By: Natalie Crofts, KSL
PHOENIX- The Internal Revenue Services issued its annual "Dirty Dozen" list of tax scams to watch out for in 2014 in an effort to help people avoid costly mistakes.
These scams can occur year round, but many of them peak during tax season as people fill out their tax returns. The schemes included on the list range from identity theft to false promises of free money.
"Taxpayers should be on the lookout for tax scams using the IRS name,” said IRS Commissioner John Koskinen in a statement. “These schemes jump every year at tax time. Scams can be sophisticated and take many different forms. We urge people to protect themselves and use caution when viewing emails, receiving telephone calls or getting advice on tax issues.”
The "Dirty Dozen" scams for 2014:
1. Identity theft
Instances of tax fraud through identity theft continues to increase, according to the IRS. Often identity thieves will use someone else's personal information, like their Social Security Number, to file a tax return and try to claim a refund in their name.
The IRS website includes tips
on how to protect yourself against identity theft. Taxpayers who think they are a victim of identity theft can contact the IRS Identity Protection Specialized Unit at 800-908-4490.
2. Pervasive telephone scams
The IRS has also seen an increase in the number of phone scams where callers pretend to be affiliated with the IRS in an effort to steal money or identities from the people they are talking to.
The callers will often say the person is entitled to a large refund, or claim they owe money to the IRS and are in danger of losing their driver's license or going to jail. Sometimes the scammers will even call back pretending to be from the local police or DMV to make their claims appear legitimate.
The IRS warned scammers will often provide fake names and IRS badge numbers and that often the caller will be able to provide the last four digits of the person's SSN. The scammers may also spoof the caller ID to make it look like the call is coming from the IRS and have fake background noises to make it sound like they are in a call center.
People who receive a phone call from someone claiming to be from the IRS can call 800-829-1040 to speak with a representative and determine their actual payment status.
With phishing, scammers use fake websites or unsolicited emails to try to obtain personal information and commit identity fraud or financial theft. The IRS does not contact taxpayers by email, text or social media to request financial information, so if you get any communications of that nature from someone claiming to be with the IRS, the message should be forwarded to firstname.lastname@example.org
to report the incident.
4. False promises of "free money" from inflated refunds
Offers of large tax refunds that seem too good to be true are probably coming from scammers posing as tax preparers, according to the IRS. The fraudulent tax preparers use the scheme to make a profit by charging for their bad advice. The institution warned that these types of scams can be particularly dangerous because they spread quickly by word of mouth and even if someone else files a claim for a refund for you, you could be stuck with a $5,000 penalty for submitting a fraudulent claim.
5. Return preparer fraud
While most tax preparers are honest, there have been instances of tax professionals taking advantage of their position to commit return fraud or identity theft. The IRS said taxpayers should protect themselves by making sure their preparer has an IRS Preparer Tax Identification Number and signs the returns.
6. Hiding income offshore
Taxpayers who have financial accounts abroad are required to complete reporting requirements in the U.S. The IRS has been investigating foreign accounts more aggressively since 2009 and has collected billions of dollars in back taxes, interest and penalties.
7. Impersonation of charitable organizations
Most likely to occur after natural disasters, scammers often try to obtain personal and financial information by posing as a charity. The IRS warned that people on both the giving and receiving end of a deal with an organization should be wary of the legitimacy of who they are working with. The IRS provides a search tool
to allow people to find secure organizations they can donate to.
8. False income, exemptions or expenses
Claiming more income than you actually received to try and get a bigger tax credit from the IRS won't get you very far. Penalties include repaying the funds you received and paying interest on the money you owe. Taxpayers should also avoid listing more expenses than they actually incurred. Specifically, the IRS said some taxpayers have filed for fuel tax credits they don't actually qualify for and can face fines of $5,000.
9. Frivolous arguments
The IRS warns against trying to get out of paying your taxes by making outlandish claims. It has a list of frivolous arguments
that includes things like saying your state is not part of the U.S., that has been previously shot down in court. Anyone who tries to use the arguments can end up facing penalties.
10. Falsely claiming zero wages or using false Form 1099
People should be wary of advice when someone is saying he or she can claim deductions they don't qualify for, according to the IRS. There is a $5,000 fee for people who are involved with this scheme.
11. Abusive tax structures
Abusive schemes are usually complex and involve multiple layers of transactions to hide taxable assets and evade taxes, according to the IRS. If someone tries to convince you to use one of these schemes, you can report it to the IRS.
12. Misuse of trusts
The IRS said it continues to see trusts being used inappropriately as a tool to avoid paying taxes. It recommended that anyone setting up a trust consult with a financial professional to ensure all of the requirements are properly followed.
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