Beware of the 2017 ‘Dirty Dozen’ Tax Scams this Tax Season

Stay alert this tax season! The IRS recently highlighted some of the top threats most likely to affect taxpayers this tax season. Some familiar faces, such as phishing, identity theft and offshore tax avoidance, have topped the list once again for the third year in a row.

Compiled annually, the IRS’ “Dirty Dozen” lists a variety of common scams and missteps that taxpayers may encounter anytime, but many of these schemes peak during filing season as individuals and businesses prepare their returns or hire someone to help with their taxes. Taxpayers are ultimately responsible for all items on their tax return, so falling victim to a scam could lead to significant penalties or criminal prosecution.

The following are the 12 most common tax scams and schemes that you should watch out for in 2017:

1. Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. Some of these emails can infect your computer with malware, allowing scammers to access any sensitive files or track keyboard strokes, thereby exposing login information.
2. Phone scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers. Even at an extreme, where the IRS phone number will appear on the caller-ID and scammers will share some of the victim’s personal information, such as the last four digits of their Social Security number, in order to convince them to provide more personal information.
3. Identity theft: Identity theft increases around tax time. Although the IRS pursues the individuals who file fraudulent tax returns using others’ Social Security numbers, you still need to be extra cautious when providing identifying information.
4. Return preparer fraud: Lookout for unscrupulous return preparers. The majority of tax preparers provide honest high-quality service; however, there are some dishonest preparers who perpetrate refund fraud, identity theft and other scams that hurt taxpayers.
5. Fake charities: Several scammer groups like to pose as charitable organizations to attract donations from unsuspecting contributors. Others will impersonate charities to obtain money or personal information to commit identity theft. Before you make a donation to a charity, check the status of that organization with the IRS even if the organization sounds familiar.
6. Falsely inflating refunds: Scammers offering promises of inflated refunds tell victims that they will receive large federal tax refunds in exchange for costly services. Some scams involve filing false tax returns in a victim’s name and others involve the scammer taking a huge cut of the government-issued tax refund in exchange for bad advice.
7. Excessive claims for business credits:  Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit, which can be very lucrative for businesses that qualify. Improper claims often involve failures to participate in or substantiate qualified research activities and/or satisfy the requirements related to qualified research expenses. An experienced R&D tax professional can help you determine if you qualify.
8. Falsely padding deductions on returns:  Taxpayers may be tempted to inflate income so they can claim more deductions, however, overstating deductions and falsely claiming credits can result in significant financial penalties. Think twice before overstating deductions such as charitable contributions and business expenses or improperly claiming credits such as the Earned Income Tax Credit or Child Tax Credit.
9. Falsifying income to claim tax credits: It may go without saying, but taxpayers should not invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. You should file the most accurate return possible because you are legally responsible for what is on your return. Falsifying income can lead to taxpayers facing large bills to pay back taxes, interest and penalties.
10. Abusive tax shelters: This scam involves a structured domestic or foreign trust arrangement, a structure to exploit financial secrecy laws of a foreign jurisdiction or, or an abusive tax structure using multi-layer financial data to conceal ownership of taxable income. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them.
11. Frivolous tax arguments: Frivolous arguments are outrageous claims that taxpayers make to the IRS to avoid paying their taxes, such as “payment of federal income tax is voluntary.” Taxpayers who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax.
12. Offshore tax avoidance: It’s a bad bet to hide money and income offshore – taxpayers are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. The IRS’ Offshore Voluntary Disclosure Program helps individuals with offshore bank accounts properly document that information for their tax returns.

These are some of the most common tax schemes encountered by taxpayers each year. Victims of tax scams may suffer financial loss and can be held accountable by the IRS for the false information they unknowingly provide.

If you think you may be a victim of a tax scam, contact the IRS to review your return information.