Every year, the Internal Revenue Service (IRS) publishes its list of the “Dirty Dozen” tax scams, and reminds nationals to remain vigilant against such practices.
The IRS often reports a peak of fraudulent activity during tax season, and with this in mind, here the the most frequent frauds to watch out for:
Taking the number one spot for the second year in a row, identity theft sees a person use your information including your name and Social Security number (SSN) to file a bogus tax return and claim the refund.
You may be at risk if you’ve recently lost information or had documents stolen. If you are concerned, you should contact the IRS Identity Protection Specialized Unit.
The IRS has reported that phone scams are on the rise across America, where callers pretend to be from the IRS and try to get personal information from you.
Things to watch out for include include callers using fake and very regular (inconspicuous) names, being able to recite the last four digits of your SSN, using ‘spoof’ caller ID to seem legitimate, sending bogus emails to support claims, and low-level background noise to create a more plausible cover.
In addition, after threatening victims with jail time or revoking driver’s licenses, they may then hang up purporting to be from the local police – again with supporting caller ID.
You should call the IRS on 1.800.829.1040 if receive a call from an individual who you do not believe represents the IRS to check if you have any outstanding tax issues.
Phishing involves a criminal trying to steal your financial information via a rogue email or fake website.
The golden rule here is: The IRS never asks for personal information by email, so by staying sharp, you can avoid this scam.
“Free Money” scams
Remember the mantra, there is no such thing as a free lunch?
The same applies to “Free money” scams, which are routinely posed during tax time. Whether they claim the money comes from fictitious benefits, rebates, or tax credits, they should be doggedly avoided.
Return preparer fraud
Whilst the majority of tax preparers are good people, some try to encourage taxpayers to claim bogus credits, deductions or exemptions to claim bigger refunds.
You therefore need to use care when sourcing a preparer; and you may find it helpful to remember all preparers need to sign the returns they complete and use their IRS Preparer Tax Identification Numbers (PTINs) every time.
Hiding income offshore
It isn’t illegal to have cash or accounts abroad, but it is illegal to use them to evade US taxes. Using a local financial advisor will help ensure you remain on the right side of the law, wherever in the world you are.
Impersonation of charities
When disaster strikes, some individuals try to cash in, via bogus charities or fake affiliation with existing charities. They do this by soliciting funds by phone or email or using fake web sites.
To avoid being duped, only donate to recognised charities, and use check or credit card whenever possible.
False income, expenses or exemptions
You may be encouraged to increase income to then maximise refundable credits; yet this is prohibited and can lead to cash penalties.
Promoters of frivolous and often secretive schemes may try to encourage you to make unreasonable and outlandish claims – such as that paying taxes is an infringement of your liberty. However, the courts won’t agree, and pursuing this could lead to charges for erroneous refund claim penalties.
For this, ensuring you stay sharp on the laws enough to refute these claims means you avoid a criminal prosecution.
As you probably know, filing a phony information return claiming either no income, or financial dependents, will get you into trouble. Avoiding this means also avoiding penalties prosecution.
Abusive tax structures
Hiding income or assets via increasingly complex and abusive tax structures is on the rise, and consequently, the IRS Criminal Investigation has made them a priority, meaning they need to be avoided at all costs.
Misuse of Trusts
Finally, whilst there are legitimate uses for trusts, creating trusts for the purpose of tax evasion (as opposed to tax planning) isn’t one of them. You therefore need to prepare foreign trusts carefully, as an innocent mistake could cost you dearly.
Be sure to consult with a trusted advisor before entering into any trust agreements for the purpose of tax and/or estate planning.
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