‘Baker’s dozen’: IRS recommendations for the protection of 12 schemes, tax fraud

No one likes to pay taxes. But given the choice between paying taxes and losing money as a result of fraud, most people will prefer the first option. Unfortunately, this does not prevent thousands of Americans to give millions of dollars in tax scams, says GOBankingRates. Here are the most common methods of tax fraud and methods of protection against them.

'Чертова дюжина': рекомендации IRS по защите от 12 схем налогового мошенничества

Photo: DepositphotosAccountant filling the tax

Taxes is an area where fraud detection becomes much more complicated due to the complexity of the tax system. Many Americans are not confident in their understanding of how the IRS (IRS) or as charged by their taxes, so criminals have ample opportunity to use these knowledge gaps.

The IRS annually makes a list called “Baker’s dozen” with a detailed description 12 of the popular schemes of tax fraud. If you will be able to detect signs of fraud early on, it will be much easier to avoid the pitfalls, which dearly cost the tax victims of criminals.

Scheme 1. Phishing

If you receive a letter by email which stated that it was sent from an official source, but in fact it is attempted fraud, you are not alone. In 2018, the IRS noted that fraud of this type has a new scheme — now the thieves use stolen personal information for filing fraudulent tax returns on your behalf, and will then impersonate the IRS or the Agency on gathering of payments to receive funds after their direct credited to your Bank account.

  • How to protect yourself

It’s pretty simple: do not send personal information to those who sends you an email asking about it. According to the IRS, the service “will never initiate contact with you by e-mail concerning accounts or tax returns”. If the “IRS” asking you to send your data on the annual income or the social security number is definitely fake. And if you are able to find out who it sends immediately. Also, be careful when entering your personal information on the sites that you will be redirected from the email. Many phishing scammers use fake web portals: people think that get to the IRS website and enter personal information.

Scheme 2. Phone fraud

In the old version of phishing used the phone, and this method still works quite well. Scammers may call you and impersonate an IRS agent or a tax preparer, asking to disclose personal information or send money, often claiming that you have an unpaid tax bill, threatening arrest, deportation or a lawsuit. The IRS notes that there are many variations, because the perpetrators frequently change tactics to achieve success.

  • How to protect yourself

Every time you get a sudden phone call is to be vigilant — no matter what you ask. The IRS carefully inform taxpayers that the service representatives will never call to demand immediate payment using a particular payment method. In addition, the official agent is always first send you a bill by mail before to contact you by phone. The legitimate agents of the IRS will also never threaten to immediately call the police, to demand payment without giving the taxpayer the opportunity to question or appeal the amount, will not ask for debit or credit card by phone or to call about the unexpected tax refund. If someone on the phone makes any of the foregoing, it is a clear sign of fraud.

Scheme 3. Identity theft

Despite the fact that in recent years the number of tax-related identity theft dropped in 2018 was 48 710 cases compared to 75 797 cases in 2017 — a lot of people still become victims to the threat of fraud. If a criminal gets hold of your social security number or individual taxpayer identification number (ITIN), he can impersonate you and to file a tax return to fraudulently claim a refund.

  • How to protect yourself

The first step is understanding how valuable your personal information to fraudsters. Second, the need to put a lot of effort to protect her. Learn how to recognize phishing emails and report them, ensure that software for security and firewall regularly updated, used strong passwords and encrypt sensitive files such as tax returns of previous years, which could be used to steal information. Do not carry social security card, if you have a specific need for it that someone might catch a glimpse of her or, even worse, you may lose it.

Scheme 4. Fraud, preparation of declarations of

A significant portion of Americans are not engaged in their own taxes — they rely on specialists. And although most experts do honest work for honest pay, there are those who abuse trust. The person who prepares your tax documents should be ready to answer all questions about your finances. Otherwise, it may be a fraud, which can involve your data in the criminal scheme.

  • How to protect yourself

You should not hesitate to ask questions of your tax assistant, ask him for details, which can confirm that he is really professional is handling your taxes. Ask that person whether he has a tax ID the IRS (OF). Paid preparers must register with the IRS, so they need OF for inclusion in reports. You should pay attention to those about whom there is little available information. Use resources such as the Better Business Bureau or State Board of Accountancy to conduct due diligence before transferring to the person any documents.

If your specialist performs several tasks — for example, he’s an accountant and/or CPA, don’t forget to request a final detailed list of your data, financial reports and other documents. This will help you to find any suspicious charges or charges that you did not expect.

Scheme 5. Fake charities

There are people who do not stop charity — criminals often use someone else’s generosity to their advantage. Luring you honorable cause and a promise of tax returns, fake charities will convince you to take the money and then try to claim it with your taxes in April. Or, if you’re really unlucky, they can even use their own websites as a means to steal personal information, which will use it to commit other types of fraud or stealing your identity.

  • How to protect yourself

The IRS offers a search feature called Exempt Organizations Select Check, to determine whether a charitable organization is legitimate or not, so you can spend it through any group to confirm the legality. Should also request an employer identification number (EIN), which any real organization should provide no problems. Pay attention to the following indications: the group uses the name, very reminiscent of a well-known organization that mimics the look of its website and logo. Never send cash by mail and do not disclose information about your credit card the one who will contact you to ask for a donation.

