There are so many tax scams out there that it takes more than one post. Three, to be precise. This is Part 2 of the Internal Revenue Service's 2018 list of the Dirty Dozen Tax Scams.
The four schemes in this post, numbers 5 through 8, are like those in the initial 2018 Dirty Dozen tax scams of 2018. They also are repeat (dis)honorees.
That's because once crooks find something that works, they keep using it. And sadly, there are enough new victims out there every year to fall for it.
Unless potential targets are warned.
To do that and keep you from being taken in by crooks looking to steal your identity and tax money, the IRS is this year again releasing separate detailed warnings on each of the 12 worst tax schemes that taxpayers may encounter.
So be on the lookout for these Dirty Dozen scams — including the four discussed here — during this filing season and throughout 2018:
- Phishing (Part 1 post)
- Phone Scams (Part 1 post)
- Identity Theft (Part 1 post)
- Return Preparer Fraud (Part 1 post)
- Fake Charities
- Inflated Refund Claims
- Excessive Claims for Business Credits
- Falsely Padding Deductions on Returns
- Falsifying Income to Claim Credits (Part 3 post)
- Abusive Tax Shelters (Part 3 post)
- Frivolous Tax Arguments (Part 3 post)
- Offshore Tax Avoidance (Part 3 post)
Old schemes, new twists: While many of these scams have appeared on the IRS' annual list in years past, the agency notes that scammers often tweak the schemes from year to year. Frequently, the crooks use new twists and variations and employ more desperate and elaborate mechanisms to swindle people out of their money.
That's the case with scams 5 through 8. Highlights are noted below, along with a link that shows up in the numbered list above and the title to the synopses.
5. Fake Charities
In times of trouble, most people want to help. Unfortunately, the unscrupulous few among us take advantage of compassionate tendencies. Crooks create fake charities and then try to attract donations from unsuspecting contributors, using a charitable reason and a tax deduction as bait.
Some phony charities use names or websites that sound or look like those of real and respected organizations. If you have any questions about a charity and the group seeking your contribution won't answer them, don't give. Legitimate nonprofits are happy to prove that they are really doing the good work they advertise.
You also can use the IRS' online search feature, Exempt Organizations Select Check, to find genuine, qualified charities to which donations may be tax-deductible.
6. Inflated Refund Claims
If you're due a tax refund, you want to make sure it's as much as you're legally due. The key word here is legally. But some shady tax preparers are at it again this year, duping people into making claims for fictitious rebates, benefits or tax credits in order to get a bigger refund.
These purveyor of fraudulently inflated refund claims typically use flyers, advertisements, phony storefronts or word of mouth to attract victims. They may even make presentations before community groups or at churches.
And, warns the IRS, these scammers frequently prey on people who do not have a filing requirement, such as those with low incomes or older Americans. Other prime targets are non-English speakers who may or may not have a requirement to file a tax return.
7. Excessive Claims for Business Credits
Shady tax preparers continue to wreak havoc, warns the IRS, luring business clients with two common credits to reduce their companies' tax bills, the research credit and the fuel tax credit. Both credits have legitimate uses, but there are specific criteria that taxpayers need to qualify for the tax breaks.
The research credit, or commonly called the R&D credit for research and development, has been around since 1981 as a way to provide a tax incentive for American industry to invest in research and experimentation. In most cases where the IRS sees improper claims for this credit is where there's a failure by the business to participate in or substantiate qualified research activities and/or a failure to satisfy the requirements related to qualified research expenses.
As for the fuel tax credit, it's generally limited to off-highway business use or use in farming. Consequently, the credit is not available to most taxpayers. Still, the IRS routinely finds unscrupulous tax return preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds.
I know running a business can be a financial challenge sometimes, but don't fall for these business credits if you don't qualify. It will cost you more in the long run.
8. Falsely Padding Deductions on Returns
Deductions are a popular way to reduce your taxable income and lower your ultimate tax bill. That's why con artists, too frequently in the guise of tax preparers, often encourage filers to inflate their deductible amounts.
Common deduction areas targeted by unscrupulous tax professionals include overstated charitable contributions and inflated business expenses.
If a tax preparer suggests bumping up a deductible amount, remember that when the IRS discovers such false claims, you the taxpayer could face significant significant penalties along with the interest-accruing back taxes you didn't pay through the use of this scam advice.
Stay tuned! As we work our way through the latest Dirty Dozen tax scams, the unifying theme in all three posts — tax tricks 1 through 4 as the 2018 list kicked off, today's 5 through 8 cons and, looking into the future (tax magic!) the 9 through 12 tax schemes — is skepticism.
If something seems too good to be true or feels a little sketchy, trust your gut and double check with the IRS. That's especially important in this digital age when it's so easy to be quickly conned.
"We urge taxpayers to watch out for these tricky and dangerous schemes," said Acting IRS Commissioner David Kautter in announcing this year's 2018 tax scam list. "Phishing and other scams on the 'Dirty Dozen' list can trap unsuspecting taxpayers. Being cautious and taking basic security steps can help protect people and their sensitive tax and financial data."
For more on tax security measures, check out my blog post "items of interest" links below, as well as going to the ol' blog's archives and clicking on "scams" and/or "identity theft."
You also can review the identity theft and tax fraud prevention tips prepared by the Security Summit, a collaborative effort between the IRS, states and the private-sector tax community.
You also might find these items of interest:
- 5 signs that 'IRS' caller is a crook
- Don't become a tax identity theft victim
- 7 online security steps to take year-round
- 4 tax cyber security tips from IRS, NY tax officials
- How to tell if that IRS agent on your porch is legit
- 5 ways to protect your tax identity and refund money
- Fear you might be a tax ID theft victim? Here's what to do
- Protecting your financial & tax data from Equifax (and tax) hackers
- Don't fall for tax ID theft phishing scam from crooks impersonating tax software companies