The Internal Revenue Service has issued a list of several common tax scams that taxpayers should avoid. Below we take a look at just a few of them. To see the complete list visit www.irs.gov
- Return Preparer Fraud - Taxpayers need to watch out for tax preparers who attempt to gain extra profit from their clients by skimming a portion of their client's tax refund, charging high fees and by promising unrealistic refunds. The IRS has taken note of the increased numbers of tax preparers who are abusing the confidence of taxpayers by engaging in fraud. To increase the integrity of the tax preparation industry and protect taxpayers, the IRS is planning to implement a rule requiring that all tax preparers register with the IRS, complete competency tests and engage in ongoing educational programs.
- Phishing - Phishing is a scam where con artists get taxpayers to reveal personal and financial information by convincing them that they are IRS agents or representative. The phishing scam usually involves an email and even fake websites but they also may involve phone calls and even fax communication. Once the scam artists gets the taxpayers personal and financial information they steal their identity to access their bank accounts, charge up credit cards and even apply for loans under the victim's name.
- Retirement Plans That Abuse Tax System - Some unscrupulous tax preparers may encourage taxpayers to engage in transactions that avoid the limits on contributions to IRAs or avoid reporting early withdrawals from retirement accounts. Taxpayers should be avoid tax preparers who encourage them to shift appreciated assets at less than fair market value into IRAs, companies owned by their IRAs or to limited liability companies to avoid annual contribution limits.
Engaging in tax scams is illegal and can result in imprisonment and high penalties for both the scam artist and the taxpayer.