The Dirty Dozen Tax Scams – Insight Financial Strategists

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IRS Tax building I recently read the IRS Dirty Dozen Tax Scams, 2015 edition, the government’s annual guide for taxpayers to potential tax scams, so you wouldn’t have to!

The first item of interest, although at the bottom of the IRS list, are issues with various phone or email scams. “Whether it’s a phone scam or scheme to steal a taxpayer’s identity, there are simple steps [for consumers] to take to help stop these con artists,” IRS Commissioner John Koskinen says.

At the top of the list of things the IRS wants us to beware of are telephone and email scams. If someone calls claiming to be from the IRS and pressures you to give him or her money, hang up. If you receive an email from someone claiming to be with the IRS and asking for personal information or money, delete it.

The IRS also advises that taxpayers stay on the alert for identity theft, especially around tax time.

The agency doesn’t just warn the public about scammers in its annual epistle. It also reminds us to watch our own behavior and, of course, comply with all applicable tax laws.

Included on the “Dirty Dozen” tax scams, which I’m summarizing here, is Offshore Tax Avoidance. You have a responsibility under U.S. law to declare your foreign accounts to the U.S. Treasury.

In case you think you can get away with it, think twice. Federal authorities have negotiated agreements with most other countries to exchange data on foreigners owning accounts. Simply put, your ownership record of foreign accounts will be provided by foreign governments to the US government. Consider that there are substantial penalties attached to the failure to disclose. You are likely better off disclosing, if only to avoid the penalties. In an effort to give taxpayers an opportunity to come clean, the IRS offers its Offshore Voluntary Disclosure Program.

Here are some other key takeaways:

It seems obvious, but the IRS warns taxpayers not to hide taxable income by filing false Form 1099s or other fake documents. Using false documents in an attempt to reduce your tax bill or inflate tax refunds is a huge red flag, the IRS says.
The government warns against excessive claims for certain credits such as Fuel Tax Credits. “The fuel tax credit is generally limited to off-highway business use, including use in farming,” the IRS says. It is not available to most taxpayers.
The IRS wants you to stay away from anyone who promises to reduce taxes by inflating refund claims.
It says you should avoid people peddling tax shelters that sound too good to be true.
The IRS also tells you to make sure that the charities you give to are real. In particular, beware of charities that have names similar to nationally known organizations. According to the government, the irs.gov site has the tools to verify the status of charitable organizations.

In summary, be aware of all potential scams, and make sure that you yourself do not engage in behavior that the IRS considers questionable. And when considering programs that reduce taxes aggressively ask yourself the question: is it too good to be true?

(earlier versions of this posts were published on nerdwallet and the Christian Science Monitor)

Chris Chen CFP

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