The IRS has issued “Top 12 tax scams” that taxpayers and preparers should avoid during the 2017 filing season, as follows:
1. Phishing Schemes – The schemes that involved fake websites and email or those trick taxpayers or practitioners into giving personal information. Be wary about clicking on any attachments or links in emails.
2. Phone Scams – The criminals impersonating IRS agents that make cold phone calls and threat taxpayers to pay taxes. The IRS explains that legit agents usually initiates contact by mail, not by phone, and never threaten taxpayers.
3. Tax-related Identity Theft – Although the Security Summit Partners (consisted of the IRS, state tax agencies, and the tax practitioners) have applied more safeguards against this crime this year, the related scams of stealing personal and financial data from taxpayers or data held by tax practitioners, remains a top concern.
4. Return Preparer Fraud – The unscrupulous tax return preparers that promise overly large refunds. In general, the IRS advised to not trust them. Even to those good ones, never ever sign a blank return.
5. Fake Charities – The scam artists that set up fake charities to steal money and personal information from unsuspecting taxpayers. The IRS warned that many of these scammers use names that are similar to well-known charities or set up websites that look like legitimate charities.
6. Falsely Inflating Refund Claims – The unscrupulous tax preparers contacting elderly or low-income taxpayers who normally don’t file and filing returns claiming inflated refunds for them (or stealing their identities and keeping any refund). It could also involve people who normally file and receive refunds falling victim to scam artists who file returns for them claiming earned income tax credits (EITCs) or education credits or otherwise inflating deductions to get taxpayers larger refunds than they are entitled to.
7. Fuel and Research Tax Credit Scams – Fuel tax credits are credits for excise taxes paid on fuel, which may be exempt from tax in some cases and therefore eligible for the credit to reimburse taxpayers for nontaxable uses. The IRS explained, most individual taxpayers do not qualify for such credits. The research tax credit is a credit for research activities that involve a process of experimentation where many taxpayers claim the credit for activities that do not qualify or for which they lack proper substantiation of the research expenses.
8. Falsely Padding Deductions – A Scam that involves taxpayers falsely padding deductions, expenses, or claiming credits they are not entitled to OR an overstating charitable contribution or business expenses, or falsely claiming credits, such as the EITC.
9. Falsifying Income to Claim Tax Credits – The scam that involves reporting fraudulent amounts of earned income in order to qualify for certain tax credits, such as the EITC, which requires taxpayers to have income earned from a job or business to qualify for the credit.
10. Abusive Tax Shelters – The scam that involves promoters that persuade owners of closely held entities to participate in arrangements that lack many of the attributes of genuine insurance. They insure implausible risks, fail to match genuine business needs or duplicate the taxpayer’s existing coverages. The IRS explains that premiums may not be supported by underwriting or actuarial analysis, may not be linked to a desired deduction amount, or may be much higher than premiums for comparable commercial coverage.
11. Frivolous Tax Arguments – The scam that involves promoters of outlandish legal arguments to avoid paying their taxes that have consistently been thrown out of court. Some of the more common arguments that taxpayers have made are that taxpayers can avoid paying taxes on religious or moral grounds by invoking the First Amendment to the Constitution or that only federal employees are subject to federal income tax.
12. Offshore Tax Cheating – The scam that involves the act of avoiding taxes by hiding money or other assets in unreported offshore accounts. Included in this scam are attempting to hide income in offshore banks, brokerage accounts, or nominee entities, which are then accessed using debit cards, credit cards, or wire transfers. Other taxpayers use foreign trusts, employee-leasing schemes, private annuities, or insurance plans to evade tax.