Don't Fall Prey to the 2011 Dirty Dozen Tax Scams
WASHINGTON –– Hiding income in offshore accounts, identity theft, return preparer fraud, and filing false or misleading tax forms top the annual list of "dirty dozen" tax scams in 2011, the Internal Revenue Service says.
"Don't be duped by scammers who want to steal your information or who offer some amazing financial deal," said IRS spokesman Dan Boone. "Remember, if something sounds too good to be true, it probably is."
Scheme promoters frequently end up facing heavy fines and imprisonment. Meanwhile, taxpayers who wittingly or unwittingly get involved with these schemes must repay all taxes due plus interest and penalties.
Following are the first five scams to avoid from the IRS Dirty Dozen for 2011:
1. Hiding Income Offshore
If someone tells you there's no need to report an offshore account to the IRS, don't believe them. The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. The IRS announced a special voluntary disclosure initiative, open through Aug. 31, 2011, designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes.
2. Identity Theft and Phishing
If you get an e-mail that appears to be from the IRS or from your bank or other financial institution, watch out - it may be a scammer phishing for your personal information! Identity theft is a major problem that affects many people each year. That's why it's important that taxpayers protect their personal information. Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit at 1-800-908-4490. More information on identity theft and taxes www.irs.gov is available on the IRS website. A suspicious e-mail or an "IRS" Web address that does not begin with www.irs.gov should be forwarded to the IRS at firstname.lastname@example.org.
3. Return Preparer Fraud
If a tax preparer brags about getting you a bigger refund than the preparer down the street, walk away. That may indicate you've chosen someone who is about to prepare a fraudulent tax return. While most return preparers are professionals who provide honest and excellent service to their clients, some make basic errors or engage in fraud and other illegal activities. Dishonest return preparers can cause big trouble for taxpayers who fall victim to their ploys. To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of requirements for paid tax preparers, including registration with the IRS and a preparer tax identification number (PTIN), as well as competency tests and ongoing continuing professional education.
4. Filing False or Misleading Forms
Maybe you've heard of this - one version of this scheme is based on the bogus theory that the federal government maintains secret accounts for its citizens and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS. Not true! Because scammers often use information from family or friends in filing false or fraudulent returns, beware of requests for such data. Don't fall prey to people who encourage you to claim deductions or credits you are not entitled to or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.
5. Frivolous Arguments
It can start with a coworker or friend telling you that no one is really required to file taxes. Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance.
How to Report Suspected Tax Fraud Activity
Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The identity of the person filing the report can be kept confidential.
Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.
Published April 10, 2011
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