The bad guys out there trying to take advantage of the not-so-alert regular guys use every avenue they can to carry out a scam, including the tax system. Every year, the IRS publishes the 12 biggest scams that they are aware of and watching for. Here is a summary of the top 12 scams for 2013.
This occurs when someone uses your name, social security number or other identifying information without your permission to commit fraud or other crimes. Sometimes, that information is used to file a fraudulent tax return and claim a refund.
This occurs mostly via email or fake websites. They look legitimate and lure victims into providing personal and financial information, which is then used to perpetrate identity theft. The IRS will NEVER contact you via email. If you do receive an email that says it is from the IRS or any organization linked to the IRS, please forward that email to email@example.com.
RETURN PREPARER FRAUD
This year, 60 percent of taxpayers will use a tax professional to prepare their taxes. Most of those preparers are honest and try to do the best they can for their clients, but just like any profession, there are a few bad eggs.
Taxpayers are responsible for what is on their tax return whether they prepared it or not. When looking for a tax professional choose only a preparer who signs and includes the Preparer Tax Identification Number (PTIN) on the returns.
HIDING INCOME OFFSHORE
A common way to evade U.S. taxes is to hide income in offshore banks, brokerage accounts, nominee entities or foreign trusts.
It is not illegal to maintain a foreign account and there are legitimate reasons to do so. Just remember, if you have a foreign account of any kind, you must comply with reporting and disclosure requirements. If you don’t comply, you are breaking the law and risking penalties and fines being assessed, plus possible criminal charges.
“FREE MONEY” FROM THE IRS & TAX SCAMS INVOLVING SOCIAL SECURITY
In churches around the country, fliers are appearing suggesting that you can file a tax return with little or no documentation and get free money from the IRS. They are geared toward the elderly and people who make little or no money and normally don’t even have a tax-filing requirement.
Perpetrators of this scam will help you file for a claim (for a fee of course). An example is telling people they can qualify for the American Opportunity Tax Credit even though the victim was not enrolled in any school or paying for college. Some even say you can qualify for the credit if you went to college a decade or more ago. By the time the claim is rejected, the scammer is long gone.
IMPERSONATION OF CHARITABLE ORGANIZATIONS
Following natural disasters, many scammers will impersonate a charity attempting to garner cash donations and personal information to “help the victims of XYZ disaster.” Some fakes are REALLY good at looking and acting like the real thing.
FALSE/INFLATED INCOME AND EXPENSES
Including income that was never earned and expenses that were never paid to maximize refundable credits such as the Earned Income Tax Credit or the fuel tax credit is a very serious offense. Efforts to get a larger refund through fraudulent use of those credits can result in fines, penalties (up to $5,000) and prosecution.
FALSE FORM 1099 REFUND CLAIMS
There is a bogus theory floating around that the U.S. government maintains secret accounts that taxpayers can access by filing 1099 Original Issue Discount (OID) forms to the IRS. There is a fake information return filed using the 1099 OID to justify a false refund claim on a corresponding tax return.
Victims are encouraged to make unreasonable and outlandish claims to avoid paying the taxes they owe.
FALSELY CLAIMING ZERO WAGES
This typically involves filing a substitute W-2 or “corrected” form 1099 to reduce taxable income to zero.
DISGUISED CORPORATE OWNERSHIP
Third parties request employer identification numbers and form corporations to obscure the true ownership of a business.
MISUSES OF TRUSTS
Everybody has been invited to one of those seminars urging you to transfer all of your assets into trusts to eliminate your tax liability. While there are many legitimate trusts used in tax and estate planning, these particular trusts rarely deliver on the promised tax benefits and should be avoided. Please have any trust you are looking at opening reviewed by an attorney competent in trust law. FBN
By Roxanne Augenstein, Northern Arizona Financial Services