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IRS Dirty Dozen Tax Scams

Each year, the IRS issues a Dirty Dozen list with the most common tax scams and this year’s list is out. Many of them peak during tax season, so read on!

Here are the most recent IRS dirty dozen tax scams the organization has warned taxpayers about:

1 – Phishing

Fake emails and websites used by scammers to obtain personal information are widespread. Know the IRS will never initiate contact with you via email or web. Don’t click on emails or fake websites posing as the IRS! You can look for telltale signs of phishing campaigns, like:

  • Poor grammar and spelling
  • An unrecognized sender
  • No name listed
  • Mismatched branding (if posing to be a company or the IRS)

Rely on common sense to avoid becoming a victim of a phishing scam.

2 – Phone Scams

IRS phone scams also target taxpayers for personal information. Scammers who impersonate the IRS call you to obtain your name, Social Security number, or other personal identifiers. Some even demand money. Unfortunately, many people fall victim to this scam. Remember: the IRS will never initiate contact over the phone, threaten you, or demand payment over the phone.

3 – Identity Theft

Tax identity theft occurs when a scammer uses your personal information to file a fraudulent tax return in your name to obtain a refund from the IRS. The scammer typically arranges to transfer the fraudulent tax refund to their own payment card or other accounts. So, when you go to file your tax return, the IRS rejects it because it sees your tax return as a duplicate. While you will eventually obtain your tax refund, it will delay the process.

4 – Return Preparer Fraud

Most tax advisors offer honest, high-quality tax preparation — but not all. In fact, there are some dishonest tax advisors out there who exploit tax filing season. They attempt to steal personal information to use for refund fraud and identity theft.

5 – Donations to Fake Charities

There are some groups who claim to be charitable organizations (501(c)(3)) to attract donations. Look out for charities with names similar to well-known charitable organizations. If you’re giving money to a charity, take a few extra minutes to ensure your money goes to a legitimate and tax-deduction eligible charity. You can use this IRS tool to search to find tax-deductible charitable organizations.

6 – Inflated Refund Claims and Shady Practices

Watch out for tax preparers who claim to give you inflated refunds. Avoid tax preparers who ask you to sign a blank return, promise a big refund before looking at your tax documents, or charge fees based on a percentage of the refund. Unscrupulous preparers over-hype their services with false promises and other methods to lure victims

7 – Excessive Claims for Business Credits

Business credits have specific requirements and are not available to all taxpayers. Examples:

  • The fuel tax credit is typically limited to off-highway business use, like farming.
  • The research credit is an income tax credit that was designed to encourage businesses to invest more in research and development. Improper claims often involve failures to participate in or substantiate qualified activities and meet the requirements of qualified research expenses.

8 – Padding Deductions on Tax Returns

Falsifying deductions or expenses on your tax returns to pay less on your return or get larger refunds is another IRS Dirty Dozen practice to avoid. Don’t claim charitable deductions you haven’t made or overstate business expenses.

9 – Faking Income to Claim Credits

Inventing income to qualify for tax credits is another IRS Dirty Dozen tax scam. Make sure to file your tax returns with accurate information — because you are responsible for what’s on it. Failure to do so can lead to interest, penalties, and even denial of some types of credits for a period of time.

10 – Abusive Tax Shelters

Abusive tax shelters are tax avoidance schemes to stay away from. The IRS says, “abusive tax structures including trusts and syndicated conservation easements are sometimes used to avoid paying taxes.” When in doubt, seek the independent opinion of an experienced tax advisor.

11 – Frivolous Tax Arguments

Frivolous tax arguments are another type of tax avoidance scheme to be wary of. Promoters of such schemes encourage you to make unreasonable and outlandish tax claims. Examples include:

  • False arguments that wages are not taxable income
  • Filing returns and paying taxes are voluntary

The penalty for filing a frivolous tax return is $5,000.

12 – Offshore Tax Avoidance

Offshore tax avoidance occurs when you use bank accounts and other financial dealings in other countries to hide money and evade your U.S. tax obligation. Examples include offshore bank accounts, foreign trusts, and other accounts where income and assets are not properly disclosed.

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