For most Americans, tax season is a time to pour over receipts and add up expenses. For others, though, that time is spent gaming the system.
In a post entitled "Don't Fall Prey to the 2011 Dirty Dozen Tax Scams," the Internal Revenue Service lists the worst and most common tax scams by American taxpayers. And while some include hiding the origin of an entire corporation, others can be as small as misplacing a decimal point. Here is the list of the IRS's "Dirty Dozen" tax scams:
1. Hiding Income Offshore -- Swiss banks have long been a tax haven for the world's wealthiest citizens. According to the IRS, common techniques to avoid taxes including offshore debit cards, foreign trusts and employee-leasing schemes. Those who have been hiding funds offshore can now fess up without consequence, however, as the IRS now offers a voluntary disclosure initiative through August 31.
2. Identity Theft and Phishing -- If someone steals your identity, they can also steal your tax refund. The IRS recommends taking care with personal information and being especially wary of cyber fraud like phishing and spyware -- thieves can use fake emails, websites and social media to pose as the IRS itself.
3. Return Preparer Fraud -- While tax preparers exist to ensure that these scams don't happen, they can sometimes make mistakes or, worse, use their knowledge to cheat clients or the IRS. Some have been found to charge unnecessarily large fees or even take a portion of client refunds.
4. Filing False or Misleading Forms -- Fraudsters can use information from friends and family members on their tax returns to make false claims, so the IRS advises that you avoid people who encourage unentitled deductions.
5. Frivolous Arguments -- Americans make so many excuses for why they don't have to pay taxes that the IRS actually has a list of frivolous arguments with the claim "The filing of a tax return is voluntary" at the top. It isn't. "While taxpayers have the right to contest their tax liabilities in court," the IRS says, "no one has the right to disobey the law."
6. Nontaxable Social Security Benefits with Exaggerated Withholding Credit -- Another form of false filing is when people claim non-taxable Social Security benefits with exaggerated withholding so as to report an income of zero. "[O]ften both the withholding amount and the reported income are incorrect," the IRS says.
7. Abuse of Charitable Organizations and Deductions -- People will go to absurd lengths when claiming deductions on their tax returns, especially when it comes to how charities. Non-cash donations are often exaggerated, and when there is cash, people sometimes continue to illegally control donated assets.
8. Abusive Retirement Plans -- Cheating the IRS through mishandling retirement funds like Roth Individual Retirement Arrangements (IRAs) is a good way of remaining in the workforce longer than planned, so take care to ensure retirement planners are legally managing your assets.
9. Disguised Corporate Ownership -- Similar to identify theft but on a much larger scale, corporations will sometimes attempt to hide their true owner by setting up shop in certain states. Doing so can allow them to illegally cut costs in a number of ways, such as claiming fictitious deductions or even "terrorist financing."
10. Zero Wages -- After filing a legitimate tax return, some will attempt to file a substitute or "corrected" tax form to report lower taxable income. These fraudulent forms can include semantics over the definition of wages or even go so far as to blame their employers "for refus[ing] to issue a corrected Form W-2 for fear of IRS retaliation."
11. Misuse of Trusts -- Misrepresenting or hiding assets has been increasing, the IRS reports. It's recommended that taxpayers consult a professional before signing on for a trust arrangement.
12. Fuel Tax Credit Scams -- Using fuel tax credit is one of the most common scams, as few workers are actually entitled to them. Farmers are often eligible. Others making sizable incomes or using fuel for non-business purposes, however, aren't.
The IRS offers rewards for reports of fraudulent tax activity. To report such an instance fill out a Form 3949-A, Information Referral first then a Form 211, Application for Award for Original Information to claim your reward. Forms can be sent to the Internal Revenue Service, Fresno, CA, 93888.