The Internal Revenue Service is just over halfway done releasing its list of tax scams for 2017. The Dirty Dozen list has been an annual feature of the IRS website and garners a significant amount of media attention warning taxpayers to avoid the tax evasion techniques and fraudulent schemes listed. In recent years, the IRS has released one entry on the list daily in order to garner additional attention.
The eight released to date include:
- Phishing Schemes: Scam artists posing as trusted people or organizations to confuse taxpayers into revealing personal information. The IRS noted a “big spike” in phishing and malware in 2016.
- Phone Scams: Criminals impersonating IRS agents threatening taxpayers with aggressive calls.
- Identity Theft: Criminals impersonate taxpayers to steal tax refunds. It is a recurring participant on the list.
- Return Preparer Fraud: Outlandish promises of overly large refunds by dishonest tax preparers are a perpetual problem even though the vast majority of tax professionals are honest and provide high quality service.
- Fake Charities: Groups masquerading as nonprofit organizations to attract donations from unsuspecting taxpayers. The IRS also warned about the impersonation of charitable organizations after natural disasters.
- Inflated Refund Claims: Con artists frequently dupe people who are not required to file into making claims for fictitious rebates, benefits or tax credits. The IRS specifically warned about filing self-prepared, corrected or bogus forms such as Form 1099 or a W-2 to report taxable income of zero.
- Excessive Claims for Business Credit: The IRS warned about improper claims by businesses, specifically identifying fuel tax credits and research credits as areas frequently abused. The fuel tax credit is not available to most taxpayers because it only applies to off-highway business use or use in farming. Taxpayers fail to qualify for the research credit when they engage in a non-qualified research activity or there is not sufficient nexus between the claimed expense and the research activity.
- Padding Deductions: The IRS warned that overstating deductions can result in significant penalties and it is getting more efficient at auditing through automated systems.
There has been some speculation this year about whether cryptocurrency abuse will make the list. The IRS treats cryptocurrency as property and a taxpayer that exchanges it for money that exceeds the adjusted basis of its acquisition has a taxable gain for tax purposes. The IRS has issued a summons to Coinbase, a digital exchange, for information about users purchasing digital currencies like bitcoin.