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You've filed your tax return. Or have you? -- Part Two

Last week's post made our Texas readers aware of the prevalence of fraudulent income tax returns that were filed using stolen identities. According to the Internal Revenue Service, a fraudulent tax return via identity theft is the number one tax scam that the IRS encounters. The problem is also growing.

According to news sources, the IRS is trying tackle the income tax filing problem through a variety of means. One solution is to build public awareness.

The IRS keeps track of all of the various tax scams and publishes an annual listing called the Dirty Dozen Tax Scams.

  1. Identity theft: Contact the IRS if you believe your personal information was fraudulently used for tax purposes.
  2. Phishing: Phony e-mail solicitations and websites try to lure people into giving up their personal financial information. The IRS does not send unsolicited email.
  3. Return preparer fraud: Most tax preparers are honest and legitimate but some are not. Be wary of anyone promising a guaranteed refund.
  4. Hiding income offshore: The IRS has been cracking down on offshore bank or brokerage accounts that could be used to hide assets.
  5. Free money: Don't believe any free money offers from the IRS or the Social Security Administration. These offers are apparently targeted at the elderly.
  6. False or inflated income and expenses: Some tax filers are simply not truthful in their tax return statements.
  7. False 1099 refund claims: This tax scam usually involves two parties; one to create a fake 1099 form and another individual to use the form fraudulently on a return.
  8. Frivolous arguments: Apparently each year there are a number of people who make outlandish claims.
  9. Falsely claiming zero income: Filing a false Form 4852 can result in a $5,000 penalty.
  10. Abuse of charitable organizations and deductions: The most common violation is claiming excess non-cash donations.
  11. Disguised corporate ownership: Sometimes third parties are used to hide the true ownership and avoid tax obligations.
  12. Misuse of trusts: A trust is a legitimate tool for estate planning; it should not be used to hide assets from creditors.

As the list above shows, there are some tax scams in which a taxpayer can be an innocent victim to a fraud perpetrated by someone else. The IRS advises being aware of tax scams and use caution to avoid falling into any income tax return traps.

Source: KTRE, "Tax day horror story: Taking your money... and your identity," Ron Scherer, April 16, 2012

Source: IRS.gov, "IRS Releases the Dirty Dozen Tax Scams for 2012," Feb. 16, 2012

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