The Dirty Dozen

By: Patricia P. Greenhouse, CPA (Mar, 2012)

In the classic 1967 movie, The Dirty Dozen, Lee Marvin leads a dozen convicted murderers into a mass assassination raid during World War II. The dozen will stop at nothing to fulfill their mission as their alternatives are death by hanging or 30 years of hard labor. "Train them, excite them, arm them, and turn them loose." The Internal Revenue Service has recently issued their annual reminders of the 12 most common tax scams that taxpayers can face during the year. It is now particularly important to be aware of these traps as the schemes peak during tax return filing season. Proceed with caution and don't let any of the dirty dozen be turned loose on you. They will stop at nothing including temptations in person, online, or by email, promising large refunds or free money. Although perhaps not as exciting as John Cassavetes, Charles Bronson, Jim Brown, George Kennedy, Telly Savalas, or Donald Sutherland, here is the IRS cast list for its 2012 dirty dozen.

  1. Identity Theft
    There has been an increase in attempts to use a legitimate taxpayer's identification and personal information to file a tax return and claim a fraudulent refund. An IRS notice that a taxpayer has filed more than one return or that wages were received from an unknown employer may be the first alert that you are a victim of identity theft. If you suspect that your personal information has been stolen and used for tax purposes, immediately contact the IRS Identity Protection Specialized Unit.
  2. Phishing
    Don't be fooled by unsolicited email or a fake website that may be trying to lure you to provide personal or financial information. Keep in mind that the IRS does not initiate contact with taxpayers by email or other electronic communications such as text messages or social networks. If you receive an unsolicited email from the IRS or a related organization, report it by sending it to phishing@irs.gov.
  3. Return Preparer Fraud
    Problematic preparers are known to skim off their clients refunds, charge inflated fees for tax preparation and promise guaranteed or inflated refunds. Beware if your return preparer doesn't sign the return, place a required Personal Tax Identification Number (PTIN) on it, or doesn't give you a copy of the return.
  4. Hiding Income Offshore
    There are reporting requirements that need to be fulfilled if you maintain foreign accounts. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.
  5. "Free Money" from the IRS & Tax Scams Involving Social Security
    Flyers and advertisements for free money from the IRS have been appearing in community churches around the country. The targeted victims are low income individuals and the elderly.
  6. False/Inflated Income and Expenses
    Claiming income that you did not earn or expenses you did not pay in order to obtain large refundable credits, such as the Earned Income Credit, is another popular scam. Taxpayers whose income and occupations are unreasonable are claiming fuel tax credits for using off-highway fuel for a business purpose.
  7. False Form 1099 Refund Claims
    In this scam a fake information return, Form 1099 Original Issue Discount, is filed to justify a false refund claim on a corresponding tax return. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.
  8. Frivolous Arguments
    Be alert to anyone promoting unreasonable and outlandish schemes to avoid paying the taxes you owe. The IRS maintains a list of arguments that are false and have been thrown out of court.
  9. 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. Filing this type of return may result in a $5,000 penalty.
  10. Abuse of Charitable Organizations and Deductions
    There has been numerous incidences of the intentional abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property. Overvalued non cash donations, numerous organizations claiming the same contributions, and promises of repurchases between the charitable organization and the donor have been cited.
  11. Disguised Corporate Ownership
    Phony corporations are formed to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and financial crimes.
  12. Misuse of Trusts
    While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses.

In The Dirty Dozen Lee Marvin as Major Reisman states "I never went in for embroidery, just results." If you have concerns about any possible tax scams or other questions, please contact your Dermody. Burke and Brown tax advisors. Similar to Major Reisman we go in for results. Proceed with caution and don't let any of the dirty dozen be turned loose on you.

 

The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.

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