Common Tax Scams to be Aware of and Avoid

July 19, 2010 | By: TaxCure Staff

Tax-ScamsThe IRS releases the “Dirty Dozen” list of tax scams regularly to help taxpayers avoid some of the most common tax scams. Promoters and participants of tax scams, fraud, and tax evasion are aggressively pursued by the IRS and a variety of other federal agencies. If caught, people face fines, imprisonment, and tax penalties – and even victims of scams can be required to pay interest and penalties on back taxes owed.

While the list of scams and schemes is never-ending and ever-changing, here are some of the most common tax scams to be aware of and avoid:

 

Internet-Based Tax Scams

The internet has resulted in the creation of countless new scams and schemes. Some are entirely new and created solely to take advantage of unsuspecting internet users; while others are merely an extension of scams that have been around long before the internet was invented.

Identity Theft – thieves steal personal information from victims to access their financial accounts. Identity theft crimes increased with the use of the internet – and now victims of identity theft can find their credit cards being used while they’re still in their wallets, new loans opened in their name, and fraudulent tax returns filed.

Home Business Scams – everywhere you look online there are advertisements for home-based business opportunities. While many of these opportunities are legitimate, be on the lookout for tax relief scams that claim you can deduct personal expenses as business expenses by merely setting up a “home-based business”. Under the Federal tax code, you have to have a business with the motivation to earn a profit to claim business expenses as tax deductions. Any other use of a home-based business at tax time is fraudulent and subject to penalties and fines for tax evasion.

Avoiding Tax Liability Scams

Many tax scams and schemes exist which result in people avoiding their tax liabilities.

Offshore transactions – if you’re using a foreign bank account, credit card, or another arrangement to appear you’re making less money than you are, you’re breaking the law. Taxpayers involved in offshore transaction schemes can face criminal prosecution in addition to payment of all back taxes owed, interest, and tax penalties.

Fake checks – purchasing phony checks to overpay taxes to get a refund from the IRS (for the overpayment) is illegal. Con artists selling the phony checks may have intricate stories to convince people it’s possible to use them for payment of taxes.

Taxes are voluntary – some people sell programs that allow you to avoid taxes yourself. The advertisements for such schemes might claim that paying taxes is voluntary, but the US courts continually reject this claim, and thousands of people paying for this secret method of avoiding taxes have been rewarded with criminal and tax penalties.

Many other tax scams and schemes exist – you can check the IRS website for additional scams and updates for the “Dirty Dozen.” If you suspect tax fraud, you can report it to the IRS at 1-800-829-0433.