Tax Season: What the IRS “Dirty Dozen” are and How to Avoid Them
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Waiting for a big tax refund is an exciting time. But while you are distracted thinking of how you’re going to spend your extra cash, someone else is thinking of ways to scam you. Every year, the IRS comes out with a list of the worst tax scams called the “Dirty Dozen.” Read our guide below on everything you need to know about them and how to avoid them.
Identity Theft
What is it?
Just like it sounds! A criminal steals your personal information to commit fraud or other crimes without you knowing. They will use your personal information to file a false return and claim a refund that doesn’t belong to them.
How can you avoid it?
Identity theft can happen any time of year, but taxpayers are especially susceptible during tax season. The IRS continues to take measures to prevent this from happening, which is one of the reasons your tax return can take a while. If you believe someone has stolen your identity this tax season, contact the IRS immediately.
Phishing
What is it?
If you get an email from someone stating they are from the IRS and asking for private information, then you are a potential victim of phishing. Though they look very professional and authentic, the emails are just a tax scam to try and get your personal information.
How can you avoid it?
Just know that the IRS will never contact you via email for personal information. If you get a suspicious email, call the IRS using only the contact information found on IRS.gov to confirm your status.
Return Preparer Fraud
What is it?
This can happen if you use a shady source to prepare your tax documents for you. Fraudulent tax preparers will encourage you to claim improper credits, deductions or exemptions. Even though they are the one preparing your taxes, you are the one who will pay the price if the IRS accuses you of fraud.
How can you avoid it?
Before you choose someone to assist you with your taxes, ask them about service fees and check their qualifications and history.
Hiding Income Offshore
What is it?
This one is also pretty self-explanatory. If you have cash or investments in foreign countries with the purpose of evading taxes, you are hiding income offshore.
How can you avoid it?
If you have bank accounts in other countries, make sure you know the reporting requirements. It is illegal to use offshore accounts to hide income and avoid U.S. taxes.
Telephone Scam
What is it?
Much like phishing, this tax scam involves criminals pretending to be the IRS. It is common for scammers to attempt to collect fake tax debts and to threaten legal action if you don’t pay immediately.
How can you avoid it?
If someone calls you claiming to be an IRS agent, contact the IRS yourself using the information provided at IRS.gov. Never give your personal and financial information over the phone.
Falsely Inflated Refund Claims
What is it?
If someone is offering you a huge tax refund for things you have never claimed in the past, they are probably trying to scam you. When something sounds too good to be true, it usually is. They also might try and use a 1099 form which is a fake form. Filing a form like this can result in a $5,000 fine that you would be responsible for paying, not the tax preparer.
How can you avoid it?
Choose honest tax preparers and make sure you get a copy of your return after they have been prepared.
Falsifying Income
What is it?
Everyone tries to get the biggest tax refund possible when filing their taxes. It starts to cross a line into illegal activity when you claim you made more money than you actually did or claim other false credits.
How can you avoid it?
File the most accurate return possible and you will have nothing to worry about.
Falsely Padding Deductions on Returns
What is it?
Donating to charity and claiming business expenses is a great way to increase your refund, but only if you’re telling the truth. If you overstate your deductions or improperly claim credits, you could get jail time or face other criminal prosecutions.
How can you avoid it?
Be honest about your deductions for business expenses and charity donations.
Abusive Tax Structures
What is it?
These include elaborate business schemes that involve “hiding” your money so the IRS can’t find it and tax you on it. You can’t legitimately hide your money under layers of organizations or Limited Liability Companies.
How can you avoid it?
If you are in doubt about what is legal and what is not, contact the IRS. It is always better to check for what is legal than to find out the hard way that it isn’t.
Excessive Claims for Business Credits
What is it?
Similar to the above, padding your business expenses to get a bigger tax refund is a scam. The fuel tax credit is for off-highway business and farming only, which means it is not available to most taxpayers.
How can you avoid it?
Confirm your travel expenses and personal property used for your business before claiming tax credits. A qualified tax preparer can assist you in determining if you meet all of the requirements for the business credits and that you are properly claiming them. Be extra mindful of the fuel tax credit and research credit as the IRS is cracking down on those.
Frivolous Arguments
What is it?
This scam just means that people often use unreasonable and outlandish claims to try and avoid paying taxes. If you refuse to pay taxes for religious, moral or cultural reasons, you will get nowhere except owing the IRS $5,000.
How can you avoid it?
This one is easy, pay your taxes and don’t try to get out of them by using illegitimate reasons.
Fake Charities
What is it?
Scam artist will set up fake charities to steal your money and personal information. To attract donations, they will pose as charitable organizations.
How can you avoid it?
