“The Dirty Dozen represents the worst of the worst tax scams” IRS Commissioner Doug Shulman said.
1. Hiding Income Offshore
The IRS aggressively pursues taxpayers involved in abusive transactions by avoiding or evading U.S. income by hiding income in offshore bank accounts, brokerage accounts, using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.
2. Identity Theft and Phishing
Identity theft occurs when someone uses an unsuspecting individual’s name, Social Security number, credit card number or other personal information without permission to commit fraud or other crimes.
3. Return Preparer Fraud
While most return preparers are professional who provide honest and excellent service to their clients, some engage in fraud and other illegal activities.
4. Filing False or Misleading Forms
This is where taxpayers are filing false or misleading returns to claim refunds to which they are not entitled.
5. Frivolous Arguments
Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying taxes. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court.
6. Nontaxable Social Security Benefits with Exaggerated Withholding Credit
The IRS has identified returns where taxpayers report nontaxable Social Security Benefits with excessive withholding.
7. Abuse of Charitable Organizations and Deductions
The IRS continues to observe the misuse of tax-exempt organizations.
8. Abusive Retirement Plans
The IRS continues to find abuses in retirement plan arrangements.
9. Disguised Corporate Ownership
Corporations and other entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number for the purposes of underreporting income, fictitious deductions, non-filing of tax returns, money laundering, financial crimes and even terrorist financing.
10. Zero Wages
Filing a phony wage-or-income related informational return to replace a legitimate information return. This is typically a 4852 (Substitute Form W-2) or a “corrected” Form 1099.
11. Misuse of Trusts
IRS personnel have recently seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses.
12. Fuel Tax Credit Scams
The IRS receives claims for the fuel tax credit that are excessive.