The 2018 IRS Dirty Dozen

Published
  • March 27 2018, 9:10am EDT

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Each tax season is hard enough, but recent years have seen an intensifying of tax scams. Some crooks use the Dark Web and complex hacking to lift and hide stolen identities; others use technology no more sophisticated than a ringing phone and a confident pitch.

And each year the Internal Revenue Service highlights 12 of the worst of the worst to alert taxpayers and tax practitioners to the dangers they need to be aware of, both in the run-up to April 17 and afterward.

Here is this year’s “Dirty Dozen.”

Criminals calling

The Treasury Inspector General for Tax Administration reports that more than 12,716 victims have lost more than $63 million to phone scams in just the past five years. These continuing ring-a-dingys remain a major threat to taxpayers, with callers threatening arrest, deportation or other actions if the victim doesn’t cough up for a “tax bill.” Scammers also frequently alter caller-ID numbers to look like the IRS or another agency, as well as use IRS employee titles and bogus badge numbers.

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Fake news

Phony emails and websites looking to steal personal information blossom during tax season; the IRS reports an onslaught of evolving schemes, including crooks filing phony returns, then scheming to reclaim the refund from the taxpayers. Criminals also pose as someone the taxpayer trusts, then hack an email account and send mass emails under another person’s name or pose as a bank, credit card company, tax software provider or government agency.

Name games

Reports of tax-related identity theft have declined markedly in recent years, but it is still widespread. Tax-related ID theft occurs when someone uses a stolen Social Security number or ITIN to file a phony return claiming a refund. If these people devoted half as much energy to an honest living, they’d get rich.

Tax preparer fraud

More than half of the nation's taxpayers rely on someone else (like you) to prepare their return – and again this year the IRS included preparer fraud in its Dirty Dozen. Illegal scams can lead to significant penalties and interest as well as possible criminal prosecution for taxpayers at the hands of not only the IRS but also the Department of Justice.

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Money-back guarantee

Scam preparers touting inflated refunds – preying especially on seniors, low-income taxpayers and others without a filing requirement – pose as preparers and lure victims by promising large federal refunds. Frequent methods of advertising include flyers, ads, bogus storefronts or even presentations to community groups or churches. Favorite ploys? Fake 1099s or W-2s, fictitious rebates, benefits or tax credits, SSI benefits and false claims for education credits or the Earned Income Tax Credit.

Fictitious income

This scam involves inflating or filing income that was never earned, usually to balloon credits and refunds. Another twist: complex schemes disguised as a payment option for credit cards or mortgage debt and often hinging on a 1099-MISC or phony financial instruments such as bonds, bonded promissory notes or worthless checks.

Inflation nation

Charitable contributions, business expenses, EITCs and other credits: All are ripe for inflation by unscrupulous preparers. Some taxpayers pump these up in hopes of a fatter refund or a slimmer tax bill – so often, in fact, that they make this year’s Dirty Dozen yet again.

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No business like biz deductions

Bright-colored and air-filled business credits are another common scam in the Dirty Dozen. Two common tax goodies targeted for abuse by shady preparers include the research credit and the fuel tax credit. R&D scammers happily invent expenses, while crock claims for the fuel tax credit can just be one cog in the machinery of a broader fraud.

Alternative tax facts

Promoters of frivolous schemes often encourage taxpayers to make “unreasonable and outlandish legal claims” to dodge taxes. One chestnut in this category involves claims about “secret” schemes to avoid paying taxes; others pivot on the First Amendment or the “fact” that only federal employees need pay taxes. Find that hard to believe? Judges often have the same problem, and time and again these arguments get tossed from court.

Masters of disaster

Just as Mother Nature never seems to run out of expensive messes, scammers never tire of impersonating charities after natural disasters. Some crooks operating bogus charities contact victims by phone or email to solicit money or financial information – and (how low can you go?) even directly contact disaster victims and claim to be working for the IRS to help file insurance claims or snag refunds.

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Helter shelters

Abusive tax shelters, sophisticated schemes often involving micro-captive insurance shelters, can be peddled by promoters and others to avoid taxes. From simple schemes to inflate refunds to elaborate efforts to insure implausible risks, suffice to say this is all more about cash than legit coverage.

Faraway lands (close to home)

There have been more than 56,400 disclosures and the IRS has collected more than $11.1 billion from the Overseas Voluntary Disclosure Program since it opened in 2009; another 65,000 taxpayers ponied up on non-willful omissions. Nonetheless, scads of taxpayers still try to hide income in offshore banks, brokerage accounts or nominee entities. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.