It's less than a month until your taxes are due. The IRS is out with its annual "Dirty Dozen" list of tax schemes. Some are to protect you from scammers. Some are to protect you from trying to cheat on your taxes, drawing the ire of the IRS.
This happens when a thief uses your Social Security number or Individual Taxpayer Identification Number (ITIN) to file a fraudulent tax return to claim a refund. There is no foolproof way to guarantee you won't be a victim, but here are steps to take to protect yourself:
- Always use security software with firewall and antivirus protection on your computer. Encrypt sensitive files and use strong passwords.
- Learn to recognize phishing emails and phone calls. (There's more on that in the next section.)
- Protect personal data by keeping your social security number and tax records secure.
These scams are from people who sound like they are calling you from a legitimate organization seeking to get your personal information.
They may give you a fake badge number. They may "spoof" you by making it appear on your caller ID that the call is coming from a legitimate source like the IRS. Or, they may try a new tactic we haven't seen yet.
The IRS says it will never do the following:
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes.
- Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying
- Demand that taxes be paid without giving taxpayers the opportunity to question or appeal the amount owed
- Ask for credit or debit card numbers over the phone
- Call about an unexpected refund
RELATED: More IRS information on phone scams
Whether it's by email, text message or websites, electronic phishing scams are getting more clever each year.
Be wary of emails claiming to be from the IRS promising you a big refund. The IRS says don't fall for threatening emails and messages.
One way scammers try to get you is by sending an email that looks like it's from someone you know. Make sure to double check the email address it's being sent from. The scammer may omit or juxtapose letters to fool you. Another warning sign is if it's an email that simply has a link to click on and nothing else.
Frivolous tax arguments
Don't believe the hype if someone is telling you there is a secret way to avoid paying your taxes legally. There isn't. The IRS says these arguments have been thrown out of court. Here are some examples of frivolous cases:
- The First Amendment allows taxpayers to refuse to pay taxes on religious or moral grounds
- The only “employees” subject to federal income tax are those who work for the federal government
- Only foreign-source income is taxable
Failure to report offshore funds
Steer clear of offshore schemes aimed at avoiding taxes. Illegal scams like these can lead to significant penalties as well as interest and possible criminal prosecution, the IRS said.
Avoid improper claims for business credits
Shady tax preparers may try to claim business tax credits improperly. The IRS says two credits often targeted for abuse are the Research Credit and the Fuel Tax Credit. Each of these credits has specific eligibility criteria.
RELATED: More IRS info on business credits
Scams involving disasters and charitable causes
A fake charity may have lured you in last year using the tax deduction as bait. If you are not sure about who you donated with, the IRS website has a tax exempt organization search tool. The IRS also reminds you to never give out personal information, including your social security number or passwords, to anyone seeking a donation.
Inflating deductions and credits
Want to know a great way to get audited? Pad your return with deductions and credits you are not eligible for. Common ways to do this, according to the IRS, are overstating charitable deductions, medical expenses and business expenses, or falsely claiming the Earned Income Tax Credit or the Child Tax Credit.
Falsifying income and creating bogus documents
Some people trying to game the system might report more income than they made to maximize refundable tax credits. Just like claiming a false expense or deduction, inflating your income is also illegal.
You should also avoid scams disguised as debt payment options for credit cards or mortgage debt. The IRS says this often involves filling out a Form 1099-MISC.
Avoid preparers promising inflated refunds
Are you seeing a tax preparer promise you a larger refund than their competitors? Are they promising you a much bigger refund than you are used to getting? It may be a scam.
The IRS also says honest tax preparers will give you a copy of the return while scammers may not. And victims have reported that their refund has been deposited into the scammer's bank account and that the crook will deduct a substantial fee before giving the rest to the victim.
RELATED: More IRS info on shady preparers
Choose tax preparers carefully
The new tax law may be confusing, prompting you to hire a pro to navigate it. The IRS says to look for preparers who work year-round so that they can help answer questions after you file. Also, ask if the preparer has an IRS Preparer Tax Identification Number -- a sign they are registered with the IRS.
Always make sure to review your return before signing and never sign a blank return.
Abusive tax shelters, trusts, conservation easements
The IRS says these schemes "all start with a legitimate tax-planning tool that is improperly distorted almost always by a promoter to produce benefits that are too good to be true and ultimately seriously compromise the taxpayer. Taxpayers should be highly skeptical of such claims."
RELATED: More IRS info on these scams