July 2019 JD Supra
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Tax Scams put Taxpayers at Risk was published by JD Supra on 7/9/19.

The IRS produces a yearly list of Tax Scams known as the Dirty Dozen that Taxpayers may 

encounter. IRS reiterates that Tax Scams put Taxpayers at Risk when it releases its list of Dirty Dozen Tax Scams. These aggressive Tax Scams that tend to peak during Tax time. The IRS Dirty Dozen List has been consistent over the last six years.

2019 Dirty Dozen

  1. Failure to Report Offshore Funds: The IRS uses information gained from its investigations and programs to pursue Taxpayers with non-reported offshore accounts, Bankers and other Financial Representatives suspected of helping clients hide offshore assets or income. The information obtained from FATCA, the network of intergovernmental agreements between the U.S. and partner jurisdictions, automatic third-party account reporting and the Department of Justice’s Swiss Bank Program makes it significantly less likely that offshore reportable financial accounts will go unnoticed by the IRS.
  2. Abusive tax shelters: “If it sounds too good to be true, it probably is!” Taxpayers ought to seek professional advice from the IRS or a specialized tax professional before they subscribe to any scheme that offers tax exemption from their obligation as US citizens to pay taxes. For 2019, IRS is focused on three variations of abusive tax shelter schemes: abusive trusts, abusive micro-captive insurance shelters and abusive syndicated conservation easements.
  3. Frivolous tax arguments: Frivolous tax arguments in an effort to avoid paying tax are discouraged by IRS. Taxpayers do not have the right to disobey the law or disregard their responsibility to pay taxes.
  4. Falsifying Income & Creating Bogus Documents: Inventing income to erroneously qualify for tax credits ought to be avoided. There are scams that involve inflating or including income on a tax return that was never earned; either as wages or self-employment income in order to maximize refundable tax credits. Beware of Scams that disguise debt payment options for credit cards or mortgage debt that involve the filing of a Form 1099-MISC income or bogus financial instruments (bonds, bonded promissory notes or worthless checks).
  5. Inflating Deductions & Credits: Taxpayers ought to stay away from falsely inflating deductions or expenses on their returns in order to pay less of what they owe or receive a larger refund.
  6. Improper claims for business credits: Improper claims involve failures to participate in or substantiate qualified research activities and, or satisfy the requirements related to qualified research expenses.
  7. Promises of Inflated Tax Refunds: Taxpayers ought to be on the alert for anyone that promises inflated tax refunds, asks the Taxpayer to sign a blank return, promises a big refund before looking at their records, or charges fees based on a percentage of the refund.
  8. Scams involving Disasters & Charitable Causes: There are groups that masquerade as charitable organizations to attract donations from contributing Taxpayers by using charities with names similar to familiar or nationally-known organizations. Taxpayers can verify the legitimacy of an eligible charity on the IRS website.
  9. Return Preparer Fraud: Return preparer fraud involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on the tax returns prepared for the Taxpayer. The Taxpayer is ultimately responsible for all the information on the tax return even if someone else prepared the Taxpayer’s tax return.
  10. Identity Theft: Criminals continue to file fraudulent tax returns using another Taxpayer’s Social Security number or an Individual Taxpayer Identification Number in order to claim a refund. The number of identity thefts has fallen over the last three years, but identity theft continues, and the wrongdoer continues to want to impersonate Taxpayers through data theft.
  11. Phone Scams: Criminals continue to impersonate IRS agents and threaten Taxpayers with police arrest, deportation and license revocation.
  12. Phishing Schemes: Fake emails or fake websites continue to steal Taxpayer’s personal information. Criminals have been recently s stealing Taxpayer’s data from tax professionals and filing fraudulent tax returns. The thieves then proceed to claim to be from a collection agency or representing the IRS in order to get the tax refund. Taxpayers ought to be on the lookout for unexpected deposits in their bank accounts.

Don’t be a Victim of your Own Making: It is best to file an Accurate Return

Choose your tax specialist carefully. Make sure that the Tax Preparer has an IRS Preparer Tax Identification Number (PTIN) and credentials. Taxpayers are responsible for all the information included in their tax returns. Taxpayers ought to check the Tax Preparer’s qualifications and history, review the tax return before signing, and never sign a tax return in blank.

IRS assesses penalties against Taxpayers that file incorrect tax returns:

  • 20 percent of the disallowed amount for filing an erroneous claim for a refund or credit.
  • $5,000 if the IRS determines a Taxpayer files a frivolous tax return; known as a return that does not include enough information to figure the correct tax or that contains information clearly showing that the tax reported is substantially incorrect.
  • A Taxpayer could be assessed a penalty of 75 percent of the amount owed if the underpayment on the tax return resulted from tax fraud.

Tax evasion schemes can be very costly as it can result in imprisonment and fines, and repayment of taxes owed with penalties and interest.