In this time of great change, it’s possible to find peace in the things that remain constant — one of them being that someone will always try to manipulate tax files to steal money. The IRS again this year offers its annual and updated list of Dirty Dozen scams, a variety of common schemes that peak during filing season. Some are perpetrated by taxpayers who know they are taking liberties. In other cases, scammers have convinced clients there are loopholes for their own profit.
Here they are, in reverse order.
Tourists sit at a restaurant on the beach in Koh Phangan, Surat Thani, Thailand, on Wednesday, Jan. 18, 2017. Tourist arrivals are forecast at 34.1 million this year, up 5 percent from 2016 but down from an earlier projection of 36.3 million, according to the Bank of Thailand. Photographer: Brent Lewin/Bloomberg
12. Shorely you can’t be serious?
Hiding cash in unreported offshore accounts is a perennial favorite of those who seek to avoid paying taxes. The IRS is on to the scam. Since the first Offshore Voluntary Disclosure Program opened in 2009, there have been more than 55,800 disclosures and the agency has reaped more than $9.9 billion from this initiative. Stick to vacations only in faraway lands.
Visitors and tourists walk near the Basilica in St Peter's Square in Vatican City on Tuesday, Feb. 17, 2015. Pope Francis, the leader of the world's 1.2 billion Catholics, has boosted oversight and ordered a sweeping overhaul of the Holy See's financial system by establishing a secretariat for economic issues, appointing a special commission to scrutinize the Vatican bank's activities and bolstered efforts to comply with international anti-money laundering rules. Photographer: Alessia Pierdomenico/Bloomberg
11. “Thank goodness I don’t have to pay taxes!”
11) Ever have a client refuse to pay taxes on religious or moral grounds, or one who thought that only government employees were subject to federal income tax? Taxpayers should avoid making outlandish legal claims to get out of paying up. The tab for filing a frivolous return is $5,000 — plus the risk of having the excuse show up as an example on a future IRS Dirty Dozen list.
A slow motion video is played after a 2016 Nissan Motor Co. Versa, right, is test crashed into a 2015 Nissan Motor Co. Tsuru at a combined closing speed of 80mph (129km/h) inside Insurance Institute for Highway Safety (IIHS) headquarters in Ruckersville, Virginia, U.S., on Thursday, Oct. 27, 2016. The Versa, sold in the United States and rated Good by the IIHS, and the Tsuru, sold in Mexico and rated Zero Stars by the New Car Assessment Programme for Latin America and the Caribbean (Latin NCAP), test highlights the difference in safety standards between two base line sedan models sold by the same manufacturer in different countries. Photographer: Andrew Harrer/Bloomberg
10. Not in good hands at all
10) For the third consecutive year, the IRS places abusive micro-captive insurance tax shelters on its list. Yes, tax law generally allows businesses to create “captive” insurance companies to protect against certain risks. In abusive “micro-captive” structures, scammers persuade owners of closely held entities to participate in schemes that lack many of the attributes of genuine insurance.
A tax calculation table is displayed in a U.S. Department of the Treasury Internal Revenue Service (IRS) 1040 Individual Income Tax return instruction book for a photograph in Tiskilwa, Illinois, U.S., on Tuesday, Feb. 25, 2014. The deadline for filing individual tax returns in the U.S. is Tuesday, April 15, 2014. Photographer: Daniel Acker/Bloomberg
9. Living proof
“Taxpayers should ensure all the information they provide on their tax return is accurate,” says IRS Commissioner John Koskinen, in a statement. Maybe nowhere on a return should a taxpayer tow the bottom line more than when reporting income. Fudging here to qualify for credits again makes the Dirty Dozen; the IRS also warns against schemes disguised as a debt payment option for credit cards or mortgage debt.
Asayo Sakai, a former nurse and housewife who was diagnosed with Alzheimer's disease almost 10 years ago, pets a cat that her daughter Akiko takes care of in their apartment in Osaka, Japan, on Thursday, Aug. 6, 2014. While other countries are aging, none have done so as rapidly as Japan, where an estimated 8 million people suffer from dementia or show early signs of developing the disease. Photographer: Noriko Hayashi/Bloomberg *** Local Caption *** Asayo Sakai
8. “I can deduct my cat’s psychotherapy, right?”
