IRS; Dirty Dozen Tax Scams to Avoid
IRS Annual “Dirty Dozen” List of Tax Scams to Avoid Includes Falsely Padding Deductions
WASHINGTON — Avoid the temptation to falsely inflate deductions or business expenses on tax returns, the IRS warned in its 2017 “Dirty Dozen” list of tax scams. Generally, doing so may result in paying less tax than is owed or receiving a larger refund than is due.
Of course, the majority of taxpayers file honest and accurate tax returns. However, each year some taxpayers “fudge” their information, by falsely claiming deductions, expenses or credits on tax returns remains on the “Dirty Dozen” list of tax scams.
Taxpayers should think twice before overstating their deductions such as charitable donations, padding business expenses or including credits that they are not entitled to, such as Earned Income Credit or Child Tax Credit.
Each year, increasingly efficient systems generate most IRS audits. The IRS can normally audit returns filed within the last three years. Additional years can be added if substantial errors are identified or fraud is suspected. Although there is no way to entirely avoid an IRS audit, preparing an accurate tax return is a taxpayer’s best defense.
Significant penalties may apply for taxpayers who file incorrect returns including:
1) 20% of the disallowed amount for filing an erroneous claim for a tax refund or tax credit.
2) $5,000 if the IRS determines a taxpayer has filed a “frivolous tax return.” A frivolous tax return is one that does not include enough information to determine the correct tax or that contains information clearly showing the reported tax is substantially inaccurate.
3) In addition to the full amount of taxes owed, taxpayers could be assessed a penalty of 75 percent of the amount owed if the underpayment resulted from tax fraud.
Taxpayers may be subject to criminal prosecution and be brought to trial for actions such as:
1) Tax evasion;
2) Willful failure to file tax returns, supply information, or pay any tax due;
3) Fraud and making false statements;
4) Preparing and filing a fraudulent tax return, or,
5) Identity theft.
Criminal prosecution could lead to additional penalties and even prison time.
File an Accurate Return
Using tax software is one way for taxpayers to file an accurate tax return and claim only the tax benefits they are legally eligible to receive. Question and answer formats lead taxpayers through each section of the tax return. IRS Free File is an option for taxpayers to use software to prepare and e-file their tax returns for free.
Community-based volunteers at places around the country also provide free face-to-face tax assistance to qualifying taxpayers. Volunteers’ help taxpayers file tax returns correctly, claiming the credits and deductions they are entitled to.
Taxpayers should know that they are legally responsible for what is on their tax return, even if prepared by a tax preparer. The IRS offers important tips for choosing a tax preparer.
Additionally, to find tips about choosing a tax return preparer, better understand the differences in credentials and qualifications, and learn how to submit a complaint regarding a tax return preparer, visit www.irs.gov/chooseataxpro.
Zaher Fallahi, Tax Attorney, CPA, is a Tax Resolution Attorney and defends taxpayers before the IRS (FBAR, FATCA and OVDP), FTB, EDD and BOE. Telephone: (310) 719-1040 (Los Angeles), (714) 546-4272 (Orange County), or e-mail: [email protected]