The Internal Revenue Service issued its annual “Dirty Dozen” list of tax scams, advising taxpayers to use caution to protect themselves from being victims in a variety of schemes ranging from identity theft to return preparer fraud (IRS News Release IR-2012-23). The schemes peak during the filing season and they can be used in person, online, and by e-mail to mislead individuals with promises of refunds and free money. The IRS Criminal Investigation Division and the Department of Justice work closely to identify the scams and prosecute the criminals who commit them.
The following are the dirty dozen scams for the 2012: identity theft, phishing, return preparer fraud, hiding income offshore, offering free money from the IRS involving Social Security, false or inflated income and expenses, using false Forms 1099 for refund claims, frivolous arguments, falsely claiming zero wages, the abuse of charitable organizations and deductions, the use of disguised corporate ownership and the misuse of trust entities. The top scam is identity theft, and the IRS has stepped up its internal reviews to spot false tax returns before refunds are issued, as well as working with the taxpayers whose identity has been stolen.
The IRS has collected $3.4 billion from people who have participated in two voluntary disclosure programs to report income from offshore banks, brokerage accounts, and other foreign financial accounts. Taxpayers are advised that, if they are a party to scams that use a Form 1099 to create fake refund claims or falsify income, deductions or credits, they could be liable for financial penalties or even face criminal prosecution.
IRS examiners have uncovered intentional abuse by exempt organizations that shield income or assets from taxation and attempts made by donors to maintain control over donated assets or income from donated property. The IRS is working with state authorities to identify disguised corporate ownership that is being used to underreport income, claim fictitious deductions, avoid filing tax returns, and facilitate money laundering and other financial crimes. IRS personnel have also seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses; individuals should seek the advice of a trusted tax professional before entering into a trust arrangement.