Every year the IRS releases a list of the top 12 scams perpetuated by or against American taxpayers. Here are the top 12 for 2015:
1. Phone Scams: Phone scams have been around forever, but phone scams involving taxes seem to be getting worse. It has gotten so bad that phone scams now top the IRS’s dirty dozen list. The IRS says there has been a surge of these phone calls in recent months. Quick tip: The IRS will never call you on the phone to ask you for personal information or demand money. Quicker tip: Hang up if you get such a phone call.
2. Phishing: Phishing was the number two scam last year, and holds its place for 2015. Phishing has nothing to do with fish. It means using fake emails or websites to obtain personal information like Social Security numbers, passwords, or financial information. The IRS will never send you an email about a bill or refund without first contacting you by postal mail. Don’t click on any email claiming to be from the IRS that takes you by surprise.
3. Identity Theft: Identity theft was the number one scam on the dirty dozen list last year. The fact that it has been moved down to number three means nothing. There are still thousands of criminals who seek to obtain fraudulent tax refunds by stealing legitimate taxpayers' identities. This is just one good reason why you have to be very careful about giving out your Social Security number and other personal information.
4. Return Preparer Fraud: Unfortunately, not all tax return preparers are honest. Tax return preparation is a very lightly regulated business in most states, and recent efforts by the IRS to beef up its regulation of preparers have met with legal setbacks. Thus, the IRS warns that you need to be on the lookout for unscrupulous return preparers who perpetrate refund fraud, identity theft, and other scams that hurt taxpayers.
5. Offshore Tax Avoidance: Hiding money in bank accounts offshore is a good way to get into deep trouble with the IRS. For the last several years the IRS has had a program offering partial amnesty to people who voluntarily report such accounts. If you have one, talk to a tax pro about taking advantage of the IRS Offshore Voluntary Disclosure Program to help people get your taxes in order.
6. Inflated Refund Claims: There are scam artists who promise otherwise honest taxpayers that they can get them inflated (fraudulent) tax refunds from the IRS. Avoid anyone who asks you to sign a blank return, promises you a big refund before looking at your records, or charges you a fee based on a percentage of your refund. Scam artists often seek their victims for this scheme through flyers, advertisements, phony store fronts, and word of mouth via community groups and churches.
7. Fake Charities: Perhaps the most despicable tax scam of all is the use of fake charities to obtain donations from unsuspecting contributors. Needless to say, these “donations” go into the scam artists’ pocket, not to any bona fide charity. Some scamsters use fake charities with names similar to real nationally-known charities. You can check if a charity is legitimate by using the online IRS EO Select Check search-tool.
8. Hiding Income with Fake Documents: This scam involves hiding taxable income by filing false Form 1099s or other fake documents.
9. Abusive Tax Shelters: Unlike many of the other tax scams in the dirty dozen that focus on poor or middle class taxpayers, abusive tax shelters usually involve the wealthy. There are thousands of scamsters who seek out the wealthy to peddle tax shelters that sound too good to be true. Guest what: If it sounds too good to be true, it probably isn’t true. When in doubt, seek an independent opinion from a tax pro you can trust before getting involved in any complicated tax shelter scheme.
10. Falsifying Income to Claim Credits: This scam involves inventing sham income to claim tax credits such as the earned income tax credit. Always remember that you are legally responsible for what’s on your tax return. So don’t get talked into fraudulently claiming tax credits by a scam artist.
11. Excessive Claims for Fuel Tax Credits: The fuel tax credit is limited to fuel purchased for off-highway business-related driving or farming. Thus, the vast majority of taxpayers do not qualify for this credit. Nevertheless, the IRS says that every year a sizeable group of taxpayers erroneously claim the credit to inflate their refunds.
12. Frivolous Tax Arguments: Yes, income taxes are constitutional. No, you can’t avoid paying your taxes by claiming that the tax system is voluntary or because the Sixteenth Amendment (providing for federal income taxes) was never properly ratified. These and other frivolous tax arguments have been thrown out by the courts many times. People who make them can end up in jail. There is also a special $5,000 penalty the IRS can impose for filing a frivolous tax return.
The IRS has set up a special section in its website providing more information about all of these scams.