whether the preparer has an IRS Preparer Tax Identification Number
• Check the preparer’s qualifications, using the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications
• Check the preparer’s history
• Ask about service fees
• Ask to e-file your return
• Don’t rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules
• Never sign a blank return
• Review your return before signing

5. Falsifying Income to Claim Credits

Con artists sometimes talk taxpayers into inventing income to erroneously qualify for tax credits. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties. In some cases, they may even face criminal prosecution. Taxpayers should file the most accurate return possible because they are legally responsible for what is on their return.

The IRS cautions taxpayers to avoid getting caught up in a scheme disguised as a debt payment option for credit cards or mortgage debt. This involves filing a Form 1099-MISC, Miscellaneous Income, and/or bogus financial instruments such as bonds, bonded promissory notes or worthless checks. 

6. Inflated Refund Claims

Taxpayers should be wary of anyone who asks them to sign a blank return, promises a big refund before looking at their records or charges fees based on a percentage of the refund. Fraudsters use flyers, advertisements, phony storefronts and word of mouth via community groups where trust is high to find victims.

Scammers often prey on people who do not have a filing requirement, such as those with low income or the elderly and on non-English speakers. They dupe people into making claims for fictitious rebates, benefits or tax credits. Or they file a false return in their client’s name, and the client never knows that a refund was paid.

Scam artists may also victimize those with a filing requirement and due a refund by promising larger refunds based on fake Social Security benefits and false claims for education credits or the Earned Income Tax Credit, among others.