The IRS’s annual ‘Dirty Dozen’ list includes common tax scams that often peak during the tax filing season. The IRS recommends that taxpayers be aware so they can protect themselves against claims that sound too good to be true. Taxpayers who buy into illegal tax scams can end up facing significant penalties and interest and even criminal prosecution.
The tax scams that made the Dirty Dozen list this filing season are:
Identity Theft. Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Combating identity theft and refund fraud is a top priority for the IRS. The IRS’s ID theft strategy focuses on prevention, detection and victim assistance. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft. This compares to $14 billion in 2011. Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should immediately contact the IRS so the agency can take action to secure their tax account. If you have received a notice from the IRS, call the phone number on the notice. You may also call the IRS’s Identity Protection Specialized Unit at 800-908-4490. Find more information on the identity protection page on IRS.gov.
Phishing. Phishing typically involves an unsolicited email or a fake website that seems legitimate but lures victims into providing personal and financial information. Once scammers obtain that information, they can commit identity theft or financial theft. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. If you receive an unsolicited email that appears to be from the IRS, send it to phishing@irs.gov.
Return Preparer Fraud. Although most return preparers are reputable and provide good service, you should choose carefully when hiring someone to prepare your tax return. Only use a preparer who signs the return they prepare for you and enters their IRS Preparer Tax Identification Number (PTIN). For tips about choosing a preparer, visit www.irs.gov/chooseataxpro.
Hiding Income Offshore. One form of tax evasion is hiding income in offshore accounts. This includes using debit cards, credit cards or wire transfers to access those funds. While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements taxpayers need to fulfill. Failing to comply can lead to penalties or criminal prosecution. Visit IRS.gov for more information on the Voluntary Disclosure Program.
“Free Money” from the IRS & Tax Scams Involving Social Security. Beware of scammers who prey on people with low income, the elderly and church members around the country. Scammers use flyers and ads with bogus promises of refunds that don’t exist. The schemes target people who have little or no income and normally don’t have to file a tax return. In some cases, a victim may be due a legitimate tax credit or refund but scammers fraudulently inflate income or use other false information to file a return to obtain a larger refund. By the time people find out the IRS has rejected their claim, the promoters are long gone.
Impersonation of Charitable Organizations. Following major disasters, it’s common for scam artists to impersonate charities to get money or personal information from well-intentioned people. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. Taxpayers need to be sure they donate to recognized charities.
False/Inflated Income and Expenses. Falsely claiming income you did not earn or expenses you did not pay in order to get larger refundable tax credits is tax fraud. This includes false claims for the Earned Income Tax Credit. In many cases the taxpayer ends up repaying the refund, including penalties and interest. In some cases the taxpayer faces criminal prosecution. In one particular scam, taxpayers file excessive claims for the fuel tax credit. Fraud involving the fuel tax credit is a frivolous claim and can result in a penalty of $5,000.
False Form 1099 Refund Claims. In this scam, the perpetrator files a fake information return, such as a Form 1099-OID, to justify a false refund claim.
Frivolous Arguments. Promoters of frivolous schemes advise taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These are false arguments that the courts have consistently thrown out. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.
Falsely Claiming Zero Wages. Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, scammers use a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 to improperly reduce taxable income to zero. Filing this type of return can result in a $5,000 penalty.
Disguised Corporate Ownership. Scammers improperly use third parties form corporations that hide the true ownership of the business. They help dishonest individuals underreport income, claim fake deductions and avoid filing tax returns. They also facilitate money laundering and other financial crimes.
Misuse of Trusts. There are legitimate uses of trusts in tax and estate planning. But some questionable transactions promise to reduce the amount of income that is subject to tax, offer deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits. They primarily help avoid taxes and hide assets from creditors, including the IRS.
For more on the Dirty Dozen, contact Tax On Wheels, LLC at 803 732-4288 and see IRS news release IR-2013-33.
Additional IRS Resources:
Columbia, SC (March 14, 2013) — The March 31, 2013 deadline to enroll with Experian’s ProtectMyID credit monitoring service is fast approaching and the SC Department of Revenue (DOR) is reminding taxpayers to sign up either online or by phone for the one-year, free service.
Individuals who have not already enrolled with ProtectMyID are urged to do so before the March 31, 2013 deadline by visiting www.protectmyid.com/scdor and entering the code “SCDOR123” or by calling 1-866-578-5422, if you do not have internet access. “We encourage consumers to take advantage of all of the free tools available to mitigate the effects of the DOR breach,” said Carrie Grube Lybarker, Administrator of the SC Department of Consumer Affairs.
ProtectMyID is designed to detect, protect and resolve potential identity theft, and includes daily monitoring of all three credit bureaus. With the complimentary one-year enrollment, individuals will be alerted to any changes to his or her credit file, and will also have access to fraud resolution agents beyond the enrollment period.
