While the tax season in full force, so are tax scams. As tax professionals, it’s important to be extra vigilant to watch for these scams to protect yourself and your clients. The best defense you have is to be informed and prepared on the types of threats you and your clients may face.
Each year, the IRS publishes its annual “Dirty Dozen” list of the most common and important scams taxpayers and tax preparers may encounter in 2016. Below is quick summary of each threat and a link for more information on the precautions you and your clients should take.
Identity Theft: Identity theft is an ongoing problem, especially around tax time, so it’s no surprise it’s at the top of the “Dirty Dozen” list again this year. Often times, it happens when someone’s social security number is stolen and used to file a fraudulent tax return. It’s important to remind clients they shouldn’t give this number out by email and they should only provide it absolutely necessary.
Phone Scams: Phone scams are emerging as one of the most persistent and prevalent problems in the tax industry. Criminals impersonating IRS agents frighten unsuspecting individuals into providing their personal information by threatening taxpayers with police arrest, deportation, license revocation and more. If you or your client receives such a call, it’s important to report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484.
Phishing: This is a widespread problem and many people can fall victim to it if they are not careful. Remind your clients that the IRS does not ask for financial or personal information via email, and to use caution when clicking on links in emails. The con artists can create very authentic looking emails and websites, so please contact the IRS directly by phone at 1-800-829-1040 or search for your local officeto get answers.
Return Preparer Fraud: While most tax professionals provide honest, high-quality service, the IRS works closely with the Department of Justice to ensure unscrupulous tax return preparers who set up shop each filing season to perpetrate refund fraud, identity theft and others are brought to justice.
Hiding Income Offshore: The IRS launched a campaign to investigate tax evasion by having offshore accounts but not reporting them. If you or your client has money in offshore banks, it’s best to contact the IRS to get things in order.
Inflated Refund Claims: Con artists and scammers take advantage of unknowing taxpayers by promising inflated refunds and claiming fraudulent credits. They then charge a hefty fee before preparing the taxpayer’s refund.
Charitable Deduction Abuse: As the name suggests, this tax scheme involves groups masquerading as charitable organizations to attract donations from unsuspecting contributors. has charitable deductions taken in attempt to fraudulently lower tax responsibilities. It’s important to remind clients to do their homework before donating to a charitable organization.
Padding Deductions on Returns: Whether using tax software or going to a professional, taxpayers are ultimately responsible for their tax returns. Exaggerating tax credits could result in a penalty of 75% the amount owed and even criminal punishment.
Excessive Claims for Business Credits: While some occupations can reasonably claim credits like fuel and research, some taxpayers are abusing this provision with fraudulent claims. Since this falls under a frivolous tax claim, there is a $5,000 penalty from the IRS.
Falsifying Income: Like tax preparer fraud, this scam involves unethical filing for credits that they are not qualified to receive. This scam can involve using 1099-OID to give the appearance of a legitimate claim.
Abusive Tax Shelters: Advise your clients to steer clear of tax domestic and foreign trust arrangements that seem too good to be true. These scams may lead to criminal prosecution as the not only the IRS, but the Department of Justice gets involved.
Frivolous Arguments: This scam involves people being encouraged to avoid paying their taxes by making fraudulent tax claims. This can be an expensive problem as the penalty for filing a frivolous tax return is $5,000.