360° Coverage : IRS Reveals Dirty Dozen Scams For 2014

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IRS Reveals Dirty Dozen Scams For 2014

Feb 19 2014, 12:27pm CST | by

Each year, the Internal Revenue Service issues a list of “Dirty Dozen” tax scams that can affect taxpayers. This year, the list again runs the gamut from schemes involving taxpayer participation (...

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35 weeks ago

IRS Reveals Dirty Dozen Scams For 2014

Feb 19 2014, 12:27pm CST | by

Each year, the Internal Revenue Service issues a list of “Dirty Dozen” tax scams that can affect taxpayers. This year, the list again runs the gamut from schemes involving taxpayer participation (hiding offshore income) to schemes that taxpayers may know nothing about (identity theft).

While taxpayers can be targeted by scams throughout the year, the IRS often sees a peak during filing season as people prepare their tax returns. In particular, IRS Commissioner John Koskinen warns taxpayers to be extra vigilant, noting, “These schemes jump every year at tax time. Scams can be sophisticated and take many different forms. We urge people to protect themselves and use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues.”

For 2014, the IRS has identified these “Dirty Dozen” tax schemes as the ones to watch:

1. Identity Theft. Identity theft which results in tax fraud tops the IRS Dirty Dozen list again. Identity theft, when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, is often used by scammers to fraudulently file a tax return and claim a refund.

The IRS considers combating identity theft and refund fraud a top priority and has been taking steps to boost fraud prevention, early detection and victim assistance.

If you believe you are at risk of identity theft due to lost or stolen personal information, contact the IRS Identity Protection Specialized Unit at 800-908-4490 or visit the IRS’ special identity protection page.

2. Pervasive Telephone Scams. It’s no surprise to see phone scams near the top of the list. The IRS has reported an increase in phone scams across the country, with callers pretending to be from the agents or other IRS representatives in hopes of stealing money or identities from victims. There are a number of variations on a theme ranging from instances from where callers say the victims owe money or are entitled to a huge refund to calls which threaten arrest. Callers may be targeting immigrants or calling after hours or during times when it might be inconvenient to contact the IRS for verification (as happened during the shutdown). The IRS has noted a few patterns in these calls such as:

  • Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
  • Scammers may be able to recite the last four digits of a victim’s Social Security Number.
  • Scammers “spoof” or imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
  • Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
  • Victims hear background noise of other calls being conducted to mimic a call site.
  • After threatening victims with jail time or a driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

If you get a phone call from someone claiming to be from the IRS and you’re not sure and you have a legitimate tax issue outstanding, call the IRS at 1.800.829.1040. If you get a phone call from someone claiming to be from the IRS and you know you don’t owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484.

3. Phishing. Phishing is a scam where criminals attempt to steal your financial information through the use of email or a fake website. In many cases, the bogus emails ask for specific personal information or install spyware or other malware on your computer for the purpose of stealing your financial and personal information.

Remember that the IRS doesn’t initiate contact with taxpayers by email to request personal or financial information, so don’t click on or respond to these kinds of emails. If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), you can report it by forwarding it to phishing@irs.gov.

4. False Promises of “Free Money” from Inflated Refunds. From the “there’s no such thing as a free lunch” files, scam artists routinely pose as tax preparers during tax time and promise free money in the form of inflated refunds. They do this by making claims for fictitious rebates, benefits or tax credits.

As with the phone scams, there are a number of variations on these refund scams but there are also a number of similarities. Tops of the list are refunds based on fictitious Social Security benefits and false claims for education credits, the Earned Income Tax Credit (EITC), and the American Opportunity Tax Credit. Those are targets because they are refundable credits.

Remember that you are legally responsible for your tax return even if it was prepared by someone else. So be smart. In addition to the agita – and large fees paid to the scammers – you could be penalized for filing false claims or receiving fraudulent refunds. Intentional mistakes of this kind can result in a $5,000 penalty.

5. Return Preparer Fraud. The IRS reports that about 606 of taxpayers will use tax professionals this tax season to prepare their tax returns, down a few points from last year. The majority of tax preparers are good people but some may try to encourage taxpayers to claim improper credits, deductions or exemptions in hopes of boosting refunds. Use care when choosing a preparer and remember that taxpayers should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs). This is an IRS requirement.

Again, remember that taxpayers are legally responsible for the information on their tax return even if it is prepared by a professional. You cannot hide behind a tax professional’s signature if you took an inappropriate position on your tax return.

If you have concerns about an abusive tax preparer, you can report him or her to the IRS on using a federal form 14157, Complaint: Tax Return Preparer (downloads as a pdf).

6. Hiding Income Offshore. It is not illegal to have cash, brokerage accounts or other investments in foreign countries. It is, however, illegal to use those accounts to evade U.S. taxes by hiding that income. There are significant reporting requirements for offshore assets, including FBAR (Report of Foreign Bank and Financial Accounts) filings. Those taxpayers who do not properly report and disclose those accounts are breaking the law and could face civil and criminal penalties and fines.

Why the requirements? Over the years, tax evaders have hidden income in offshore banks, brokerage accounts or nominee entities and used a variety of methods to access the funds. Some have also created foreign trusts, employee-leasing schemes, private annuities or insurance plans in order to hide income. Hiding income and assets from the IRS is illegal. You could be subject to civil and criminal penalties for not reporting assets and income if you are required to do so.

For the past few years, the IRS has opened voluntary disclosure programs to encourage taxpayers to come forward to report foreign accounts and come into compliance. At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP). Qualifying taxpayers who come in through the program can catch up on their filing and payment requirements and avoid heavy fines and criminal prosecution.

