CARL WATTS & ASSOCIATES

February 27, 2017

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The 2017 IRS Dirty Dozen
Human ingenuity, an extraordinary quality often indispensable in the process of applying ideas to solve problems or meet challenges, is unfortunately a quality just as boundless in the unlawful trade of the scam experts.

As you are well accustomed by now, every year the IRS publishes their annual Dirty Dozen list of the most prolific tax scams that taxpayers need to guard against.

Albeit the “top” looks pretty much similar every year, all of us should stay alert to new schemes which seem to constantly evolve and to avoid these pitfalls, whether old or new.

Here is a summary of this year's "Dirty Dozen" scams:

Phishing. We all need to be on guard against fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or refund. Don’t click on one claiming to be from the IRS. Be wary of emails and websites that may be nothing more than scams to steal personal information. In these email schemes, criminals pose as a person or organization the taxpayer trusts or recognizes. They may hack an email account and send mass emails under another person’s name. They may pose as a bank, credit card company, tax software provider or government agency. Criminals go to great lengths to create websites that appear legitimate but contain phony log-in pages. These criminals hope victims will take the bait and provide money, passwords, Social Security numbers and other information that can lead to identity theft.


Phone Scams. Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. There has been a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things. If you're surprised to get a call from the IRS, it almost certainly isn't the real IRS.


Identity Theft. You need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. Though the agency is making progress on this front, taxpayers still need to be extremely cautious and do everything they can to avoid being victimized.

Return Preparer Fraud. Return preparers are a vital part of the U.S. tax system and about 60 percent of taxpayers use tax professionals to prepare their returns, so be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service, yet there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers.


Fake Charities. Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally known organizations. You should take a few extra minutes to ensure your hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. Don’t give out personal financial information, such as Social Security numbers or passwords, to anyone who solicits a contribution. Scam artists may use this information to steal identities and money from victims. Donors often use credit cards to make donations. Be cautious when disclosing credit card numbers. Confirm that those soliciting a donation are calling from a legitimate charity.



Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Inflated Refund Claims. Taxpayers should be on the lookout for anyone promising inflated refunds. Be wary of anyone who asks you to sign a blank return, promises a big refund before looking at your records or charges fees based on a percentage of the refund. Fraudsters use flyers, advertisements, phony storefronts and word of mouth via community groups where trust is high to find victims. Scammers frequently prey on people who do not have a filing requirement, such as those with low-income or the elderly. They also prey on non-English speakers, who may or may not have a filing requirement.

Con artists dupe people into making claims for fictitious rebates, benefits or tax credits. Or they file a false return in their client’s name, and the client never knows that a refund was paid.

Scam artists may also victimize those with a filing requirement and due a refund. They do this by promising larger refunds based on fake Social Security benefits and false claims for education credits or the Earned Income Tax Credit, among others.


Excessive Claims for Business Credits. Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities and/or satisfy the requirements related to qualified research expenses.


Falsely Padding Deductions on Returns. You should avoid the temptation to falsely inflate deductions or expenses on your returns to pay less than what you owe or potentially receive larger refunds. Think twice before overstating deductions such as charitable contributions and business expenses or improperly claiming credits such as the Earned Income Tax Credit or Child Tax Credit.


Significant penalties may apply for taxpayers who file incorrect returns including:


  • 20 percent of the disallowed amount for filing an erroneous claim for a refund or credit.
  • $5,000 if the IRS determines a taxpayer has filed a “frivolous tax return.” A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax reported is substantially incorrect.
  • In addition to the full amount of tax owed, a taxpayer could be assessed a penalty of 75 percent of the amount owed if the underpayment on the return resulted from tax fraud.

Falsifying Income to Claim Credits. Don’t invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers are sometimes talked into doing this by con artists. You should file the most accurate return possible because you are legally responsible for what is on your return. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties. In some cases, they may even face criminal prosecution and be brought to trial for actions such as:

  • Tax evasion,
  • Willful failure to file a return, supply information, or pay any tax due,
  • Fraud and false statements,
  • Preparing and filing a fraudulent return, or
  • Identity theft.

Abusive Tax Shelters. Don’t use abusive tax structures to avoid paying taxes. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, you should seek an independent opinion regarding complex products they are offered.

Frivolous Tax Arguments. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims even though they have been repeatedly thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000.

Offshore Tax Avoidance. The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. The IRS offers the Offshore Voluntary Disclosure Program to enable people to catch up on their filing and tax obligations. Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 55,800 disclosures and the IRS has collected more than $9.9 billion from this initiative alone.

Perpetrators of illegal schemes can face significant fines and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

Always keep in mind that you are legally responsible for what is on your tax return even if it is prepared by someone else. Be sure your preparer is up to the task and remember, if it looks too good to be true, it most probably is.
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