Identity Theft Leads 2014 Tax Scams

IRS lists top tax scams in latest “dirty dozen”: Internet Scambusters #588

These days, tax scams are with us all year, but as the deadline for filing your return approaches, the risk of being caught out by one of these tricks increases.

Each year, the IRS highlights the 12 biggest tax scams — known as the “dirty dozen” — led by identity theft as a lever for fraudulent refund claims.

In this weeks’ issue, we have the details of what to look out for and what to do if you fall victim.

And now for the main feature…


Identity Theft Leads 2014 Tax Scams


As expected, and as we reported in January, identity theft is turning out to be the biggest tax scam this filing season.

As millions of Americans file their returns, a proportion of them are discovering that someone else beat them to it — filing with their name and scooping up their refund.

Check out that earlier issue, ID Theft Glut Threatens Taxpayers.

Even so, the crime is just one of a dozen or so tax scams the IRS encounters every year, some of them genuine con tricks that fool filers and other attempts by individuals to scam the IRS.

We’ve reported on most of these before, and the IRS publishes an annual list of what they call the “dirty dozen,” the most common scams.

This year’s list looks like this:

  1. Identity theft. New measures are in place this year to counter this crime, but it’s still expected to cost billions.If you want to know more about how to prevent tax ID fraud, check out this special IRS identity theft protection guide.
  2. Phishing. Use of fake IRS messages and letters — and most recently text messages and social media channels — to try to get hold of victims’ confidential information.
  3. Return preparer fraud. This is a mixed bag of crimes from identity theft to false statements and refund skimming, perpetrated by people who prepare your return for you.As the IRS warns: Remember that whoever prepares your return, you’re still responsible for what’s in it.Here’s some useful guidance on choosing a tax professional.
  4. Hiding income offshore. The IRS continues to work with the Department of Justice to track tax evaders down and take legal action.The IRS has a sort of amnesty program called the Offshore Voluntary Disclosure Program, which has raked in about $5.5 billion since 2009.
  5. “Free money” scams. These are a variety of schemes that claim you can file a return without documentation and get refunds even if your income is so low that you don’t normally file.Crooks who advertise these on church and community notice boards usually charge a fee for this bogus service and may even go as far as filing fraudulent returns for their victims.
  6. Impersonation of charitable organizations. A typical version of this scam might be a call to victims of natural disasters, claiming to be from the IRS, offering to help victims file loss and refund claims.This is most likely an attempt to get hold of Social Security numbers, but callers may also pose as an aid service, charging fees.If you’re a disaster victim and want tax advice, call the IRS toll free at 1-866-562-5227.
  7. False/inflated income and expenses. This may be for a range of purposes, such as minimizing taxable income, or maximizing potential for refundable credits like the Earned Income Tax Credit.
  8. False 1099 refund claims. This is a long-running scam where people file a Form 1099 Original Issue Discount in the belief that this will secure refunds based on the false notion that the U.S. government has a secret account in your name, which you can access via this technique.Beware of people offering to help you get your hands on this non-existent money!
  9. Frivolous arguments. The false 1099s are just one of numerous misplaced beliefs that there are ways of securing refunds you’re not really entitled to.The IRS has a list on their The Truth About Frivolous Tax Arguments page.
  10. Falsely claiming zero wages. This is usually done by filing a “corrected” W2 or 1099 to cancel earlier documents, so as to imply you didn’t earn a cent.People who do this face a $5,000 penalty — in addition to payment of outstanding taxes.
  11. Disguised corporate ownership. A complex series of tricks using specially set-up companies to hide earnings and claim fictitious deductions.
  12. Misuse of trusts. Another series of complicated structures designed to hide assets or avoid tax payment.The IRS says it’s seeing a big increase in the use of private annuity trusts and foreign trusts for these tricks.It adds: “While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised…”

So that’s the dirty dozen and here’s the bottom line: Nobody likes paying taxes, which makes it more tempting to be lured into schemes and activities that result in identity theft, fraudulent submissions or loss of money to crooks who promise they can help you save.

Use a reputable professional, ignore the “save money” flyers, be honest, and you’ll avoid most of the pitfalls.

And if, unfortunately, you discover that someone else has used your identity to file a return and claim a refund, use the ID theft link we provided in Item 1 above to learn how to report the incident and file an Identity Theft Affidavit (form 14039).

You can also call the IRS Identity Protection Specialized Unit at 1-800-908-4490. Use this number too if you think you may be at risk of ID theft after losing or giving out confidential information to a dubious source.

Finally, remember that the IRS doesn’t use email, text or social media to request confidential information.

If you get such a request, it’s a tax scam — so trash it!

Time to close today, but we’ll be back next week with another issue. See you then!