Finances & economics
don’t Fall Prey to the 2011 dirty dozen Tax Scams
H
iding income in offshore accounts,
identity theft, return preparer fraud,
and filing false or misleading tax
forms top the annual list of “dirty dozen”
tax scams in 2011, the Internal Revenue
Service announced last week.
“The Dirty Dozen represents the worst of
the worst tax scams,” IRS Commissioner
Doug Shulman said. “Don’t fall prey to
these tax scams. They may look tempting,
but these fraudulent deals end up hurting
people who participate in them.”
The IRS works with the Justice
Department to pursue and shut down perpe-
trators of these and other illegal scams.
Promoters
frequently end up facing heavy fines and
imprisonment. Meanwhile, taxpayers who
wittingly or unwittingly get involved with
these schemes must repay all taxes due plus
interest and penalties.
Following is the Dirty Dozen for 2011:
Hiding income Offshore
The IRS aggressively pursues taxpayers
involved in abusive offshore transactions as
well as the promoters, professionals and
others who facilitate or enable these
schemes. Taxpayers have tried to avoid or
evade U.S. income tax by hiding income in
offshore banks, brokerage accounts or
through the use of nominee entities.
Taxpayers also evade taxes by using off-
shore debit cards, credit cards, wire trans-
fers, foreign trusts, employee-leasing
schemes, private annuities or insurance
plans.
In early February, the IRS announced a
special voluntary disclosure initiative
designed to bring offshore money back into
the U.S. tax system and help people with
undisclosed income from hidden offshore
accounts get current with their taxes. The
new voluntary disclosure initiative will be
available through Aug. 31, 2011. The IRS
decision to open a second special disclosure
initiative follows continuing interest from
taxpayers with foreign accounts. In
response to numerous requests, information
about this initiative is available on IRS.gov
in eight different languages, including:
Chinese, Farsi, German, Hindi, Korean,
Russian, Spanish, and Vietnamese.
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 permis-
sion to commit fraud or other crimes. For
example, a criminal can use someone
else’s information to run up bills on that
person’s credit card, empty that person’s
bank account or take out a loan in that per-
son’s name. And when it comes to taxes, a
criminal with someone else’s personal
information can file a fraudulent tax return
and collect a refund.
Phishing is one tactic used by scam artists
to trick unsuspecting victims into revealing
personal or financial information online.
Phishing involves the use of phony e-mail
or websites — even social media. A scam-
mer may pose as an institution such as the
IRS. IRS impersonation schemes flourish
during tax season. Spyware, which can be
loaded onto an unsuspecting taxpayer’s
computer by opening an e-mail attachment
or clicking on a link, is another tool identi-
ty thieves use to steal personal information.
Identity theft is a major problem that
affects many people each year. That’s why
it’s important that taxpayers protect their
personal information. Anyone who believes
his or her personal information has been
stolen and used for tax purposes should
immediately contact the IRS Identity
Protection Specialized Unit at 1-800-908-
4490. More information on identity theft
and taxes is available on the IRS website.
A suspicious e-mail or an “IRS” Web
address that does not begin with
http://www.irs.gov should be forwarded to
the IRS at phishing@irs.gov.
return Preparer fraud
While most return preparers are profes-
sionals who provide honest and excellent
service to their clients, some make basic
errors or engage in fraud and other illegal
activities.
Dishonest return preparers can cause big
trouble for taxpayers who fall victim to their
ploys. These fraudsters derive benefit by
skimming a portion of their clients’ refunds,
charging inflated fees for return preparation
services and attracting new clients by mak-
ing false promises. Taxpayers should
choose carefully when hiring a tax preparer.
Federal courts have issued hundreds of
injunctions ordering individuals to cease
preparing returns, and the Department of
Justice has pending complaints against
dozens of others.
To increase confidence in the tax system
and improve compliance with the tax law,
the IRS is implementing a number of
requirements for paid tax preparers, includ-
ing registration with the IRS and a preparer
tax identification number (PTIN), as well as
competency tests and ongoing continuing
professional education.
The new regulations require paid tax pre-
parers (including attorneys, CPAs, and
enrolled agents) to apply for a Preparer Tax
Identification Number (PTIN) before
preparing any federal tax returns in 2011.
Higher standards for the tax preparer
community will result in greater compli-
ance with tax laws, increase confidence in
the tax system and ultimately lead to a bet-
ter experience for taxpayers.
filing false or misleading forms
IRS personnel are seeing various
instances in which scam artists file false or
misleading returns to claim refunds to
which they are not entitled. In one variation
of this scheme, a taxpayer seeks a refund by
fabricating an information return and false-
ly claiming the corresponding amount as
withholding. Phony information returns,
such as a Form 1099 Original Issue
Discount (OID), which claims false with-
holding credits, are usually used to legit-
imize erroneous refund claims. One version
of the scheme is based on the bogus theory
that the federal government maintains
secret accounts for its citizens and that tax-
payers can gain access to funds in those
accounts by issuing 1099-OID forms to
their creditors, including the IRS.
The IRS continues to see instances in
which people file false or fraudulent tax
returns to try to obtain improper tax
refunds. The IRS takes refund fraud seri-
ously, has programs to aggressively combat
it and stops the vast majority of incorrect
refunds.
See SCamS on page 9
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Page 8 The Portland Skanner april 13, 2011