Filing a tax return is something every income-earning American has to do.
Because scammers and identity thieves know you'll be filing taxes, however, this can put you at great risk to have your identity or tax refund stolen, and your personal information compromised.
Not only can scammers cheat you out of your tax refund, they can try to convince you to lie on your return and commit tax fraud.
The IRS does take action against scammers and other tax-season predators through its Criminal Investigation unit, working in conjunction with the Department of Justice.
But a taxpayer who is the victim of tax fraud could still have to deal with losing his tax refund and needing to correct a misfiled or fraudulent tax return.
To help taxpayers protect themselves, the IRS releases its annual list of "Dirty Dozen" tax scams. Taxpayers can review this list so they can avoid becoming a victim or committing tax fraud themselves.
The IRS warns taxpayers against fake phone calls from fraudsters impersonating IRS representatives. Beware if a caller claims to be from the IRS, especially if the caller threatens you. If you receive such a call, hang up immediately and contact the IRS to report the call.
Scammers will often send emails or create sites that appear to be legitimate, from the IRS or tax preparation software. Beware of all strange emails and links, especially since the IRS does not send unsolicited emails, and make sure to only enter personal information through an official and secure site.
Identity theft is the main cause of taxpayers losing out on their tax refund, as criminals will use a taxpayer's Social Security number and other personal information to file a fraudulent tax return and steal a refund. In 2013, $5.2 billion worth of taxpayers' refunds were stolen, according to the United States Government Accountability Office.
The IRS warns taxpayers to watch out for "unscrupulous return preparers … who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers." While the vast majority of professional tax preparation services are legitimate, this can be a particular blind spot for taxpayers as 60% of people file with the help of a tax professional, reports the IRS.
Before hiring a tax preparer, ask to see an IRS-assigned Preparer Tax Identification Number (PTIN) as well as other credentials and qualifications.
This is a scam that taxpayers perpetrate by trying to hide income or assets offshore to dodge taxes. The IRS warns against this, and urges taxpayers with offshore assets to file with the IRS's Offshore Voluntary Disclosure Program to resolve any tax issues and ensure compliance with U.S. tax law.
A big red flag that taxpayers should beware is any tax preparer promising them huge refunds before reviewing their financial records or charging a percentage of the refund instead of a flat preparation fee. Taxpayers should also never sign a blank return.
Make sure the charity you're donating to is real.
Taxpayers should watch out for charity scams all year round in which fraudsters pose as charitable organizations, often using names very similar to legitimate charities, to solicit donations. But taxpayers might not realize that the organization they gave to was fake before trying to deduct the donation on their tax returns. The IRS provides tools on its site for taxpayers to verify the status of charitable organizations.
Falsifying income forms, like a 1099, to hide taxable income is illegal. Taxpayers should never do so, and should also drop any tax preparer who suggests faking any information on a return.
The IRS said that taxpayers should avoid questionable tax shelters and tax-avoidance schemes, as they could be scams or cause the taxpayer to make an unlawful move. If you are ever questioning a tax shelter, tax advice or product, get an independent opinion.
It can be tempting to inflate or falsify income claims on a tax return to qualify for larger tax credits, especially for those who are self-employed. But the IRS condemns this illegal action and warns taxpayers that anyone who tries to talk them into doing so is likely a scammer.
Many taxpayers might mistakenly try to claim fuel tax credits, not knowing that this credit is "limited to off-highway business use, including use in farming," reports the IRS. Taxpayers should avoid mistakenly claiming fuel tax credits as it's a big red flag for the IRS and could trigger an audit.
Every American is required to pay his fair share and uphold his responsibility to pay taxes. Taxpayers will get in hot water if they try to make "unreasonable or outlandish claims" to contest their responsibility to pay taxes or file a tax return. Filing a frivolous tax return carries a hefty $5,000 penalty.