Make sure the charities you donate to are legitimate by using the Select Check tool on IRS.gov. If not, the IRS could view your claim as fraudulent.
Turn to Creditbox if you need extra money while waiting for your return this tax season. Apply online today!
CreditBox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Identity Theft
What is it?
Just like it sounds! A criminal steals your personal information to commit fraud or other crimes without you knowing. They will use your personal information to file a false return and claim a refund that doesn’t belong to them.
How can you avoid it?
Identity theft can happen any time of year, but taxpayers are especially susceptible during tax season. The IRS continues to take measures to prevent this from happening, which is one of the reasons your tax return can take a while. If you believe someone has stolen your identity this tax season, contact the IRS immediately.
Phishing
What is it?
If you get an email from someone stating they are from the IRS and asking for private information, then you are a potential victim of phishing. Though they look very professional and authentic, the emails are just a tax scam to try and get your personal information.
How can you avoid it?
Just know that the IRS will never contact you via email for personal information. If you get a suspicious email, call the IRS using only the contact information found on IRS.gov to confirm your status.
Return Preparer Fraud
What is it?
This can happen if you use a shady source to prepare your tax documents for you. Fraudulent tax preparers will encourage you to claim improper credits, deductions or exemptions. Even though they are the one preparing your taxes, you are the one who will pay the price if the IRS accuses you of fraud.
How can you avoid it?
Before you choose someone to assist you with your taxes, ask them about service fees and check their qualifications and history.
Hiding Income Offshore
What is it?
This one is also pretty self-explanatory. If you have cash or investments in foreign countries with the purpose of evading taxes, you are hiding income offshore.
How can you avoid it?
If you have bank accounts in other countries, make sure you know the reporting requirements. It is illegal to use offshore accounts to hide income and avoid U.S. taxes.
Telephone Scam
What is it?
Much like phishing, this tax scam involves criminals pretending to be the IRS. It is common for scammers to attempt to collect fake tax debts and to threaten legal action if you don’t pay immediately.
How can you avoid it?
If someone calls you claiming to be an IRS agent, contact the IRS yourself using the information provided at IRS.gov. Never give your personal and financial information over the phone.
Falsely Inflated Refund Claims
What is it?
If someone is offering you a huge tax refund for things you have never claimed in the past, they are probably trying to scam you. When something sounds too good to be true, it usually is. They also might try and use a 1099 form which is a fake form. Filing a form like this can result in a $5,000 fine that you would be responsible for paying, not the tax preparer.
How can you avoid it?
Choose honest tax preparers and make sure you get a copy of your return after they have been prepared.
Falsifying Income
What is it?
Everyone tries to get the biggest tax refund possible when filing their taxes. It starts to cross a line into illegal activity when you claim you made more money than you actually did or claim other false credits.
How can you avoid it?
File the most accurate return possible and you will have nothing to worry about.
Falsely Padding Deductions on Returns
What is it?
Donating to charity and claiming business expenses is a great way to increase your refund, but only if you’re telling the truth. If you overstate your deductions or improperly claim credits, you could get jail time or face other criminal prosecutions.
How can you avoid it?
Be honest about your deductions for business expenses and charity donations.
Abusive Tax Structures
What is it?
These include elaborate business schemes that involve “hiding” your money so the IRS can’t find it and tax you on it. You can’t legitimately hide your money under layers of organizations or Limited Liability Companies.
How can you avoid it?
If you are in doubt about what is legal and what is not, contact the IRS. It is always better to check for what is legal than to find out the hard way that it isn’t.
Excessive Claims for Business Credits
What is it?
Similar to the above, padding your business expenses to get a bigger tax refund is a scam. The fuel tax credit is for off-highway business and farming only, which means it is not available to most taxpayers.
How can you avoid it?
Confirm your travel expenses and personal property used for your business before claiming tax credits. A qualified tax preparer can assist you in determining if you meet all of the requirements for the business credits and that you are properly claiming them. Be extra mindful of the fuel tax credit and research credit as the IRS is cracking down on those.
Frivolous Arguments
What is it?
This scam just means that people often use unreasonable and outlandish claims to try and avoid paying taxes. If you refuse to pay taxes for religious, moral or cultural reasons, you will get nowhere except owing the IRS $5,000.
How can you avoid it?
This one is easy, pay your taxes and don’t try to get out of them by using illegitimate reasons.
Fake Charities
What is it?
Scam artist will set up fake charities to steal your money and personal information. To attract donations, they will pose as charitable organizations.
How can you avoid it?
Make sure the charities you donate to are legitimate by using the Select Check tool on IRS.gov. If not, the IRS could view your claim as fraudulent.
Turn to Creditbox if you need extra money while waiting for your return this tax season. Apply online today!
CreditBox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
