Dirty Dozen Tax Scams for 2010

As tax season progresses, tax scams are in full throttle. You have to be aware and watch out for these scams and protect yourself. The best defense you have is be informed and prepared. Below we’ll review the IRS’ Dirty Dozen. Take heed of these tax scams!

Tax Preparer Fraud: This scam starts with unethical tax return preparers and affects any clients that they have served. Make sure you go over your tax return and make sure you understand the general calculations. If you don’t, ask the tax preparer to walk you through it. The IRS is fighting back by requiring a preparer tax identification number and continuing education.

Filing False Tax Forms: Like tax preparer fraud, this scam involves unethical filing for credits that they are not qualified to receive. This scam can involve using 1099-OID to give the appearance of a legitimate claim.

Zero Income: Some people are trying to avoid paying their taxes by falsifying their income. Double check your tax return if you think you’re getting a refund that you did not expect.

Frivolous Arguments: This scam involves people being encouraged to avoid paying their taxes by making fraudulent tax claims. This can be an expensive problem as the IRS will charge a $5,000 penalty.

Fuel Tax Credit Fraud: While some occupations can reasonably claim this credit, some tax payers are abusing this provision with†fraudulent†claims. Since this fall under a frivolous tax claim, there is a $5,000 penalty from the IRS.

Hiding Income Offshore: We’ve all seen the campaign the IRS launched to investigate tax evasion by having and not reporting offshore accounts. This tax scam includes foreign trusts, wire transfers, and life insurance plans. Voluntarily disclosing your offshore accounts may help you reduce the chance of criminal prosecution.

Phishing: This is a huge problem and many people can fall victim to it if they are not careful. Just know that the IRS does not ask for financial or personal information via email. The con artists can create very authentic looking emails and website, so please contact the IRS directly by phone at 1-800-829-1040 or search for your local office to get answers.

Retirement Plan Fraud: Some tax preparers have convinced clients to circumvent†retirement†contribution limits by reporting a less than market value transfer of their assets into retirement accounts.

Charitable Deduction Abuse: As the name suggests, this tax scheme has charitable deductions taken in attempt to fraudulently lower tax responsibilities. Some bold con-artists have created and tried to use tax exempt organizations to hide taxable income.

Disguised Corporate Ownership: Instead of creating a business†entity†for†legitimate†purposes, some are abusing this provision as a way to hide income and ownership. In some extreme cases, this has been linked to money laundering schemes. The IRS aggressively works to expose and correct these crimes with state authorities.

Social Security Fraud: Some people have taken the liberty of claiming excessive withholding on their taxes  with their Social Security benefits. The plan is to report no taxable income, but it carries a heavy penalty of $5,000 when caught.

Misuse of Trusts: Be wary of anyone who claims they can guarantee lower tax responsibility by shifting assets into trusts.

Ultimately, you have to be aware and understand the tax credits and deductions you are qualified to take. I hope you have a great tax season!