Illegal scams can lead to significant penalties and interest, and possible criminal prosecution, the IRS said. And it noted its criminal investigation division works closely with the U.S. Department of Justice to shutdown scams and prosecute the criminals behind them.
The IRS' Dirty Dozen scams for 2012 are these:
Identity theft •It tops this year's list. The IRS said it increasingly is seeing thieves looking for ways to use a legitimate taxpayer's identity and personal information to file a tax return and claim a fraudulent refund. An IRS notice informing a taxpayer that more than one return was filed in his or her name or that the taxpayer received wages from an unknown employer may be the first tip-off that a person is being victimized.
Phishing •This scam is typically carried out through unsolicited email or fake websites to lure potential victims and prompt them to provide valuable personal and financial information. The IRS said it does not initiate contact with taxpayers by email. Any unsolicited emails that appear to be from the IRS or related entity such as the Electronic Federal Tax Payment System should be reported by sending it to firstname.lastname@example.org.
Return preparer fraud •About 60 percent of taxpayers will use tax professionals this year to help them prepare and file returns. Most preparers are honest, but some prey on unsuspecting taxpayers. Questionable preparers have been known to skim off their clients' refunds, charge inflated fees for services and attract new clients by promising guaranteed or inflated refunds.
Among warning signs:
Preparers do not sign returns or place a "preparer tax identification number" on them.
They don't give you a copy of your tax return.
They promise larger than normal tax refunds
They charge a percentage of the refund amount as a preparation fee
They require you to split the refund to pay the preparation fee
They add forms to the return you have never filed before
They encourage you to place false information on your return, such as false income, expenses and/or credits.
Hiding income offshore •Althoughthere are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements. U.S. taxpayers who maintain such accounts and do not comply are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.
Free money, and Social Security scams •Fliers and ads for free money from the IRS, suggesting that taxpayers can file a tax return with little or no documentation, have been appearing in community churches nationwide. Such scams charge people good money for bad advice, the IRS said. There also are a number of tax scams involving Social Security. For example, scammers have been known to deceive with promises of non-existent refunds or rebates.
False/inflated income and expenses •Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, or claiming expenses you did not pay, is another popular scam.
False Form 1099 refund claims •In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim. In some cases, taxpayers have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens, and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.
Frivolous arguments •Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list at http://1.usa.gov/ZCGGd of such arguments.
Falsely claiming zero wages •Typically a Form 4852 (Substitute Form W-2) or a "corrected" Form 1099 is used as a way to improperly reduce taxable income to zero. Sometimes, scammers even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation.
Abuse of charitable organizations and deductions • The IRS is investigating intentional abuse of 501(c)(3) organizations and schemes that involve the donation of non-cash assets including situations in which several organizations claim the full value of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor.
Disguised corporate ownership •Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of a business. Such scams often are used to underreport income, claim fictitious deductions, avoid filing tax returns and to facilitate money laundering and financial crimes.
Misuse of trusts •Unscrupulous promoters have long urged taxpayers to transfer assets into trusts. Although there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise to reduce income tax obligations, increase deductions for personal expenses and reduced estate or gift taxes. Such illegal trusts are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.