The Dirty Dozen for 2013 – Part 1

On March 26 the IRS released its annual list of the worst 12 tax scams for the year. The IRS cautions taxpayers not to fall for any of these scams – often these scams are at their peak during the filing season as people prepare their tax returns. This week’s column presents one-half of the “Dirty Dozen”.

1. Identity Theft and Refund Fraud

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. For the 2013 tax season, the IRS has put in place a number of additional steps to prevent identity theft and detect refund fraud before it occurs. The strategy uses a three-pronged effort focusing on fraud prevention, early detection and victim assistance.

                                                     Not this Dirty Dozen.   

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490.

2. Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website. If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov. The IRS does not initiate contact with taxpayers by email to request personal or financial information.

3. Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft. Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else.

Numerous taxpayers have evaded U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities. Others have used foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose. The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. “Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

There are also a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. In the wake of Hurricane Sandy, the IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

To help disaster victims, donate to recognized charities.

Be wary of charities with names that are similar to familiar or nationally known organizations.

Don’t give out Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you.

While identity theft and refund fraud pose the biggest problem to taxpayers, illegal scams perpetrated by taxpayers can lead to significant penalties and interest and possible criminal prosecution.

Stay tuned next week for the remaining six worst tax scams for 2012.