The Dirty Dozen wags a finger at overstating deductions such as charitable contributions, padding business expenses or including undeserved credits. The penalties are big and scary: 20% percent of the disallowed amount for filing an erroneous claim for a refund or credit, $5,000 if the IRS determines a taxpayer has filed a “frivolous tax return,” and a possible penalty of 75% of the amount owed. Better a taxpayer’s cat just stays depressed.
Gas prices are displayed as cars drive past an Exxon Mobil Corp. station in Cincinnati, Ohio, U.S. on Monday, Jan. 27, 2014. Exxon Mobil Corp. is scheduled to release their fourth quarter earnings on Thursday, Jan. 30, 2014. Exxon Mobil Corp. is scheduled to release earnings figures on Jan. 30. Photograper: Luke Sharrett/Bloomberg
7. Gassing on
What firm doesn’t appreciate tax goodies such as the fuel use or research credits? Thing is, the former is generally limited to off-highway business use or use in farming. So unless your client drives a John Deere to work, he or she is probably out of luck. And the IRS continues to see “significant misuse” of the research credit, often when a company claims yes, it did change the world but failed to keep the right documentation to back up that claim.
6. Refund madness
Some tax preparers claim they’ll get a client five figures back from the government. This hogwash won’t disappear quickly because there are a number of tools at a scammer’s disposal: tax credits, smooth talk and clients’ greed. “Individuals have made refund claims,” said the IRS, “based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms.” Maybe we can add to the list of tools “plain old stupidity.”
Salavation Army bell ringer, Rickie Armour, collects donations in the kettle on the first day of collections during the holiday season at the Quaker Bridge Mall in Lawrenceville, New Jersey, Friday November 5, 2004. Photographer: Bradley C Bower/Bloomberg News.
Bradley C. Bower/Bloomberg News
5. Give until it hurts
“Fake charities set up by scam artists to steal money or personal information are a recurring problem,” says Koskinen. Be wary of charities with names similar to familiar or nationally known organizations. Last year, we wondered about “Shave the Children.” This year’s whole Dirty Dozen makes us wonder if the second “A” in ASPCA stands for “accountants.”
IRS forms are displayed at the Philadelphia Public Library in Philadelphia, Pennsylvania, Thursday, March 29, 2007. Mike Mergen/Bloomberg News
MIKE MERGEN/BLOOMBERG NEWS
4. Bad apples dept.
Be on the outlook for unscrupulous preparers who do more than swipe clients’ money: They also pollute a good profession. Most tax professionals provide honest, high-quality service, according to the IRS, “but there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud.”
The Internal Revenue Service (IRS) headquarters building stands in Washington, D.C., U.S., on Wednesday, Feb. 17, 2016. Taxpayers have until Monday, April 18 to file their 2015 tax returns and pay any tax owed. Photographer: Andrew Harrer/Bloomberg
3. Who knows?
You may have heard of the 10-year-old dunned for college debt, and the young woman pestered for credit card accounts she allegedly ran up 40 years earlier. ID theft makes the Dirty Dozen again this year. Computers, and the scammers who use them, are constantly growing smarter at connecting us not only with folks we know, but those we don’t.
A woman talks on a smartphone in Tokyo, Japan, on Monday, Sept. 14, 2015. NTT Docomo Inc. led declines among Japanese wireless carriers, plunging the most in almost seven years, after a report that Prime Minister Shinzo Abe said mobile phone rates should be reduced. Photographer: Kiyoshi Ota/Bloomberg
2. Closing the ring
It’s a special kind of threat when your own phone becomes your enemy. That’s why aggressive calls by criminals impersonating IRS agents make this year’s list. Arrest, deportation, license revocation, the rack: The list of scammers’ threats continues to grow — most preying on the wrong, seemingly undying notion that the IRS routinely starts contact with taxpayers via a dial tone.
1. Taking the bait
Fake emails or websites trying to steal personal information are the bottom feeders of our internet experience — and the IRS puts phishing at the top of its Dirty Dozen after reports of a big spike in phishing and malware incidents during the 2016 tax season. Evolving schemes now ensnare not only grandma, but also tax and payroll professionals, HR personnel and schools for money, passwords, SSNs and other info that can ignite ID theft.