What Are The "Dirty Dozen" Tax Scams & How Can You Avoid Them?

Every year, as tax season rolls around, the IRS releases a lot of valuable information. From new tax codes to changes and scams to watch out for, the IRS website is a plethora of important data for you and your accountant. One of the most often overlooked, yet incredibly valuable, lists is the annual “Dirty Dozen” scams that seem to pop up at tax season. The IRS releases an updated list every year, and all tax payers are encouraged to watch out for the following 12 scams this season.

Identity Theft

With your personal information floating around online and in the mail, identity theft is always a concern, or at least, it should always be a concern. However, when it’s tax season, the rate of identity theft picks up fast. According to the IRS, “Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else's Social Security number.”

Phone Scams

It’s important to remember that the IRS will never call you to demand a payment. During tax season, the IRS sees an increase in criminals impersonating IRS agents on the telephone, sometimes threatening arrest or even deportation. Be smart and don’t fall for this common scam.

Phishing

As more returns are filed online, phishing becomes a bigger concern. Be on the look out for fake emails, fake websites and anything that seems "fishy.” The IRS will never send you an email about a bill or about your refund out of the blue, so be very cautious about any email you receive, especially during tax season.

Return Preparer Fraud

Most tax return preparers are professionals who do a wonderful job, however, there are a few unscrupulous folks out there just looking to take advantage of you. Check into the background and credentials of anyone preparing a return for you to be sure you don’t get stuck with a fraudulent return.

Offshore Tax Avoidance

According to the IRS, “the recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that 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.”

Inflated Refund Claims

You may see lots of advertisements offering huge refunds and promising big dollars, which is almost always a scam. Many criminals will ask you to sign a blank return or promise a return before even looking at your records, or they may charge a fee based on a percentage of your refund.

Fake Charities

Another warning to be on the lookout for is the fake charity scam. These are groups that pretend to be a charity to get donations from unsuspecting people. Be especially cautious around charities that have very similar sounding names to well-known organizations.

False Padding On Deductions And Returns

Keep in mind that you need to be honest with your return, too. Avoid the temptation to over-inflate your deductions or charitable contributions, and definitely think twice before claiming credits that you don’t qualify for like the Earned Income Tax Credit or the Child Tax Credit.

Excessive Business Credit Claims

Just like with personal taxes, it’s tempting to exaggerate business expenses as well. Don’t fall into that trap. Be careful to properly claim credits like the fuel tax credit, which is often claimed but is rarely correctly claimed because it’s specifically for off-highway business use.

Falsifying Income for Credits

Some people may be tempted to fake income just to qualify for more tax credits, however, this is always a bad way to go. Usually, it’s a scam artist who talks a tax-payer into something like this, so just remember to be honest and report everything accurately and you’ll do just fine.

Abusive Tax Shelters

Be very cautious about any tax products you’re offered. As the IRS explains, “The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true.”

Frivolous Tax Arguments

In simple terms, everyone needs to pay taxes. Don’t fall for the temptation to use crazy arguments to avoid paying your taxes. The IRS explains it perfectly: “While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000.”

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