Tax scams to avoid as filing deadline nears

Published 5:20 pm Friday, April 5, 2013

With the arrival of spring also comes the arrival of tax season. The tax-filing deadline of April 15 isn’t far away and IRS spokesman Dan Boone offered tips for the estimated 440,000 Alabamians who will wait until April to file.

• E-file your taxes—It is fast, easy and accurate and for most people it is free. The IRS’ Free File partnership with several tax software companies allows most filers to prepare and e-file their returns free online. It is only available at www.irs.gov. Extensions are free too through IRS Free File, but must be filed by April 15.

• Don’t miss the earned income tax credit—many lower-income workers, including some grandparents raising grandchildren and rural residents, miss out on Earned Income Tax Credit (EITC) each year. Even if you could not claim EITC on previous tax returns, changes in your income or marital status or having a child may allow you to claim it for 2012. Also, if you have worked some part of last year and your household income was below $50,270, you may qualify for EITC. The EITC Assistant at IRS.gov can help find out.

• Watch out for tax scams— emails that appear to be from the IRS probably are not. Scammers may go phishing for your private information by alerting you to nonexistent refunds or threatening with an audit if people don’t respond. The IRS never uses email, texts or any social media to initiate contact with taxpayers. Report phishing at IRS.gov and remember, if it sounds too good to be true, it probably is.

• Let trained volunteers complete your taxes at a help site where IRS-certified volunteers are preparing and e-filing federal and state tax returns for free. Sites are located in many libraries, churches, malls, senior centers and other community locations.

• Check your refund status at IRS.gov using the updated, “Where is My Refund?” tool. If you have the free IRS2Go app, check from your Smartphone but remember the IRS updates refund status only once each night.

The IRS’ annual “Dirty Dozen” list includes common tax scams that often peak during the tax-filing season. The IRS recommends that taxpayers be aware of these so they can protect themselves against claims that sound too good to be true. Taxpayers who buy into illegal tax scams can end up facing significant penalties and interest and even criminal prosecution.

The tax scams that made the Dirty Dozen list this filing season are:

•Identify Theft, the IRS’ ID theft strategy focuses on prevention, detection and victim assistance. During 2012, the IRS protected $20 billion of fraudulent refunds including those related to identity theft. Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should immediately contact the IRS so the agency can take action to secure their tax account. If you receive a notice from the IRS, call the phone number on the notice. Find more information on the identity protection page on IRS.gov.

Another item that made the Dirty Dozen list is return preparer fraud. Although most return preparers are reputable and provide good service, choosing carefully when hiring someone to prepare tax returns is important. Only use preparers who sign the return they prepare for you and enter their IRS Preparer Tax Identification Number (PTIN). For tips about choosing a preparer, visit www.irs.gov/chooseataxpro.

• Another item to avoid is hiding income offshore. One form of tax evasion is hiding income in offshore accounts. This includes debit cards, credit cards or wire transfers to access those funds. While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements taxpayers need to fulfill. Failing to comply can lead to penalties or criminal prosecution.

• Impersonation of charitable organizations is common during tax season from scam artists trying to get money. Taxpayers need to be sure they donate to recognized charities.

• Falsely claiming income you did not earn or expenses you did not pay in order to get larger refundable tax credits is tax fraud. This includes false claims for the Earned Income Tax Credit. In many cases taxpayers end up repaying the refund, including penalties and interest. Fraud involving the fuel tax credit is a frivolous claim and can result in a penalty of $5,000.

• False form 1099 refund claims is often advised from promoters of frivolous schemes. They will advise taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These are false arguments that the courts have consistently thrown out. While taxpayers have the right to contest their liabilities in court, no one has the right to disobey the law.

• Claiming zero wages can result in a $5,000 penalty. Typically, scammers use a Form 4852 (substitute W-2 form) or a “corrected” 1099 form to improperly reduce taxable income to zero.

•Disguised corporate ownership is a common problem with scammers. They will often use third parties from corporations that hide the true ownership of the business. They help dishonest individuals underreport income, claim fake deductions and avoid filing tax returns. They also facilitate money laundering and other financial crimes. There are legitimate uses of trusts in tax and estate planning but some questionable transactions promise to reduce the amount of income that is subject to tax. They also offer deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits but primarily help avoid taxes and hide assets from creditors, including the IRS.

For more information on any of these tips, visit www.irs.gov.