Industry News - Regulatory Updates
February 21, 2012
Top tax scams
While the Internal Revenue Service warnings this tax season highlighted identity theft as the chief concern, other types of fraud are also prevalent.
The agency warned taxpayers against phishing, in which unsolicited e-mail or false websites are used to trick people into revealing personal information. This information may be used to file false tax returns, or for other purposes. The IRS noted it never contacts citizens by e-mail to ask for their personal or financial information, so such scams should not be difficult to avoid.
Some scams promise free money or make false claims about Social Security, such as offering to help taxpayers secure nonexistent rebates or refunds. Scams like these often focus on the elderly or low-income Americans, but not exclusively. This type of fraud may amount to charging money for bad advice, but the "advisors" often disappear once paid, leaving taxpayers to discover first-hand that their accounting tips were fabrications at best. At worst, they may recommend illegal measures that cause the taxpayer further trouble.
Such practices might include hiding income offshore or over-reporting income and expenses, to minimize taxes assessed or maximize eligibility for deductions and credits. The IRS notes that being part of schemes to file false tax forms may result in financial penalties or criminal prosecution, depending on the circumstances.
Other common types of tax fraud include the use of charitable organizations to illegally hide income from the government, claiming low wages or income, using false corporations to obscure financial dealings and the misuse of trusts. While a proper tool for estate tax planning, the IRS notes trusts are sometimes abused. Taxpayers should work with professionals to avoid problems when creating a legitimate trust.