5 Popular Tax Scams For 2012

By Tim Parker | March 16, 2012 AAA
5 Popular Tax Scams For 2012

The IRS knows more than you think and the odds of you scamming the government aren't in your favor. Unfortunately, the odds of you being scammed by somebody else during tax time are higher than you think. The IRS knows this and each year they release the "Dirty Dozen" tax scams that they're carefully watching. Here are a few to watch out for and also avoid if you file taxes on your own.
Overvaluing Charity
So you believe that a 10-year-old power drill is worth $50 and each of your five-year-old "gently" used sweaters that you wore to work once a week are worth $30 a piece? The IRS knows that overvaluing a charitable contribution is a common tactic among filers trying to slip in a few more dollars on their tax refund check, but it isn't going to fly if your refund check is higher than the average check for people in your income bracket. Want to stay in compliance? Use a free service like TurboTax's ItsDeductible which allows you to keep track of your contributions throughout the year and use the IRS approved amount.

Hiding Income Offshore
For decades the financial sex appeal of the Swiss bank account has been the subject of movies, books and other fantastic stories, but the government is cracking down on this real life problem mostly reserved for the nation's wealthiest. Outside of the wealthy, other Americans have found ways to invest off American soil, gain insurance policies and even store money. The IRS notes that there are some stiff penalties for trying to stiff the government on the taxes it's owed on these funds.

Crooked Tax Preparers
Money invites greed and what better time for the greedy to appear than at tax time. Some tax preparers entice people to their offices by claiming unusually high refunds and charging larger than customary fees. The IRS will reject the return, but the preparer already has the customer's money.

As a result, the IRS now requires tax preparers to have a Preparer Tax Identification Number. This PTIN comes from the IRS and allows customers to research the preparer and know that they are approved by the IRS.

Identity Theft
Identity thieves might be using your information to file tax returns and get big refunds before you know it's happening. When you file your legitimate return, the IRS contacts you wanting to know why a second return, often asking for a second refund, was filed.

If you suspect identity theft, the IRS wants you to call the Identity Protection Specialized Unit at 1-800-908-4490.

Paying for Arguing
The world is full of entrepreneurs, but some should be avoided. Some small businesses are charging customers for advice on how to argue with the IRS in order to avoid paying taxes. Arguments like, "I'm a citizen of my state, not the United States" is one of the reasons cited for not having to file a federal return, but the IRS is a few steps ahead of those people. They have an 84-page document on their website called "The Truth About Frivolous Tax Arguments," that pokes a hole in these arguments by citing case law and other legal references.

The Bottom Line
Most people don't go out of their way to scam the government on a large scale basis, but many inflate figures a little more than they should. If you do that, know that the IRS knows what you're doing and you may be subject to penalties, interest and even prosecution.

Finally, during tax time, promises of big refund checks are all over the TV and newspapers. Don't fall for these too-good-to-be-true claims. Instead, go to a tax preparer that you trust and if you're looking for one, ask trusted friends and family for recommendations.

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