As Tax Year Closes, Be Wary of IRS’s Dirty Dozen Tax Scams

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dirtydozenEach year, the IRS issues its “Dirty Dozen” tax scams. This list comprises those tax scams of which the IRS is particularly mindful. In some respects, the list is a warning to taxpayers not to commit these frauds in filing their tax returns, but in large part the list is published to warn taxpayers of the dangers they may face from promoters or others looking to defraud taxpayers themselves.   The IRS releases the list in the spring of each year, shortly before the tax filing deadline, noting that some scams peak at that time, but the IRS also warns that many of the scams are present throughout the year. Certainly, taxpayers should also be wary of these scams at the end of the year, in connection with their year-end tax planning.

The “Dirty Dozen” tax scams for 2013 are as follows:

  1. Identify Theft – These scams involve the use of a taxpayer’s personal identification to fraudulently file a tax return in a legitimate taxpayer’s name and obtain a refund.
  2. Phishing – Through fraudulent emails that purport to come from the IRS or a closely-linked organization, others can obtain taxpayers’ personal information and use it for various fraudulent purposes, related or unrelated to refunds.
  3. Return Preparer Fraud – Unsuspecting taxpayers may be defrauded by their own preparers, but they are still responsible for what is reported on their returns. Taxpayers should only use preparers who sign returns and provide their Preparer Tax Identification Numbers (PTINs).
  4. Hiding Income Offshore – Taxpayers often use offshore banks, brokerage accounts and other entities, sometimes to hide income, and sometimes for legitimate means, but even when the purpose is legitimate there are still reporting requirements of which taxpayers must be mindful.
  5. Free Money” from the IRS and Tax Scams Involving Social Security – Flyers from fraudulent promoters, and typically geared towards elderly or low-income taxpayers, may falsely promise social security refunds or other fictitious refunds or rebates.
  6. Impersonation of Charitable Organizations – Fictitious charities tend to spring up after major disasters, soliciting contributions under false pretenses and possibly using personal identification for identify theft purposes. Taxpayers should be particularly wary of these scams when making end-of-year contributions.
  7. False/Inflated Income and Expenses – Inflating expenses is a common way to reduce taxable income, but some taxpayers may inflate income to take advantage of refundable credits that are dependent on income levels.
  8. False Form 1099 Refund Claims – Some individuals may file a fictitious information return to justify false deductions and thus a false refund claim on a corresponding tax return.
  9. Frivolous Arguments – Promoters may suggest raising frivolous arguments that have already been rejected by courts. They are plentiful, pertaining to such broad categories as the supposedly-voluntary nature of the federal income tax system, the meaning of “income” or other terms in the Internal Revenue Code, constitutional amendment claims, and fictional legal bases why one need not file a tax return.
  10. Falsely Claiming Zero Wages – Taxpayers sometimes seek to reduce income, possibly to zero, using a Form 4852 (substitute Form W-2) or a “corrected” Form 1099.
  11. Disguised Corporate Ownership – Taxpayers may set up shell companies to obscure true ownership of a business, underreport income, claim fictitious deductions, participate in listed transactions (tax shelters) or facilitate money laundering or other crimes.
  12. Misuse of Trusts –Promoters often misuse trusts to fraudulently reduce taxable income, deduct personal expenses, or reduce gift or estate taxes.

View the “Dirty Dozen” list at IRS.gov for more information on these scams and check back with Aronson for a new post this spring when the IRS releases its “Dirty Dozen” tax scams for 2014.

As part of our Forensic & Valuation Services practice, Aronson helps clients investigate losses in fraud or defalcation situations. To learn more about our forensic services offerings, contact Bill Foote or Mike Kresslein at 301.231.6200.

 

About the Author: Michael J. Kresslein is a director in Aronson LLC’s Forensic & Valuation Services Group, where he specializes in fraud investigations and commercial disputes.  With more than 19 years of experience, he combines forensic accounting, legal and investigative skills to assist his clients with a wide range of forensic and litigation matters, including calculating commercial damages for litigation; conducting investigations regarding embezzlements, accounting improprieties and other matters; and providing expert testimony.    

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