The ProtectMyID one-year enrollment includes:
According to DOR Director Bill Blume, “With approximately 1.3 million individuals currently enrolled with Experian’s ProtectMyID, DOR continues to encourage all South Carolina taxpayers to sign up before the March 31 deadline, and those who have already enrolled are urged to advise family members and friends to enroll as well. ProtectMyID is offered as a free service to best monitor their credit files. The representatives with both the Department of Consumer Affairs and ProtectMyID are proven partners with DOR and are willing to assist all taxpayers.”
Upon enrollment with ProtectMyID, taxpayers who claim minors as dependents should receive notification from Experian by email or letter with instructions on how to sign up minors for Experian’s Family Secure plan. The enrollment deadline for Family Secure is May 31, 2013.
For more information on protecting yourself against identity theft, visit the Department of Consumer Affair’s website at www.consumer.sc.gov or call 1-800-922-1594. Information related to the security breach can be found on DOR’s website at www.sctax.org.
You may also contact Tax On Wheels, LLC at 803 732-4288 if you need assistance with Identity Theft issues surrounding your tax returns.
The IRS receives thousands of reports every year from taxpayers who receive emails out-of-the-blue claiming to be from the IRS. Scammers use the IRS name or logo to make the message appear authentic so you will respond to it. In reality, it’s a scam known as “phishing,” attempting to trick you into revealing your personal and financial information. The criminals then use this information to commit identity theft or steal your money.
The IRS has this advice for anyone who receives an email claiming to be from the IRS or directing you to an IRS site:
Here are five other key points the IRS wants you to know about phishing scams.
1. The IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information;
2. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts;
3. The address of the official IRS website is www.irs.gov. Do not be misled by sites claiming to be the IRS but ending in .com, .net, .org or anything other than .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on their site and report it to the IRS;
4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. Forward a suspicious email to phishing@irs.gov;
5. You can help the IRS and other law enforcement agencies shut down these schemes. Visit the IRS.gov website to get details on how to report scams and helpful resources if you are the victim of a scam. Click on “Reporting Phishing” at the bottom of the page.
Tax On Wheels, LLC is available to assist you with your questions about the legitimacy of contacts from the IRS. Please call us a 803 732-4288.
Additional IRS Resources:
Protecting taxpayers and their tax refunds from identity theft is a top priority for the IRS. This year the IRS expanded its efforts to better protect taxpayers and help victims dealing with this difficult issue.
When your personal information is lost or stolen, it can lead to identity theft. Identity thieves sometimes use your personal information to file a tax return to claim a tax refund. Then, when you file your own tax return, the IRS will not accept it and will notify you that a return was already filed using your name and social security number. Often, learning that your return was not accepted or receiving a contact from the IRS about a problem with your tax return is the first time you become aware that you’re a victim of identity theft.
How to avoid becoming an identity theft victim.
How to know if you are, or might be, a victim of identity theft.
Your identity may have been stolen if the IRS notifies you that:
Respond quickly using the contact information in the letter you received from the IRS so that we can begin to correct and secure your tax account.
If you think you may be at risk for identity theft due to a lost or stolen purse or wallet, questionable credit card activity, an unexpected bad credit report or any other way, contact the IRS Identity Protection Specialized Unit toll-free at 1-800-908-4490. The IRS will then take steps to secure your tax account. The Federal Trade Commission also has helpful information about reporting identity theft.
If you have information about the identity thief who used or tried to use your information, file a complaint with the Internet Crime Complaint Center.
For more information – including how to report identity theft, phishing and related fraudulent activity – visit the Identity Protection home page on IRS.gov and click on the Identity Theft link at the bottom of the page.
IRS Works to Protect Taxpayer Refunds, Detect and Resolve Identity Theft Cases
The IRS takes identity theft-related tax fraud very seriously and realizes that identity theft is a frustrating process for victims. By late 2012, the IRS assigned more than 3,000 employees — more than double from 2011 — to work on identity theft-related issues.
The IRS continues to enhance its screening process to stop fraudulent returns. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.
The IRS recently announced that a year-long nationwide focus on tax refund fraud and identity theft has resulted in more than 100 arrests in 32 states and Puerto Rico. In January 2013 alone, the IRS targeted 389 identity theft suspects resulting in 734 enforcement actions. To learn more, see IRS Intensifies National Crackdown on Identity Theft on IRS.gov.
Additional IRS Resources:
Please contact Tax On Wheels, LLC at 803 732-4288 if you have questions about Identity Theft.
A New York Times article describing a cyber espionage unit, allegedly affiliated with the Chinese Army, that has made significant efforts towards infiltrating the computer networks of anything in the US that can be penetrated. The article is apparently based on a report released by Mandiant Corporation (PDF).
