Each year the IRS warns taxpayers about the "Dirty Dozen" tax scams. Prior articles in this newsletter have covered various scams, but on February 17, the IRS published the full list for 2017.
IRS Commissioner John Koskinen stated, "We continue to work hard to protect taxpayers from identity theft and other scams. Taxpayers can and should stay alert to new schemes which seem to constantly evolve. We urge them to do all they can to avoid these pitfalls – whether old or new."
– Taxpayers continue to receive emails from fraudsters. The emails regularly contain links to fraudulent sites. You should not click on any links from a suspicious email. The IRS states it "will never initiate contact with taxpayers via email about a bill or refund." The latest scam is an email to tax preparers with an "Access Locked" statement. In order to supposedly unlock his or her tax software account, it asks the tax preparer to click on a link and log on with his or her username and password. The fraudster will then use that information to steal client information. If you receive a suspicious email, you should forward it to firstname.lastname@example.org
2. Phone Scams
– Americans continue to be threatened with arrest, deportation or loss of a driver's license if they do not immediately send funds to a fraudster who claims to be from the IRS. The funds have been sent through iTunes cards or other immediate electronic payment methods.
3. Identity Theft
– You should always safeguard your financial information. Shredding important documents is a very good practice. You may choose to file early and should try to protect your Social Security number to reduce the risk of an identity theft.
4. Tax Return Preparer Fraud
– Most tax preparers are honest and reputable. Be careful if the tax preparer overpromises on your refund. He or she may create false deductions and understate your taxes.
5. Fake Charities
– Americans are the most generous people on the earth. There are over one million recognized and reputable charitable organizations in our nation. Americans give very generously to charities throughout the land. However, some individuals create fake charities to receive gifts. You should give to charities that you know are reputable. You also may use the tools on www.irs.gov
to check out your favorite charities.
6. Inflated Refunds
– Some tax preparers promote their business by promising large refunds. The IRS indicates "fraudsters use wires, advertisements, phony storefronts and word of mouth via community groups where trust is high to find victims." You should use caution and determine whether you are using a credible tax preparer who will file an accurate return.
7. Excess Business Credits
– Some tax preparers improperly claim the fuel tax credit or research credit. The fuel tax credit is permitted for off road or agricultural use of vehicles. You should only claim these credits if you properly qualify for them.
8. Padding Deductions
– You must only claim deductions you can support. If you make a charitable gift of $250 or more, you must receive a receipt called a contemporaneous written acknowledgement. The receipt will indicate there were "no goods or services" given in exchange for the gift. This receipt must be in your possession before filing your returns. You also should be careful when claiming business deductions. There are specific records required to support those deductions. Help is available on www.irs.gov
9. False Income
– Do not report extra income to increase your earned income tax credit. If you receive excess benefits from this refundable credit, you could be subject to a claim by the IRS for back taxes, interest and penalties.
10. Abusive Tax Shelter
– Some promoters claim that you can purchase a tax shelter and reduce or eliminate your tax. Many of these tax shelters are very complex. Be very careful if you are approached by someone selling a tax shelter that looks too good to be true.
11. Frivolous Tax Arguments
– Promoters may tell you that the dollar is no longer legal tender, only foreign income is taxable or the federal government is not actually permitted to collect tax and therefore you do not have to pay income tax. These arguments have led too many unsuspecting taxpayers into negotiations with the IRS over back taxes, penalties and interest.
12. Offshore Tax Avoidance
– The Offshore Voluntary Disclosure Program has enabled tens of thousands of Americans who hold offshore accounts to disclose those to the IRS. They have paid billions in taxes and penalties. All income is taxable, including interest from foreign bank accounts.