Even though there is a general understanding of how taxes are used and an acceptance that a country needs to collect these revenues from its citizens to provide goods and services, nobody really wants to pay taxes. This feeling is actually quite natural because paying taxes is essentially giving away a percentage of your hard-earned income. However, taxes are not optional and there are laws put in place to govern exactly how much is collected and penalties for those who try to avoid paying. Despite these penalties, there are always tax scams that aim to hide some money from the tax collector. The IRS is well aware of these schemes and they produce a list of a dozen such tax crimes every year. A few of them are listed below.
$0 Wages Tax Scam
Common sense will tell you that if you can reduce your taxable income down to zero, you will not owe any taxes. The challenge of course is to find a way to explain the reduction in income. Some fraudsters actually file incorrect information on legitimate tax forms to declare less income than was made. A popular way to do this is to use Form 4852 to explain the reduction in wages. Committing this type of fraud carries with it a charge of $5,000 because the tax preparer has to sign and declare that the information is correct and complete.
Phishing for Information
Other types of tax fraud are not as involved. You can actually fall prey to a tax scam by ignorantly giving out personal details that can allow others access to your income tax information. This is similar to identity theft because the schemers use methods of impersonation or legitimate-looking sites, emails, or other forms of communication to coax information out of unsuspecting persons. Under this type of scam, the victim is lured into giving information on the promise of possible tax exemptions or savings.
Fraudulent or Misleading Tax Forms
This involves fabricating false tax claims. There are a number of legitimate ways to get money back on a tax return, but some people try to access tax savings that they are not entitled to. This means turning in the information that is not correct to the IRS and even providing falsified supporting documents to validate the erroneous claims.
Overstating Charitable Donations
Giving a donation should be done freely from the heart, but there are some who give to maximize the tax benefits of charitable donations. While claiming a legitimate return for an honest donation is perfectly acceptable, some schemes try to inflate the value of the gift donated to increase the tax claim. This may require some collusion on the part of the receiver, but the IRS closely monitors charitable donations for such overstatements.
Return Preparer Fraud
While you may not be directly responsible for preparing a fraudulent tax return, it is your responsibility to ensure that you choose someone that has proven competency because you can lose money and possibly get into trouble with the IRS. Fraudulent preparers either skim money off the returns that should go to the taxpayer, or embellish claims to increase the size of the return so they can charge inflated fees.
These tax scams were all on the IRS list for 2010 but most scams continue until they are no longer effective, so it pays to watch out for them.