7. Impersonation of Charitable Organizations. In the wake of tragedies like the tornado disasters in Oklahoma and the Boston Marathon bombings, people often come together. Sadly, scam artists use these disasters as opportunities to cash in, either by operating bogus charities to solicit money or financial information or claiming to be affiliated with existing charitable organizations. They do this by soliciting funds by phone or email or using fake web sites.

To avoid being taken advantage of, donate to recognized charitiesusing check or credit card where possible. If you’re not sure about the charity, you can search the IRS charitable organization database or use a respected charity database like Charity Navigator. Find more tips for donating to charity here.

Remember that you don’t need to give out personal information, like your Social Security number, for the purpose of obtaining a receipt for your charitable donation. The best documentation on your end is a canceled check or credit card receipt so donate using those means on secure sites whenever possible.

Finally, if you are the victim of a disaster and you have tax questions, you can call the IRS toll-free disaster assistance telephone number (1-866-562-5227).

8. False Income, Expenses or Exemptions. Refundable tax credits are credits that are refunded to you even if you did not owe a tax liability. Taxpayers may be encouraged to bump income amounts in order to those maximize refundable credits (like the Earned Income Tax Credit). These scams are prohibited and making false statements could result in having to repay those refunds plus interest and penalties; in some cases, you may be criminal prosecuted.

Specifically, the IRS is also seeing an uptick in taxpayers filing excessive claims for the fuel tax credit. Generally, this credit is available to farmers and other taxpayers who use fuel for off-highway business purposes; it is not available for trucks driven on highways. As a result, most taxpayers are not eligible for this credit (don’t be fooled). Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

9. Frivolous Arguments. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. They often publish books, post websites and send out emails advising that they know something that you don’t because it’s usually (shhh) a secret. But the reason that you likely don’t know the details about these schemes is because they’re bogus.

The IRS has a pretty extensive section on its website dedicated to putting the kibosh on these arguments. You’ve heard many of them before – like the argument that the 16th amendment was never ratified or that only wages from federal employees are subject to tax (as if Congress would ever allow the rest of us to get away without paying tax while they did!). If you claim what is considered to be a frivolous position on your tax return, you could be subject to substantial fines and penalties, including an immediate assessment of a $5,000 penalty – even if there is no understatement of liability – in addition to any other penalty.

Chasing these frivolous arguments and schemes can result in criminal prosecution. Additionally, those who promote frivolous arguments and those who assist taxpayers in claiming tax benefits based on frivolous arguments may be also be prosecuted for a criminal felony.

10. Falsely Claiming Zero Wages or Using False Form 1099. Filing a phony information return, like a form 4852 or 1099, is one way to lower your tax bill. It’s also illegal. You can’t generate your own information forms to support your tax position. And yet, there are a number of schemes that purport to let you do this.

Here’s how one variation of the scheme works: the scammers file a series of false tax forms in an effort to garner large fraudulent tax refunds. Promoters tell customers that the federal government maintains “secret” accounts of money for its citizens and advise that taxpayers can gain access to the funds – and discharge their debts – by issuing forms 1099-OID to their creditors. It’s like magic!

In another variation, a federal form 4852 (Substitute Form W-2) or a “corrected” federal form 1099 is submitted to the IRS to reduce income to zero. Sometimes, the forms even include an explanation about the “real” definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation.

Filing fake forms can get you in a lot of trouble, including huge penalties or criminal prosecution.

11. Abusive Tax Structures. Abusive tax schemes involving increasingly complex tax structures are on the rise. The idea is, apparently, that if you can create enough entities, mix in a debit card or two and park funds offshore, you’ll be sheltered from paying taxes. Only, it doesn’t quite work that way.

IRS Criminal Investigation (CI) has made these kinds of schemes a target and has developed the Abusive Tax Schemes program to combat them. Not only does CI investigate the tax scheme promoters but also those who have a “substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme” (you know, the bankers and lawyers) but also those who knowingly participate in the tax schemes.

Tax crimes are serious business as are money laundering and other financial crimes. Hiding income or assets in an attempt to evade paying tax or making certain disclosures can result criminal prosecution.

12. Misuse of Trusts. There are many legitimate uses for trusts, which range from asset protection to estate planning to management of assets in the event of incapacity. I should know: it’s part of my job to draft many of them.

However, creating trusts for the purpose of tax evasion (as opposed to tax planning), including hiding income or generating bogus deductions, is not an appropriate use of trusts. You should exercise special caution when creating foreign trusts, irrevocable trusts or any trusts that have, as their main purpose, the significant reduction or elimination of tax especially if those trusts involve shifting or hiding assets. The IRS has also advised that it has seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses, as well as to avoid estate transfer taxes.

Again, there are some legitimate trusts – like marital deduction trusts or irrevocable life insurance trusts – that can have significant tax advantages. Be sure to consult with a trusted advisor before entering into any trust agreements for the purpose of tax and/or estate planning.

As always, avoiding trouble at tax time involves using common sense. Remember, if it sounds too good to be true, it probably is.

Want more taxgirl goodness? Pick your poison: receive posts by email, follow me on twitter (@taxgirl), hang out with me on Facebook or check out my YouTube channel. If you want to keep an eye on documents I’ve posted, check out my profile on Scribd. And finally, you can subscribe to my podcast on the site or via iTunes (it’s free).

Source: Forbes Business

 
Update
2

7 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce of 20,0 ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

7 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double tragedies of MH370 and MH17 ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

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