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Tax Scams and Schemes

Provided by Rajesh Jyotishi Email Provided by Rajesh Jyotishi
February 2019
Tax Scams and Schemes

The “dirty dozen” favored by criminals and cheats.

Year after year, criminals try to scam taxpayers. Year after year, certain taxpayers resort to schemes in an effort to put one over on the Internal Revenue Service (I.R.S.). These cons occur year-round, not just during tax season. The I.R.S. has listed the 12 biggest offenses—scams that you should recognize, and schemes that warrant penalties and/ or punishment.

Phishing. If you get an unsolicited email claiming to be from the I.R.S., it is a scam. The I.R.S. never reaches out via email, regardless of the situation. If such an email lands in your inbox, forward it to phishing@irs.gov. You should also be careful with sending personal information, including payroll or other financial information, via an email or website.1,2

Phone scams. Each year, criminals call taxpayers and allege that said taxpayers owe money to the I.R.S. The Treasury Inspector General for Tax Administration says that over the last five years, 12,000 victims have been identified, with a cumulative loss of more than $63 million. Tricks can lend authenticity to the ruse: the caller ID may show a toll-free number, and the caller may mention a phony I.R.S. employee badge number. New spins are constantly emerging, including threats of arrest, and even deportation.1,2

Identity theft. Identity theft happens not just online. Thieves can steal your mail or rifle through your trash. While the I.R.S. has made headway in identifying scams related to tax returns, the best defense is caution when your identity and information are concerned.1,2

Return preparer fraud. Almost 60% of American taxpayers use a professional tax preparer. Unfortunately, among the many honest professionals, there are also some con artists who aim to rip off personal information and grab phantom refunds, so be careful when making a selection.1,2

Fake charities. Some taxpayers claim that they are gathering funds for hurricane victims, an overseas relief effort, an outreach ministry, and so on. Be on the lookout for organizations that are using phony names to appear as legitimate charities. A specious charity may ask you for cash donations and/or your Social Security Number and banking information.1,2

Inflated refund claims. Some scammers prepare and file 1040s, but they charge big fees up front or claim an exorbitant portion of your refund. The I.R.S. specifically warns against signing a blank return as well as preparers who charge based on the amount of your tax refund.1,2

Excessive claims for business credits. The I.R.S. notes abuses of the fuel tax credit and research credit. If you or your tax preparer claim these credits without meeting the correct requirements, you could be in for a nasty penalty.1,2

Falsely padding deductions on returns. Some taxpayers exaggerate or falsify deductions and expenses in pursuit of the Earned Income Tax Credit, the Child Tax Credit, and other federal tax perks. Resist the temptation to pad the numbers, and avoid working with unscrupulous tax professionals who pressure you to do the same.1,2

Falsifying income to claim credits. Some credits, like the Earned Income Tax Credit, require higher incomes. You are responsible for what appears on your return. A boosted income can lead to big penalties, interest, and back taxes.1,2

Frivolous tax arguments. There are seminar speakers and books claiming that federal taxes are illegal and unconstitutional and that Americans only have an implied obligation to pay them. These and other arguments crop up occasionally when people owe back taxes. They carry little weight in the courts and before the I.R.S. There’s also a $5,000 penalty for filing a frivolous tax return, so these fantasies are best ignored.1,2

Abusive tax shelters. If it sounds too good to be true, it usually is, and that’s especially true of complicated tax avoidance schemes, which attempt to hide assets through a web of pass-through companies. The I.R.S. suggests that a second opinion from another financial professional might help you avoid making a big mistake.1,2

Offshore tax avoidance. If you don’t adequately report offshore income, you are a lawbreaker, according to the I.R.S. You could be prosecuted or contend with fines and penalties.1,2

Watch out for these ploys—you are the first defense against a scam that could cause you to run afoul of tax law.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate; however, we make no representation as to its completeness or accuracy. Please note: investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1. irs.gov/newsroom/irs-wraps-up-dirty-dozen-list-of-tax-scams-for-2018-encourages-taxpayers-to-remain-vigilant [3/22/18]
2. forbes.com/sites/kellyphillipserb/2018/03/22/irs-warns-on-dirty-dozen-tax-scams/ [3/22/18]


RajeshJyotishi100.jpg Moneywise is hosted by Rajesh Jyotishi with Shalin Financial Services, Inc. Rajesh Jyotishi is a registered representative of Dempsey Lord Smith, LLC, which is a registered broker-dealer and a member of FINRA/SIPC. Advisory Services are offered through Dempsey Lord Smith, LLC. Rajesh has been a resident of Atlanta since 1975 and in the financial services industry since 1991. For questions, he can be reached at 770-884-8175 or at RJ@shalinfinancial.com.   

 


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