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Posted on May 9, 2013

Part 2 – Tax Scams: Protecting Yourself Against The Dirty Dozen

Written by Avner Polatsek | @AvnerPolatsek

tax scams

As continued from our last post, we’re summarizing the IRS’s Dirty Dozen list of 2013 tax scams and providing you with ways to defend yourself against these cons. Please feel free to comment below if you have any questions about these scams or if you have a story to share.

Part 2 of this list focuses on people trying to pull one over on the IRS. Many people might not know that these items are considered to be criminal acts, but filing a false tax return has serious repercussions.

7. False/Inflated Income and Expenses

While everyone wants to receive a nice sizeable tax refund falsely claiming that you have made income you haven’t or expenses you didn’t pay in order to get a larger refund is against the law. A popular example of this is filing false information to receive the fuel tax credit or child tax credit.

8. False Form 1099 Refund Claims

This scam involves filing a fake information return (like a Form 1099 Original Issue Discount) in order gain access to funds in a “secret account” that the US government keeps for citizens. This is the most conspiracy theory-style scam we’ve come across, but our answer to this one is the same as the other scams in Part 2: don’t submit false information in order to receive money you’re not entitled to.

9. Frivolous Arguments

Anyone suggesting that you make “unreasonable and outlandish claims to avoid paying taxes” is encouraging a frivolous scheme. Claims like the ones the IRS lists on their website will likely be thrown out of court. For example, someone might claim that paying taxes is voluntary and that the law doesn’t require them to pay.

10. Falsely Claiming Zero Wages

There are a few ways that people try to claim zero wages, but all of them are considered to be scams by the IRS. Someone might file a statement saying that the wages reported on their return are incorrect or might dispute what qualifies as a wage. Schemes like this could end up with a $5,000 penalty.

11. Disguised Corporate Ownership

Disguising corporate ownership involves creating false entities in order to participate in everything from money laundering to underreporting income.

12. Misuse of Trusts

While trusts can be used correctly for tax and estate planning, many people fall into the belief that trusts can dramatically reduce their taxable income and give other extreme benefits. As with many schemes like this, a taxpayer has been mislead and promised unrealistic deliverables. I know that we have said this many times through these blog posts about tax scams, but you should always use a trusted professional to give you tax advice or help you file your taxes.

Almost all of the items on this year’s Dirty Dozen list have appeared in past years. As tax professionals, this tells us that the scam artists involved are still preying on taxpayers and more awareness is needed. We specialize in taxes and are always happy to answer any of your questions. Get in touch!

Did you read Part 1, where we discuss more predatory tax scams? Read the post here.