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Watch out for the Dirty Dozen tax scams of 2017

Phishing. Phone scams. Identity theft. Unscrupulous tax preparers.

Sound familiar? It should.

Those illegal actions once again top the Internal Revenue Service's annual Dirty Dozen list of tax scams.

The Snake Oil Salesman painting by Morgan Weistling_Artifacts Gallery
Today's tax con artists are the modern day equivalent of yesteryear's snake oil salesmen, hustlers who convinced folks to buy products that could not possibly work as advertised. In all cases, past and present, the victims end up losing their money. ("The Snake Oil Salesman" by Morgan Weistling is available for purchase at Artifacts Gallery. The link to the artwork is not a paid endorsement.)

As I noted back on Groundhog's Day when the IRS started parceling out its yearly collection of the worst of tax-related crimes, this year's list started off with a definite déjà vu feel.

In fact, all the scams from 2016 made the 2017 list. Unfortunately, that staying power makes 12 this week's By the Numbers winner.

Retouching old scams: This year, as it did in 2015 and 2016, the IRS released its Dirty Dozen list in separate announcements over almost two weeks. That allowed the agency to elaborate in each news release on the tax-related criminal activity.

And while the general schemes have been disturbingly consistent, tax crooks have tweaked them somewhat from year to year.

"Taxpayers can and should stay alert to new schemes which seem to constantly evolve," warns IRS Commissioner John Koskinen. "We urge them to do all they can to avoid these pitfalls – whether old or new."

For 2017, here's the IRS' consolidated list, in the order in which they were announced, of the 12 worst tax scams, along with a summary of each.

  1. Phishing: 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.

  2. Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things. Late in 2016, an international law enforcement effort raided call centers in India where many of these scam call originated. Since then, the IRS and consumer agencies have reported a drop in such criminal calls.

  3. Identity Theft: 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.

  4. Return Preparer Fraud: Be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. However, every filing season some crooked preparers set up shop to solely to commit refund fraud, identity theft and other scams that hurt taxpayers. Be sure to check out your tax professional thoroughly to avoid falling victim to one of these bad tax preparers.

  5. 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. Also be careful in the wake of natural disasters or tragedies. Crooks often take advantage of our desire to help out those in such dire straits. Always take the time to ensure that your hard-earned money goes to legitimate and currently eligible charities. You can use IRS.gov's online Exempt Organizations Select Check to verify the tax-exempt status of charitable organizations.

  6. Inflated Tax Refund Promises: Be suspicious of anyone promising inflated refunds. Also be wary of anyone who asks taxpayers to sign a blank return, promises a big refund before looking at their 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.

  7. Excessive Claims for Business Tax 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. 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.

  8. Falsely Padding Deductions on Returns: Avoid the temptation to falsely inflate deductions or expenses on your return so that you pay less than what you owe or potentially receive larger refunds. Think twice, too, before overstating deductions such as charitable contributions and business expenses or improperly claiming credits such as the Earned Income Tax Credit (EITC) or Child Tax Credit. Such criminal tax action is why a law took effect this year requiring the IRS to hold refunds for a couple of weeks when they are the result, in whole or part, of EITC and additional child tax credit claims.

  9. Falsifying Income to Claim Tax 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, regardless of who fills it out or submits it on your behalf. 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.

  10. Abusive Tax Shelters: Don't use abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. 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, taxpayers should seek an independent opinion regarding complex products they are offered.

  11. Frivolous Tax Arguments: Don't use frivolous tax arguments to avoid paying tax. 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.

  12. 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. Taxpayers are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. The IRS offers the Offshore Voluntary Disclosure Program to enable people to catch up on their filing and tax obligations.

Don't be a scam victim: Knowing what to look out for is just the first step. Tax criminals are canny, cunning and creative. But you can beat them.

Here are three ways to avoid becoming a tax scam victim.

First, be skeptical. Don't take a caller's word for any tax claim.

Second, don't reply to any calls or emails about taxes without first confirming that the communique came from a legitimate source.

Finally, go to the tax source. If you think you might owe taxes, call the IRS directly yourself. It's better to get out in front of an overdue tax bill and make arrangements to pay Uncle Sam rather than fall for a crook's con and send him the money instead.

Good luck this tax season, in not only accurately filing your 1040, but also in avoiding all of this year's Dirty Dozen tax scams.

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