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Identity Theft and Pervasive Telephone Scams Top the 2014 Dirty Dozen List

TaxAlerts Tax Article

March 2014 | Written by: Karen Reed, EA

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Every year the IRS releases its “Dirty Dozen” list of tax scams. This year Identity Theft is number one, and making its first ever appearance on the list is “Pervasive Telephone Scams.”  

Here’s this year’s list:

Identity Theft
Tax related identity theft occurs when your personal information is used without your permission to fraudulently file a return or claim a refund. Victims of fraud should contact the new IRS Identity Protection Specialized Unit at 800-908-4490. Read more about tax identity theft here.

Pervasive Telephone Scams
In 2013 there was spike in telephone scams. Taxpayers all across the country have been called by scammers purporting to be IRS agents attempting to collect money. Incidents should be reported to the IRS Inspector General for Tax Administration. Read more about these scams here.

Phishing
Phishing scammers lure victims into revealing personal information online through deceptive tactics such as impersonating the IRS in emails, tweets, fake websites, etc. Exercise caution when viewing emails and send suspicious communications to phishing@irs.gov.

False Promises of Free Money from Inflated Refunds
Individuals posing as tax preparers lure victims into filing false claims for tax credits and benefits, such as the Earned Income Credit or American Opportunity Credit. Scam victims often never see the refunds and have large fees taken by the perpetrators. Taxpayers who participate in these schemes may be subject to serious penalties, such as monetary fines and the loss of federal benefits.

Return Preparer Fraud
There are many dishonest tax return preparers who derive financial gain by skimming a portion of their clients’ refunds, charging inflated fees, and attracting new customers by promising unrealistic refunds. 

Hiding Income Offshore
This category of illegal scheme involves taxpayers who are trying to evade or avoid paying income taxes by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. This also includes the use of offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, and private annuities or insurance plans. The Offshore Voluntary Disclosure Program is available for those who wish to mitigate the risk of criminal prosecution.

Impersonation of Charitable Organizations
Scammers take advantage of significant natural disasters by diverting donations to bogus charities that impersonate nationally known organizations. Before you donate money, check out the organization using the Select Check tool at IRS.gov.

False Income, Expenses or Exemptions
Taxpayers who claim income they did not earn in order to obtain refundable credits such as the Earned Income Credit or Fuel Credit are committing fraud. Participation in this type of fraud could result in penalties and possible criminal prosecution.

Frivolous Arguments
The IRS does not recognize certain arguments taxpayers use to avoid paying their taxes. A number of these arguments have been thrown out of court and deemed to be frivolous. These include the contentions that filing a tax return (or paying tax) is voluntary, that taxpayers can reduce their income tax liability by filing a “zero return,” that only foreign source income is taxable, and that wages, tips and other compensation are not income. Taxpayers who take such frivolous positions may face a variety of penalties, including criminal prosecution and jail time.

Falsely Claiming Zero Wages or Using False Form 1099
Perpetrators of these scams file falsified Substitute Form W-2s, 1099-Misc and 1099-OID forms to reduce taxable income to zero or to obtain refunds based on false withholding. 

Abusive Tax Structures
IRS Criminal Investigation is combatting abusive tax schemes that use multilayer transactions and take advantage of financial secrecy laws to conceal the true nature and ownership of taxable income or assets.

Misuse of Trusts
This scam involves the use of private annuity trusts and foreign trusts to shift income and deduct personal expenses and to avoid estate transfer taxes.

The IRS is urging all taxpayers to be on the lookout for these and other scams, and to exercise caution online, on the telephone, and with the tax advice they follow. Choose your tax preparer wisely and remember that you are responsible for what you report on your tax return, no matter who prepares it.