Identity theft and phone scams top the 2014 list.

Every year, the IRS releases its annual list of the worst tax scams. These scams occur year-round, but seem to escalate during tax filing season. The scam list includes traps set to steal money and identities from unsuspecting Americans, as well as some of the tricks people play to illegally reduce their tax liability. Let’s review some of the scams so you can identify and avoid problems in the future.

The IRS message is clear – taxpayers beware!

This year, identity theft maintains its top spot on the scam list, and phone scams jump to the number two position. Here is a link to the full article on the IRS website, or keep reading for some highlights from the list.

Here are the top scams that prey on unsuspecting taxpayers:

  • Identity theft. After stealing your identity, the thieves file a tax return on your behalf, claim a refund, and cash the check. You may not even be aware of the theft until your real filing is declined. Keep a close eye on your personal information, especially your social security number.
  • Phone and email scams. Callers or email messages pretend to be from the IRS and use claims of owed taxes or uncollected refunds to steal money, personal information, or both. The IRS doesn’t request financial or personal information by phone or email, so those contacts are almost always a scam.
  • Fake charitable organizations. Scam artists, pretending to be charitable organizations, contact unsuspecting taxpayers to solicit donations, but then steal money. Use the IRS Exempt Organizations Select Check to ensure that you are dealing with a valid organization.
  • Promises of free money or big refunds. Sometimes scam artists will pretend to be tax preparers, setting up stores and advertising huge refunds. They may ask for a large fee or a percentage of your refund, and then steal your money or identity. Choose your firm wisely, and use a qualified CPA rather than someone who advertises on the curb with a foam finger.

The IRS also monitors the tactics used by taxpayers to scam the system or avoid taxes altogether. These scams may result in penalties, fines, and potential criminal prosecution. Here are a few examples:

  • Reporting false income or expenses. Taxpayers inflate their earnings, expenses, or exemptions to claim extra tax credits, such as the Earned Income Tax Credit.
  • Frivolous tax arguments. Have you ever read an article that said you can refuse to pay taxes based on religious or moral grounds? These arguments have been thrown out of court long ago, and the IRS maintains a list for your reference.
  • Hiding income offshore. Taxpayers hide money in offshore accounts, then use credit cards or wire transfers to access those funds. Penalties are severe, but the IRS currently has an amnesty program in place for those who want to settle their tax obligations.
  • Abusive tax structures. This includes the use (or misuse) of LLCs, partnerships, or trusts in an attempt to eliminate or substantially reduce tax liability. If you follow bad advice, you could be liable for the consequences.

Seek the advice of a trusted CPA at Bach, James, Mansour & Company

That old saying certainly applies here – If it seems too good to be true, it probably is. If you have a question about whether an IRS inquiry is real, contact the IRS directly at 800-829-1040 or give us a call so we can help you determine whether you’ve received a valid IRS communication. If someone offers you a way to “eliminate” your tax liability, you should probably run the other way and report the scammer to the IRS.

Neal Bach, CPA