IRS sounds alarm on tax scams

Agency lists 'dirty dozen' most common that peak during tax preparation season

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The Internal Revenue Service is warning people about tax scams that peak during tax preparation season.

"Taxpayers should be on the lookout for tax scams using the IRS name," said IRS Commissioner John Koskinen. "We urge people to protect themselves and use caution when viewing emails, receiving telephone calls or getting advice on tax issues."

The IRS released its "dirty dozen" list of the top 12 most common tax scams:

Identity theft: An identity thief uses someone's personal information, such as name and Social Security number, to fraudulently file a tax return and claim a refund. Taxpayers who have had their personal information stolen and believe they're at risk for identity theft should contact the IRS Identity Protection Specialized Unit at 800-908-4490, so the agency can secure their tax account.

Telephone scams: Callers may pretend to be from the IRS in hopes of getting personal information from victims. Scammers may say the victims owe money or are entitled to a large refund, or they may threaten the victim. If you know you owe taxes, call the IRS at 1-800-829-1040. Otherwise, report telephone scams to the Treasury Inspector General for Tax Administration at 1-800-366-4484.

Phishing: An unsolicited email or a fake website may try to lure people into divulging personal information that a criminal can use to commit identity theft. If you get an email that appears to be from the IRS report it to phishing@irs.gov.

False promises of free money from inflated tax returns: Scammers commonly pose as tax preparers promising large refunds. They charge a lot of money, and get people to claim fake rebates, benefits or tax credits. The IRS said some victims have reported losing their federal benefits due to false income claims.

Return preparer fraud: Make sure has a tax preparer has a Preparer Tax Identification Number or PTIN, and has a good record by checking with the Better Business Bureau. "Taxpayers are legally responsible for what's on their tax return even if it is prepared by someone else," according to the IRS. For more information on choosing a tax professional visit www.irs.gov/chooseataxpro.

Hiding income offshore: People evade U.S. taxes by hiding income in offshore financial institutions, which may result in penalties and criminal prosecution. At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program, so that people can voluntarily report their legitimate foreign financial accounts.

Impersonating charitable organizations: Scam artists commonly try to get money or private information from well-meaning taxpayers by pretending to represent a charitable organization. Some may even directly contact disaster victims, claiming to be working on behalf of the IRS to help them file casualty loss claims and tax refunds.

False income, expenses or exemptions: Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Frivolous arguments: Making unreasonable and outlandish claims to avoid paying the taxes they owe can lead to penalties and possible criminal prosecution.

Falsely claiming zero wages or using false form 1099: Filing false tax return forms that reduce taxable incomes to zero can result in financial penalties or even criminal prosecution.

Abusive tax structures: IRS Criminal Investigation has developed a national program to combat tax schemes that abuse financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions. Typically, these schemes involve multi-layer transactions to purposely conceal the actual ownership of taxable income and assets.

Misuse of trusts: Taxpayers should talk with a professional before entering a trust arrangement. The IRS increasingly sees private annuity trusts and foreign trusts used improperly to shift income and deduct personal expenses, as well as to avoid estate transfer taxes.