"Scams can be sophisticated and take many different forms," IRS Commissioner John Koskinen said. "We urge people to protect themselves and use caution when viewing emails, receiving telephone calls or getting advice on tax issues."
Topping the IRS' list of fraudulent practices is identity theft, which should be taken seriously given the recent major data breaches, including one at the University of Maryland that compromised the personal information of more than 300,000 students, staff and faculty who received identification cards. Crooks use stolen Social Security numbers to file fake returns to claim refunds. Typically, they do it early in the tax season before victims have a chance to file their own returns.
This year, the IRS says it has expanded efforts to protect taxpayers and help victims. The agency has created a Web page devoted to identity theft. On irs.gov, search for "Identity Protection." If you suspect you've been a victim of identity theft, call the agency's special unit created to handle such cases at 800-908-4490.
Also on the list are telephone scams in which people pretend to be from the IRS, email phishing scams and schemes that promise you can get a big refund or avoid paying any taxes.
Returning to the list this year is return preparer fraud. Unfortunately, many people are unaware that they have been victimized until they hear from the IRS. Here's what an unscrupulous preparer might do in preparing your return, with or without your knowledge:
* Claim inflated personal or business expenses.
* Claim false deductions or inflate deductions.
* Advise clients to take unallowable credits. A tax credit is valuable because it directly reduces a person's tax liability by reducing taxes dollar for dollar. So a $1,000 tax credit saves you $1,000 in taxes. You can see why someone would fudge the truth to qualify for a credit.
* Manipulate income figures so that people qualify for legitimate tax credits, such as the Earned Income Tax Credit. The EITC is a refundable credit - meaning you can get money back even if you owe no tax or the credit is more than the amount of tax owed.
How do the preparers profit off their scams?
A preparer may get a taxpayer to agree to give him or her a percentage of a refund. Some preparers have altered people's returns after they've reviewed them to boost refunds that are then directed into their own bank accounts.
That's what one Michigan preparer did. The preparer filed a form to have the IRS split refunds and make direct deposits into the bank accounts of the taxpayers and himself. Law-enforcement officials said he filed the returns electronically and usually without the knowledge of clients, filed returns claiming false W-2 withholdings, itemized deductions, first-time homebuyer and residential energy credits and more. The preparer was sentenced to 30 months in prison and ordered to pay $462,798 in restitution.
Check out tips from the IRS on how to choose a preparer. There are the obvious people to avoid, such as preparers who encourage you to exaggerate deductions, credits or income, or ask you to sign a blank return. The IRS says you should use only preparers who sign the returns they prepare and enter their Preparer Tax Identification Numbers (PTINs).
And keep this in mind: You are ultimately responsible for what's on your tax return, even when it's prepared by someone else.