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IRS releases top 12 tax scams

ATLANTA -- The Internal Revenue Service has released a list of "Dirty Dozen" tax scams that taxpayers should be aware of this year.

Though scams happen any time of year, they tend to peak during filing season, according to a press release issued by the IRS. Taxpayers run the risk of being victimized and possibly penalized and prosecuted for participating in these scams.

"Taxpayers should be careful and avoid falling into a tax scam trap," said IRS spokesman Mark Green. "Scam artists will tempt people in-person, online, using text messages and by email with misleading promises about lost refunds, tax credits and free money. Don't be fooled by these scams."

The Dirty Dozen tax scams for 2012 are:

-- Identity Theft -- The IRS is cracking down on identity theft through internal reviews to spot false tax returns before refunds are issued as well as working to help victims of identity theft. Increasingly, the agency sees thieves looking for ways to use a taxpayer's identity and personal information to file a tax return and claim a fraudulent refund. An IRS notice that more than one return was filed in the taxpayer's name or that wages were received from an unknown employer may be the first tip-off to an individual. The IRS has a screening process to stop fraudulent returns. Anyone who believes personal information has been stolen and used for tax purposes should contact the IRS Identity Protection Specialized Unit at 800-908-4490. Visit www.IRS.gov/identitytheft for more information.

--Phishing -- This is a scam carried out through an unsolicited email or a fake website to lure victims to provide personal and financial information. If you receive an unsolicited email that appears to be from the IRS or an associated organization, such as the Electronic Federal Tax Payment System, report it at phishing@irs.gov. The IRS does not initiate contact with taxpayers by email to request personal or financial information.

-- Return Preparer Fraud -- About 60 percent of taxpayers use professionals to prepare and file their taxes. Watch out for questionable preparers. Be sure your preparer has a Preparer Tax Identification Number (PTIN) and enters it on the returns. Be wary if a preparer does not sign a return or provide a PTIN; does not give you a copy of your tax return; promises larger than normal refunds; charges a percentage of the refund as a preparation fee; requires you to split the refund to pay the preparation fee; adds forms to the refund you have never filed before; or encourages you to place false information on your return.

-- Hiding income offshore -- The IRS will pursue taxpayers with undeclared accounts as well as banks and bankers suspected of helping clients hide assets overseas. The IRS has reopened the Offshore Voluntary Disclosure Program allowing taxpayers to disclose foreign financial accounts and resolve their tax obligations.

-- Free money -- Flyers and advertisements for free money from the IRS suggesting that the taxpayer can file a return with little or no documentation have been appearing in community churches around the country. Scammers are preying on low-income and elderly people, often offering non-existent Social Security refunds or rebates.

--False/inflated income or expenses -- Including income not earned could result in fines and criminal prosecution. Some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But others are claiming the credit when occupations or income are unreasonable. Fraud involving this credit can result in a penalty of $5,000.

-- False Form 1099 Refund Claims -- In this ongoing scam, the perpetrator files a fake information return to justify a false refund claim on a corresponding tax return. Don't fall prey to people who encourage you to claim deductions or credits to which you are not entitled or allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or face criminal prosecution.

-- Frivolous Arguments -- Promotors of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying taxes.

-- Falsely Claiming Zero Wages -- Filing a phony information return is an illegal way to lower taxes owed. Form 4852 or Form 1099 are used to improperly reduce taxable income to zero, along with statements rebutting wages and taxes reported.

-- Abuse of charitable organization donations -- Arrangements that improperly shield income or assets and attempts by donors to maintain control over donations are illegal. The IRS investigates schemes involving donations of non-cash assets, including situations where several organizations claim full value of the same non-cash contribution. Often these donations are highly overvalued or the organization promises the donor can repurchase the items later at a price set by the donor.

-- Disguised Corporate Ownership -- Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business. These entities are used to underreport income, claim fictitious deductions, avoid filing tax returns, facilitate money laundering and commit financial crimes.

--Misuse of trusts -- Taxpayers should beware of those who urge them to transfer assets into trusts to reduce taxable income, estate or gift taxes and the ability to make deductions for personal expenses. The IRS is seeing an increase in improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. Seek the advice of a trusted professional before entering into a trust arrangement.