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Identity Theft Tops IRS ‘Dirty Dozen’ List

by Denise Richardson

The IRS recently released their “Dirty Dozen” list for 2012.  This list contains the twelve most common types of tax fraud that taxpayers may encounter, ranked from most common to least common.  The list is released annually during tax season to help keep consumers informed of the dangers that they might face from scammers and thieves when filing their taxes.

1. Identity Theft:  Identity theft tops the list this year as the biggest threat to taxpayers.  As I’ve mentioned the IRS has been cracking down on identity thieves but has been unable to catch them all.  The sheer number of IRS tax refund fraud cases has left the agency overwhelmed and struggling to sort through various id theft tax fraud schemes and consumer complaints.
2. Phishing:  Phishing is always a major concern, and this year it ranks in the second position of the Dirty Dozen.  Phishing occurs when a scammer sends an email claiming to be from the IRS or a similar agency, requesting personal information so that the scammer can use it to commit tax fraud.  If you suspect that an email you receive is a phishing attempt, forward the message in its entirety to phishing@irs.gov.
3. Return Preparer Fraud:  Sometimes you’ll find what seems like a good deal from a tax preparer only to find out later –not so much. You find out that there are hidden fees or that the return amount you were promised was artificially inflated to make the tax preparer more money.  Fortunately, the IRS has instituted a new Preparer Tax Identification Number that preparers have to enter on every form that they file to help track and prevent fraudulent charges or inflated returns.
4. Offshore Income Fraud:  Hiding money in offshore accounts is a major tax no-no, and the IRS is becoming much stricter on taxpayers who attempt to hide their income in this manner.  You should never put money in a foreign account as a means to hide it from the IRS, even if advised to do so by an accountant or tax preparer.
5.  “Free Money” Tax Scams:  The IRS says that flyers have begun appearing around the country claiming that taxpayers can get more money on their returns and file their taxes with little or no documentation, and that these flyers are often aimed at the elderly or other Social Security recipients.  Falling for these scams can get you in trouble with the IRS, resulting in fines of up to $5000.
6. False Income and Expenses:  Just like hiding money in offshore accounts can get you in trouble, claiming income that you didn’t make or expenses that you didn’t have can have serious tax repercussions.  The IRS stresses the importance of filing honest returns to avoid major fines and possible criminal charges.
7. False 1099 Refund Claims:  Similar to claiming a false income, some scammers use fake Form 1099 filings to justify a larger tax return.  This can also result in fines and possible criminal charges as it’s considered another method of filing a false return.
8. Frivolous Arguments:  The scammers who run “frivolous argument” scams claim to be able to help taxpayers get out of paying their taxes by making outrageous claims as to why they don’t have to pay.  Most of these frivolous claims get thrown out of court, and the IRS actually maintains a list of claims that have previously been used unsuccessfully.
9. Claiming Zero Wages:  This one fits right in with false income and expenses and false 1099 claims, but instead of increasing the amount of income or expenses these scams claim that the taxpayer didn’t earn any taxable income.  As with the other scam types, this type of tax fraud can get you in serious trouble with the IRS.
10. Charity and Deduction Abuse:  This scam can be performed by individuals or businesses, and may be encouraged by unscrupulous tax preparers or other scammers.  A non-cash donation is made to a charitable organization with its value artificially inflated or with the same donation being claimed by several people or businesses for its full value.
11. Disguised Corporate Ownership:  It’s illegal for an individual or company to use multiple Employer Identification Numbers and quickly-made corporations to hide the true owner or owners of an existing company.  This scam allows company owners to hide income and claim deductions that wouldn’t normally be allowed by the IRS.
12. Misuse of Trusts:  Some scammers claim that individuals can transfer assets into trusts to save money on their taxes.  Unfortunately, this isn’t a legitimate use of trusts and can result in fines or other penalties from the IRS.

Stay informed and up-to-date on the latest scams and identity theft crimes that can pose risk to your mobile device, your bank account, —and even your home. When it comes to fraud—knowledge is your best defense.

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Denise Richardson is a longtime consumer advocate and Author. She writes a monthly identity theft column for Lighthouse Point Magazine and raises awareness to identity theft on her blog GiveMeBackMyCredit.com