Income tax fraud based on identity theft has been a major problem in recent years. The entire country has been affected and the problem is still ongoing. Indeed, as we shall discuss in this post, tax fraud by identity theft tops the list of tax-scam warnings issued this year by the IRS.
The annual list is popularly known as the Dirty Dozen. It always provides an interesting snapshot of the types of potentially criminal tax schemes that concern the IRS at a given time.
In this post, let's look at the top three schemes on the list. Besides tax fraud by identity theft, we will discuss phishing and tax return preparer fraud.
In the case of identity theft, tax fraud is often aimed specifically at getting a false tax refund. Using someone else's personal information, thieves file false returns that claim a refund is due.
As common as this is, however, it is not the only type of crime involving identity theft. Thieves also sometimes use someone's stolen identity to commit other crimes, such as credit card fraud or mortgage fraud.
In some cases, this information is obtained through an activity called "phishing." Phishing is a tactic to get taxpayers to reveal personal information online or over the phone. Sometimes the phishing includes threats to initiate an IRS audit or investigation.
Rounding out the top three on the Dirty Dozen list is tax preparer fraud. This involves attempts by professional tax preparers to benefit improperly when preparing someone else's taxes. The fraud could take the form of padding the bill with unjustified fees or trying to siphon off part of the client's tax refund.
In short, the IRS has ample concern about the prevalence of dirty tax schemes. Keep in mind, however, that the facts and circumstances of any particular case of suspected tax fraud do not always fit so easily with a mere laundry list of suspected scams.
Source: IRS.gov, "Three Tax Scams to Beware of This Summer," IRS Summertime Tax Tip 2013-26, August 30, 2013