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IRS releases 2018 ‘Dirty Dozen’ list

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The Internal Revenue Service on March 21 released its annual Dirty Dozen list of tax scams, highlighting a variety of schemes taxpayers may encounter throughout the year – many of which peak during tax-filing season. The schemes can run the gamut from refund inflation scams to technical tax shelter deals.

The 2018 Dirty Dozen are:

• Phishing. Taxpayers should be aware of potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or tax 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.

• Phone scams. Phone calls from criminals impersonating IRS agents remain an ongoing threat. The IRS has identified a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things.

• Identity theft. Taxpayers should watch for tactics aimed at stealing their identities, not just during the tax filing season, but all year long.

• Return preparer fraud. The vast majority of tax professionals provide honest, high-quality service. There are some dishonest preparers who operate each filing season to scam clients, perpetuating refund fraud, identity theft and other scams.

• Fake charities. Groups masquerading as charitable organizations solicit donations from unsuspecting contributors. Be wary of charities with names similar to nationally known organizations.

• Inflated refund claims. Taxpayers should take note of anyone promising inflated tax refunds. Those preparers who ask clients to sign a blank return, promise a big refund before looking at taxpayer records or charge fees based on a percentage of the refund are probably up to no good. To find victims, fraudsters may use flyers, phony storefronts or word of mouth via community groups where trust is high.

• 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 also should avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities or satisfy the requirements related to qualified research expenses.

• Falsely padding deductions on returns. Avoid the temptation to falsely inflate deductions or expenses on tax returns to pay less than what is owed 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.

• Falsifying income to claim credits. Con artists may convince taxpayers to invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties.

• Frivolous tax arguments. Frivolous tax arguments may be used to avoid paying tax. Promoters encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes despite being repeatedly thrown out in court. The penalty for filing a frivolous tax return is $5,000.

• Abusive tax shelters. Abusive tax structures are sometimes used to avoid paying taxes. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered.

• Offshore tax avoidance. People involved in offshore tax avoidance are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities.

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