Scheme 6. High expectations from the tax refund

Many dubious tax assistants or just criminals posing as accountants, may try to lure you by stating that they are able to provide huge amounts of money in the form of a tax refund. After they convince you to take their services, they will cheat you and make false claims for benefits or credits, you can submit a fake Declaration or steal your tax refund.

  • How to protect yourself

This type of fraud is often aimed at groups of people who are not required to file tax returns — the elderly or people with low income. So if you’re in this group, be especially careful if someone promises you a large refund. In any case, remember, if something sounds too good to be true — most likely is a fraud. If your “helper” promises a compensation far exceeding what you usually get, he either tries to interest you in their services, or intends to violate the law to obtain information or money. Do not hesitate to unverified entities for tax help.

Scheme 7. Unacceptable business loans

Scammers posing as tax inspectors, can convince you to submit unacceptable applications to receive the business loans, which you don’t actually have rights. All this may look great, but as a rule, in the end you pay a heavy fine for improper credit, while your “assistant” will disappear with a huge Commission that you took.

  • How to protect yourself

The IRS allocates two credit — credit on research and a tax credit for fuel — as particularly common in these fraudulent schemes. Both are legitimate tax advantages that you can get, but they have a number of specific criteria that must be met by the taxpayer. If your “helper” push you to getting these loans, it can be a serious signal to escape. Learn what is required for each type of loan — not to mention the credentials of your “helper”. And, if you do not meet the requirements, please report this person to the IRS.

Scheme 8. Incorrect deductions

Adding to your legal deductions from the tax return those that you do not qualify, you may get large troubles, which may include fines of up to 20% of the amount of the deduction and a fine of $5000, if the IRS finds that you filed a “frivolous” return and/or 75% of the outstanding amount, if you show that you are underpaid.

  • How to protect yourself

This error is a little easier to avoid than most others, because the issue is under your control, if you prepare tax returns yourself. Read carefully all the requirements for any deduction before it is done. Consider filing your return using one of the many variants of software to prepare taxes. There are many free options, and if there is a large discrepancy between what, according to the program, you can subtract the fact that in this direction makes your tax assistant, be sure to ask for an explanation before submitting an application.

Scheme 9. Falsifying income to obtain loans

Although this seems counterintuitive, in some cases, the attempt to make it appear that you earned more money than you really can help to get a larger tax refund in certain situations. Namely, large recoverable taxes such as income tax, can bring higher return for large earnings.

  • How to protect yourself

It is easy to avoid fraud of your own income, but it is worth noting that fraudsters will sometimes try to cheat the law-abiding taxpayers in these situations. The most common method involves a fake report form income 1099-MISC, which allegedly issued large financial company such as a Bank or mortgage company from which the taxpayer already has a relationship, and can often include fake form 56 — Notice Concerning Fiduciary Relationship. If someone offers you a way to quickly capitalize on these two forms, be careful.

Scheme 10. Frivolous tax arguments

No, it is not a description of those 15 minutes that you and your colleagues spent on the struggle whether to use blue or black pen to complete the form 1040. This is an attempt to avoid paying legitimate tax account, resulting in erroneous legal arguments. Although you have the legal right to appeal any tax liabilities you may face with people who propose to put forward “groundless and frivolous claim” that may result in significant tax penalties.

  • How to protect yourself

There is a reason why the taxes are outlined along with death as two factors of the inevitability for anyone. The one who insists on his “reliable” way to help you get rid of taxes through the courts is probably not acting in your best interest. Especially if the proposal involves cost. There are almost no circumstances under which you will be able to avoid the tax, but if in doubt, get a second opinion from a CPA or attorney before you file anything.

Scheme 11. Tax havens

There are many legitimate ways of hiding income, which, perhaps, should not be legal, but there are also many illegal ways to create tax shelters, in particular, using the section 831 (b) of the Tax code to create a “refuge”, which is impersonating an insurance company. Despite the fact that it is difficult, insurance tax havens provide legitimate insurance companies a way to manage risk, not counting the premium as income. But this structure can be used, in fact, faking insurance policies with inflated premiums to benefit from a tax loophole.

  • How to protect yourself

If your accountant describes the process of tax evasion or establishing a small insurance company solely in order to avoid paying the required amount or your insurer’s no data that will help you to collect more information, proceed with extreme caution. This can be especially important if you own your own business, so make sure you check that your “assistant” is doing on your behalf.

Scheme 12. Offshore

Using unregistered accounts in other countries to hide money from the IRS is illegal, although quite common among the richest Americans. In fact, Offshore voluntary disclosures, which opened in 2009 and ended in September 2019, has collected more than $ 11 billion from more than 50,000 disclosures of such cases. However, a violation of the law is no excuse just because many others do it.

  • How to protect yourself

Most likely, if you are doing this voluntarily. In this case, stop. However, this does not mean that your accountant or accounting — can play on free rules. So make sure you have at least a basic understanding of what they do with your money abroad. There are legitimate ways to keep the money abroad, but if you know about these accounts the IRS doesn’t know, you’re probably breaking the law.