It's tax season in the U.S. and that translates to scammer season in Internal Revenue Service terms. The IRS just released its 2015 "Dirty Dozen" list of tax scams with a clear warning about aggressive telephone scams, phishing, identity theft and other dangers.
"We are doing everything we can to help taxpayers avoid scams as the tax season continues," said IRS Commissioner John Koskinen. "Whether it's a phone scam or scheme to steal a taxpayer's identity, there are simple steps to take to help stop these con artists. We urge taxpayers to visit IRS.gov for more information and to be wary of these dozen tax scams."
1. Phone Scams
The IRS is warning of "aggressive and threatening" phone calls by criminals impersonating IRS agents being reported daily. Scammers are threatening police arrest, deportation, license revocation, among other things. Don't fall for it.
Taxpayers need to be on guard against fake e-mails or Web sites looking to steal personal information, the IRS warned. The federal agency made it crystal clear that IRS agents will not send e-mails about bills or refunds out of nowhere.
"Don't click on one claiming to be from the IRS that takes you by surprise," the IRS warns. "Taxpayers should be wary of clicking on strange e-mails and Web sites. They may be scams to steal your personal information."
3. Identity Theft
According to the IRS, taxpayers need to watch out for identity theft more than ever around tax time. The agency vowed to keep aggressively pursuing criminals that file fraudulent returns using someone else's Social Security number, but warned taxpayers to be vigilant nonetheless.
4. Return Preparer Fraud
"Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service," the IRS said. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns.
5. Offshore Tax Avoidance
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, according to IRS. The agency said taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order.
6. Inflated Refund Claims
Taxpayers need to be on the lookout for anyone promising inflated refunds, the IRS warned. "Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund," the agency said. "Scam artists use fliers, advertisements, phony storefronts and word of mouth via community groups and churches in seeking victims."
7. Fake Charities
Taxpayers also need to be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Be wary, the agency warned, of charities with names that are similar to familiar or nationally known organizations.
8. Hiding Income with Fake Documents
"Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against," the IRS warned. "The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns."
9. Abusive Tax Shelters
The IRS warned taxpayers to avoid using abusive tax structures to avoid paying taxes, and said it 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," the agency said. "When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered."
10. Falsifying Income to Claim Credits
The IRS sternly warned that taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists, the agency said, but are best served by filing the most-accurate return possible because they are legally responsible for what is on their return.
11. Excessive Claims for Fuel Tax Credits
Taxpayers also need to avoid improper claims for fuel tax credits. The fuel tax credit, the IRS explained, is generally limited to off-highway business use, including use in farming.
"Consequently, the credit is not available to most taxpayers," the agency said. "But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds."
12. Frivolous Tax Arguments
Finally, IRS cautioned taxpayers to avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe.
"These arguments are wrong and have been thrown out of court," the IRS said. "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."
The Threat of Identity Theft
We turned to Andrew Conway, a researcher with Cloudmark, which provides protection against spam, viruses, phishing and similar threats that affect e-mail, to get his thoughts on the phishing aspect of the IRS warnings. He told us tax return fraud is a special form of identity theft in which the criminal files a fraudulent tax return using stolen personal information, and claiming a large refund.
"By the time the victim files their own tax return the refund check has already been cashed," he said. "For this to work, the criminal has to file the victim's tax return before the victim does."
The scary part is a criminal doesn't need much information in order to file a fraudulent tax return. That's why Conway is recommending, like the IRS, that taxpayers be especially cautious about e-mails claiming to come from the agency or any Web page that tries to get your Social Security number.
"In recent years Congress has cut funding for IRS enforcement and mandated the IRS to place more emphasis on customer service, including faster delivery of tax returns," Conway said. "The fact that this has facilitated a new and pernicious form of tax fraud is a fine example of the law of unintended consequences."