See beyond the numbers

The Dirty Dozen Tax Scams of 2014

The dirty dozen tax scams are compiled each year by the IRS to warn taxpayers of fraud or illegal schemes that arise during tax season. The IRS publishes the list to remind taxpayers to use caution to protect themselves against a wide range of schemes from identity theft to return preparer fraud.  Taxpayers are ultimately responsible for all items on their tax return, so falling victim to a scam could lead to significant penalties or criminal prosecution.  The following are the 12 most common illegal tax scams for 2014:Louis Balbirer of Kaufman Rossin

1. Identity theft – ID theft involves stealing personal information like your name, Social Security number (SSN) or other identifying information for the purpose of committing fraud or another crime.  An identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

2.  Telephone scams – This popular tax-season scam involves callers falsely claiming to be IRS agents to obtain taxpayer payment through a pre-paid debit card or a wire transfer. Often times, the IRS phone number will appear on the caller-ID and scammers will have knowledge of the victim’s personal information such as the last four digits of their SSN in order to convince them to provide personal information.

3. Phishing Phishing scams are typically carried out with the help of an unsolicited email and a fake website that prompts victims to enter personal or financial information. That information is then stolen and used to file false tax returns.

4.  Inflated refund promises – Scammers offering inflated refund promises tell victims that they will receive large federal tax refunds in exchange for costly services. Some scams involve filing false tax returns in a victim’s name and others involve the scammer taking huge cuts of the government-issued tax refund in exchange for bad advice.

5.  Return preparer fraud – Return preparer fraud involves tax preparers filing fraudulent returns or committing identity theft with a victim’s personal information. Although the victim chose to hire a tax preparer, the taxpayer is still legally responsible for the information on his or her return and can be held accountable in the event of fraud.

6. Hiding income offshore –These schemes involve hiding income in a foreign trust, an offshore bank account, a private annuity or an insurance plan.  While U.S. taxpayers can maintain accounts offshore, there are requirements for reporting that information to the IRS.  Failing to comply with federal reporting requirements is considered tax evasion.

7. Impersonation of a charitable organization – Following a major disaster, scammers impersonating the IRS will contact taxpayers to obtain personal information, allegedly for the purpose of assisting with claims or obtaining tax refunds. Others will impersonate charities to obtain money or personal information to commit identity theft.  To avoid fake charities, donate only to recognized groups, and don’t provide personal financial information to a charitable organization.

8. False income, expenses or exemptions – This scam involves inflating or including income that was never earned to maximize refundable credits issued by the IRS.

9. Frivolous arguments – Frivolous arguments are outrageous claims that taxpayers make to the IRS to avoid paying their taxes, such as “payment of federal income tax is voluntary.” Taxpayers who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax. Although taxpayers have the right to contest tax liabilities in court, no one has the right to disobey the law. The IRS provides a list of frivolous arguments that taxpayers should avoid.

10. Falsely claiming zero wages or using a false form 1099 – Scammers will encourage taxpayers to lower the amount of taxes an individual owes by filing a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 to reduce taxable income to zero.

11. Abusive tax structures – This scam involves a structured domestic or foreign trust arrangement, a structure to exploit financial secrecy laws of a foreign jurisdiction or, or an abusive tax structure using multi-layer financial data to conceal ownership of taxable income.

12. Misuse of trusts – A component of abusive tax structures, in this scam, trusts are used by scammers to convince taxpayers to transfer assets, including cash, investments and businesses into trusts in exchange for reduced taxable income and inflated deductions.

These are some of the most common tax schemes encountered by taxpayers each year. Victims of tax scams may suffer financial loss and can be held accountable by the IRS for the false information they unknowingly provide. If you suspect you are a victim of a tax scam, contact the IRS to review your return information.

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Louis Balbirer, CPA, is a director of tax services in Kaufman Rossin’s Fort Lauderdale office. Kaufman Rossin, one of the top CPA firms in the U.S., offers international, state and local tax services for individuals and businesses. Louis can be reached at lbalbirer@kaufmanrossin.com.

See beyond the numbers

IRS Warns of Website Tax Scam

Scott Berger, CPA, of Kaufman, RossinIf you are accessing the IRS’ e-Services online registration page, make sure you are on the IRS website and not an imposter site. The Internal Revenue Service recently issued a warning about a new tax scam involving a website that looks almost identical to the actual IRS e-Services page.

Keep in mind that the IRS will never initiate contact with taxpayers by email, text messages or social media to request personal or financial information. Also, remember that the IRS site is an official government website and ends in .gov.  Avoid any website claiming to be the IRS and not ending in .gov.

To stay in the know about tax scams, visit www.irs.gov. If you receive a dubious email or encounter a website that claims to be the IRS, you should report the suspicious email or website to phishing@irs.gov.

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Scott F. Berger is a tax and accounting services principal at Kaufman, Rossin’s Boca Raton office. Kaufman, Rossin & Co. is one of the top CPA firms in the country. He can be reached at sberger@kaufmanrossin.com.

See beyond the numbers

Identity Theft and Tax Fraud – Are You a Victim?

Identity theft and tax fraud are serious problems that continue to increase in number and complexity as each tax season rolls by.  Don’t think you will ever be affected? Accounting Today recently reported that the IRS identified 775,723 tax returns with $4.6 billion claimed in fraudulent refunds, as of April 30, 2011. The good news – the IRS prevented the issuance of $4.4 billion (96%) of those claims which is an increase of 171% over the previous year. Unfortunately, 4% of those victims were not so lucky.

Becoming a victim of identity theft and tax fraud can cause great hardship for you and your family. The Miami Herald recently wrote about a Miami Shores family who are struggling with the IRS to obtain their $8,000 tax refund after falling victim. Indeed, my colleagues and I have witnessed many falsified returns this past tax season, and although the IRS has implemented the IRS Identity Theft Program, there is no quick and easy solution to overcome this unfortunate circumstance.

While there is no guarantee that a thief won’t steal your identity, there are certain precautions you can take to prevent becoming victimized:

  • Safeguard your personal information
  • Monitor your credit report
  • File early
  • Respond immediately to IRS notices

If you have questions about preventing identity theft and tax fraud, or if you have already been targeted and need assistance, please contact me at sberger@kaufmanrossin.com or 561.620.1722.

Scott F. Berger is a tax principal at Kaufman, Rossin’s Boca Raton office.  Kaufman, Rossin & Co. is one of the top CPA firms in the country.  He can be reached at sberger@kaufmanrossin.com.