MSU Extension MI Money Health

Along with tax time, tax scams will be arriving too. Taxpayers should be aware of the fraudulent activity that revolves around tax preparation and filing.

The Internal Revenue Service (IRS) classified 12 scams a few years ago as the Dirty Dozen tax scams. 

• Phone scams: Con artists pretend to be legitimate representatives of the IRS. They threaten victims with deportation, arrest, or other devastating consequences to extort money and personal information.

• Phishing:  Victims receive emails or are directed to websites that look authentic and seem to be from the IRS, but are not. This is a ploy to gain personal information.

• Identity theft: The victim’s social security number is stolen and used to file a fraudulent tax return. The victim usually discovers this crime when attempting to file their own taxes. They are told the return has been previously filed.

• Return preparer fraud: Some tax preparers are criminals and steal personal information from their customers. These preparers will also victimize their customers with refund fraud, expensive preparation fees, and other scams. 

• Offshore tax avoidance: Dishonest taxpayers attempt to hide profits and income in offshore accounts in order to avoid paying taxes. 

• Inflated refund claims: A tax preparer has no knowledge of a taxpayer’s current financial situation. The preparer has not reviewed any of the customer’s records or documents but promises a large refund. The preparer may suggest that the taxpayer sign a blank tax return. The tax preparation fee will be exorbitant because it is based on a percentage of the anticipated refund. 

• Fake charities: Taxpayers should be aware that illegitimate charities exist. Fake charities solicit donations for their own use. Donations given to these charities are not tax deductible. Tax payers can verify an organization’s ability to accept tax exempt donations. The Internal Revenue Service (IRS) provides the Exempt Organization Select Check for taxpayer use. 

• Hiding Income with fake documents: Taxpayers file fraudulent tax forms, specifically Form 1099, in an attempt to decrease their tax bill or increase their refund. 

• Abusive tax shelters: Con artists create elaborate scams to help cheating tax payers hide money and avoid large tax bills. 

• Falsifying income to claim credits: Tax credits reduce the amount owed to the IRS. Some taxpayers will invent income in order to qualify for these credits. 

• Excessive claims for fuel tax credits: These credits are limited to farming or off highway business use. However, dishonest taxpayers (or tax preparers) will claim this credit to increase the size of their refund. 

• Frivolous tax arguments: Taxpayers employ preposterous and absurd arguments to evade the payment of taxes. They are willing to go to court to substantiate these foolish claims. Many times their court cases are dismissed and thrown out of court. Taxpayers can be assessed a $5,000 penalty for filing a frivolous tax return. 

Michigan State University Extension educators warn taxpayers to be on the lookout for the dirty dozen tax scams. In addition, remember:

• The IRS will not call you without having sent a letter first. They will NOT request only certain types of payment, such as debit cards. 

• Taxpayers should have a clear understanding of what is in their tax return. Taxpayers are responsible for the information in their return even if they had someone else prepare it. 

Michigan State University educators invite you to assess your financial health and visit Michigan State University Extension. In addition, Michigan State University offers money management and homeownership classes. For more information about classes offered in your area visit MI Money Health.

The remaining six components of the “dirty dozen” will be explained in the second article of this two part series.

Michigan State University educators invite you to assess your financial health and visit Michigan State University Extension. In addition, Michigan State University offers money management and homeownership classes. For more information about classes offered in your area visit MI Money Health.