During tax time, there are numerous types of tax scams. These illegal schemes can result in the taxpayer being responsible for extra interest, penalties and possible criminal prosecution. Tax schemes and scams attempt to gain access to your financial information by email, telephone, fax or mail. They also may attempt to falsely collect tax you owe to the Internal Revenue Service. Using TurboTax ensures your financial information remains safe.
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Types of tax scams
Each year at tax time, the IRS issues a list of the most common tax scams, including:
- The promise to decrease income by setting up trust funds
- The false use of form 1099 claiming that individuals can access secret accounts that the federal government maintains for every U.S. citizen
- Claiming false income and exemptions
- Using false tax-preparing websites to secure taxpayers’ personal information
- Pretending to be IRS agents with a phony badge number and name, telling individuals they owe the IRS money and must pay by means of a pre-loaded debit card or face charges
Recognizing abusive tax preparers
People or companies who prepare your tax returns for a fee are called tax preparers. To be legally able to issue federal tax returns, a person must apply for a Preparer Tax Identification Number, or PTIN, from the IRS. These numbers are issued each year and are valid for the current tax year. Each taxpayer is individually responsible for the accuracy of their returns. To help recognize a fraudulent tax preparer, look for:
- Someone who asks you to sign a blank tax return
- An individual who can’t produce a PTIN
- Someone who doesn't give you a copy of your return
- A tax preparer whose fee is a percentage of your refund
- Someone who claims he can get you an exceptionally large refund
Offshore tax schemes
If you’re approached to move your money to an offshore account or open an international business account, or IBC, to keep from paying taxes on your U.S. income, beware of a tax scheme. It’s illegal to transfer income offshore by any means, unless you declare it on your taxes. This money is often accessed by debit cards, wire transfer or credit cards opened on the offshore account. The taxpayer may also be given a loan by the IBC. The IRS recognizes the need for overseas financial accounts. However, if this income is not reported, the taxpayer can be subject to fines, penalties and criminal prosecution.
Protect your identity
Individuals posing as IRS employees may ask for your personal information, including your Social Security number. With this information, they can file false tax returns or scam you into paying false taxes. The IRS will only communicate with you through the mail on official paper and letterhead. If you receive a phone call from someone who claims to be from the IRS, hang up. If you get an email claiming to be from the IRS, delete it. These are ploys to get your Social Security number and access your personal identity.