MARQUETTE - The Internal Revenue Service is reminding taxpayers to use caution to protect themselves against a wide range of scams ranging from IRS "free money" claims to various types of fraud involving Social Security.
The agency recenty released its annual "Dirty Dozen" list of tax scams, which ranked the top three dangers to taxpayers as identity theft, phishing and tax return preparer fraud. The agency said the scams are perpetrated against the public throughout the year.
Marquette City Police Detective Capt. Gordon Warchock said some of the scams included in the IRS list are affecting local residents.
"Identity theft, Internet fraud, people sending money overseas for loved ones, are being handled commonly by our department," Warchock said. "It's absolutely increasing. There's a lot more crime being committed over the Internet than ever before."
The Dirty Dozen list included:
- Identity Theft: In addition to a law enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes. The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer's identity and personal information to file a tax return and claim a fraudulent refund. An IRS notice informing a taxpayer that more than one return was filed in the taxpayer's name or that the taxpayer received wages from an unknown employer may be the first tip off the individual has been victimized.
- Phishing: Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft. Unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System, report it by sending it to email@example.com.
- Return Preparer Fraud: The IRS said most return preparers provide honest service to their clients. But as in any other business, there are also some who prey on unsuspecting taxpayers. The IRS said questionable return preparers have been known to skim off their clients' refunds, charge inflated fees for services and attract new clients by promising guaranteed or inflated refunds.
Signals the IRS said to watch for to detect an unscrupulous return preparer would include that they do not sign the return or place a Preparer Tax identification Number on it; do not give you a copy of your tax return; promise larger than normal tax refunds; charge a percentage of the refund amount as preparation fee; require you to split the refund to pay the preparation fee; add forms to the return you have never filed before; encourage you to place false information on your return, such as false income, expenses and/or credits.
- Hiding Income Offshore: Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose. The IRS said that while there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled.
- "Free Money" from the IRS and Social Security: Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. The IRS said these schemes are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.
There are a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return. Intentional mistakes of this kind can result in a $5,000 penalty.
- False or Inflated Income and Expenses: Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam.
- False Form 1099 Refund Claims: In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount, to justify a false refund claim on a corresponding tax return.
- Frivolous Arguments: Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe.
- Falsely Claiming Zero Wages: Filing a phony information return is an illegal way to lower the amount of taxes an individual owes.
- Abuse of Charitable Organizations and Deductions: IRS examiners continue to uncover the intentional abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property.
- Disguised Corporate Ownership: Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business. These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and financial crimes.
- Misuse of Trusts: For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, the IRS said some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes.
John Pepin can be reached at 906-228-2500, ext. 206.