Updated: Jun 19
The Internal Revenue Service (IRS) is responsible for enforcing and collecting taxes in the United States. Each year, the IRS publishes a list of the top tax scams, known as the "Dirty Dozen." These schemes are designed to trick taxpayers into giving away their personal information or money. It's important to be aware of these scams and take steps to protect yourself from falling victim to them. In this article, we'll explore the "Dirty Dozen" and provide tips on how to avoid them.
What are the "Dirty Dozen" tax scams?
The "Dirty Dozen" is a list of the top 12 tax scams that the IRS sees each year. They are:
1. Phishing scams
Phishing scams are emails or websites that look like they are from a legitimate source, but are actually designed to steal your personal information, such as your Social Security number or bank account information. The IRS will never ask for personal information via email or phone.
2. Phone scams
Phone scams involve individuals pretending to be IRS agents who call and threaten you with arrest or deportation if you don't pay a tax debt immediately. The IRS will never call you demanding payment without first mailing you a bill.
3. Identity theft
Identity theft occurs when someone uses your personal information to file a fraudulent tax return or commit other crimes. The IRS has measures in place to detect and prevent identity theft, but you should also take steps to protect your personal information.
4. Return preparer fraud
Some tax return preparers will promise inflated refunds or charge excessive fees. Make sure you choose a reputable tax preparer who has a Preparer Tax Identification Number (PTIN) and ideally who will e-file your return for you (where possible).
5. Inflated refund claims
Taxpayers should be wary of anyone who promises an unusually large refund. Be sure to check your return carefully and make sure you understand all the deductions and credits you're claiming.
6. Fake charities
Scammers may set up fake charities to take advantage of people's generosity. Be sure to check the IRS's Exempt Organizations Select Check to make sure a charity is legitimate before donating.
7. Frivolous tax arguments
Some people may try to avoid paying taxes by making frivolous arguments that the tax laws don't apply to them. These arguments have no legal basis and can result in penalties.
8. Abusive tax shelters
Abusive tax shelters are arrangements that are designed to avoid paying taxes. These schemes can result in severe penalties and even criminal charges.
9. Offshore tax avoidance
Some individuals may try to hide income or assets in offshore accounts to avoid paying taxes. The IRS has increased enforcement in this area in recent years.
10. Micro-captive insurance
Some small businesses may be sold a "captive insurance" arrangement that is not actually insurance, but is instead a way to avoid paying taxes.
11. Employment tax evasion
Employers who fail to pay employment taxes or withhold taxes from their employees' paychecks can face severe penalties.
12. Improper claims for business credits
Some businesses may make improper claims for tax credits, such as the Research Credit or the Fuel Tax Credit. Be sure to understand the rules and requirements for claiming these credits.
9 tips to avoid falling victim to these scams
The best way to avoid falling victim to these scams is to be informed and vigilant. Here are some tips:
1. Be wary of unsolicited emails or phone calls
The IRS will never ask for personal information via email or phone. If you receive an unsolicited email or phone call, do not provide any personal information and report it to the IRS.
2. Choose a reputable tax preparer
Make sure you choose a reputable tax preparer who has a PTIN. Don't be swayed by promises of inflated refunds or excessive fees.
3. Check your return carefully
Check your tax return carefully and make sure you understand all the deductions and credits you're claiming. If something seems too good to be true, it probably is.
4. Research charities before donating
Before donating to a charity, research it to make sure it's legitimate. Check the IRS's Exempt Organizations Select Check to verify its tax-exempt status.
5. Don't fall for "tax shelters"
Avoid "tax shelters" or other schemes that promise to help you avoid paying taxes. These arrangements can result in severe penalties and even criminal charges.
6. Keep your personal information secure
Protect your personal information by using strong passwords, avoiding public Wi-Fi networks, and shredding sensitive documents.
7. Be cautious when dealing with offshore accounts
If you have offshore accounts, make sure you report all income and assets to the IRS. Failure to do so can result in severe penalties.
8. Don't make frivolous tax arguments
Avoid making frivolous tax arguments that the tax laws don't apply to you. These arguments have no legal basis and can result in penalties.
9. Stay up-to-date on tax laws
Stay up-to-date on changes to tax laws and regulations. The IRS provides resources to help taxpayers understand their obligations and avoid scams.
The IRS "Dirty Dozen" is a list of the top 12 tax scams that the IRS sees each year. By being informed and vigilant, you can protect yourself from falling victim to these scams. Choose a reputable tax preparer, check your return carefully, and keep your personal information secure. Avoid "tax shelters," make sure you report all income and assets to the IRS, and stay up-to-date on tax laws and regulations. By taking these steps, you can ensure that you're not one of the thousands of taxpayers who fall victim to tax scams each year.