The New York Times article does not draw a direct line between the Chinese government and the South Carolina Department of Revenue hacking incident, but you do the math and see what you get.
Tax On Wheels, LLC received the following message from the South Carolina Department of Revenue and we pass it along for your consideration.
Tax Professionals: Encourage Electronic Filing This Tax Season
The South Carolina Department of Revenue places the highest priority on safeguarding taxpayer information entrusted to it by all taxpayers. The electronic filing of tax returns with the Department has always been, and will remain, a safe, secure and efficient means of filing.
In light of the recent computer security breach, it is important to note that no data was lost in the transmission of tax information upon submission to or from the Department. Confidential information that was stored on the Department’s computer servers was hacked into and then stolen in a criminal act.
Since this incident, measures have been taken to heighten the protection of confidential data so as to avoid future security compromises, and upon recommendations from cyber-security experts, additional security safeguards have been implemented and will continue to be further established in the future.
Taxpayers are safe and secure in filing their state tax returns electronically as it is the most efficient means of filing for taxpayers. As tax professionals, you are aware that with electronic filing comes many advantages for the taxpayer including receiving a refund in a shorter amount of time as well as less opportunity for errors.
Throughout the individual income tax filing season, information will be provided to the public as it is available. Our goal is to keep taxpayers informed and aware of any helpful information regarding the filing of tax returns and ensure to the public that filing electronically with the Department is secure. Current information that may be useful throughout the individual income tax season is available online at www.sctax.org under the “Individual Income” link.
This item was originally posted on November 23, 2012. As we enter tax season this has become a popular topic once again and we are re-posting this for your convenience.
It took a couple of weeks for the public to be notified of the theft of South Carolina tax information and a couple more weeks for useful information to begin to trickle out. With that as the foundation of this issue it is apparent that speed is not going to save the day. So there really is no need to get into a panic and rush through anything. For those of us who have had our tax information stolen this will be a race of endurance, perhaps a lifelong struggle to secure our identity.
The SCDOR cyber theft heralds the end of a world where there is even a semblance of privacy. If it ever did exist, privacy is certainly a thing of the past. South Carolina is simply the biggest fish to get caught so far. Even before the SCDOR hacking was announced to the public, a major insurance company contacted authorities regarding the theft of several thousand social security numbers in a similar cyber theft incident. Folks, we are simply not in Kansas anymore.
Before we provide our list of recommended actions to protect yourself from these crimes, I would like to ask you a few questions.
While you are chewing on that let’s explore the grassy knoll a bit more and list a few things that I think you can do to protect yourself not only from the criminals working outside the system but also from the fine upstanding corporations who trade our identities like so many marbles after school at the neighborhood playground.
This list is still evolving and may grow as we find new information so check back often.
If you need assistance with the issues raised in this post please feel free to contact Tax On Wheels, LLC at 803 732-4288.
A few months have now past since the big hacking incident at the South Carolina Department of Revenue revealed the social security numbers of millions of South Carolina taxpayers. While many of us were intently focused on this issue from day one, many others actually have a life and may have missed a few beats.
South Carolina ETV conducted a recap of sorts during an episode of their weekly program “The Big Picture” hosted by Charles Beirbauer. This program was broadcast shortly after this incident came to public attention. So if you feel that you need a bit of a refresher on the details of the hacking incident as we begin tax season, or if you want to gather information on protecting yourself from identity theft, you may want to view the archived broadcast here.
Columbia, SC (January 15, 2013) — The South Carolina Department of Revenue (SCDOR) is joining the South Carolina State Library and the South Carolina Department of Consumer Affairs (SCDCA) to provide taxpayers with informational material on minimizing the possibility of identity theft.
Available to all South Carolina taxpayers, the series of webinars held January 16, 17 and 18 titled The Truth About Identity Protection will address taxpayers’ concerns regarding security breaches, credit reports, and enrolling in credit monitoring services. Staff members from SCDOR, the State Library, and SCDCA will provide webinar attendees with detailed information and will also answer questions and address concerns during this online session.
It is encouraged that libraries, companies, and organizations offer sessions to staff members or the public by showing the webinar in a meeting room or computer lab. Individuals can also participate from home via the Internet. To register, visit the South Carolina State Library’s calendar of events or select from the dates below.
January 18, 2013 10:00-11:30am
Please contact Tax On Wheels, LLC at 803 732-4288 if you need assistance with this subject.
The South Carolina Department of Revenue has begun sending out letters notifying taxpayers about the theft of social security numbers and other information. The letters confirm that only electronic filers are affected. Taxpayers who have already signed up for the state provided identity theft protection are supposed to be notified by email.
Click here to review the details surrounding this issue and click here to read our recommended action list to help protect yourself from the risk of identity theft. Or feel free to contact Tax On Wheels, LLC at 803 732-4288 if we may assist you with this issue.