Tax Hacks 2017: Avoid These 12 Costly Tax-Related Scams

We call them "the dirty dozen" -- 12 ways that scams can trip you up at tax time.

Taxes seem to strike fear in the hearts of millions. And for some reason, that makes a few people lose their heads and hand out their personal information to strangers claiming to be from the IRS.

Of course, tax scams aren’t limited to bad guys trying to pull the wool over your eyes. Sometimes, the scams involve you trying to pull a fast one on the government.

In either case, you are likely to end up the loser. Avoid the following dirty-dozen tax scams at all costs.

1. Phony calls from the IRS

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In one version of this scam, a person claiming to be an IRS agent calls and informs you that the police have a warrant for your arrest. And unless you go to Walgreens, buy a prepaid debit card loaded with hundreds of dollars and call back with the number, you’re going to be carted off to the big house.

Walgreens? You think we’re going to fall for that, bad guys? Apparently, some people do in fact go out and get a prepaid card or wire money to the criminals.

Make sure your elderly relatives or other people who might be susceptible know that if they get a call from the IRS, it’s almost certainly fake.

Here’s a bit more information from the IRS, which assures taxpayers that threatening calls are not part of their system.

“We have formal processes in place for people with tax issues,” says IRS Commissioner John Koskinen. “The IRS respects taxpayer rights, and these angry, shake-down calls are not how we do business.”

If you’re really concerned you might owe money, call the IRS directly at 1-800-829-1040.

2. Fraudulent email from the IRS

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Let’s be very clear: The IRS lives in the Stone Age — the federal agency does not email.

So, the IRS won’t be sending you an email saying you need to click a link and verify your identity to get a refund. Likewise, you won’t go to jail if you don’t click on an alleged IRS link and fill in your personal information.

It’s all a ruse to get you to give up information to the bad guys so they can steal from you.

3. False tax returns in your name

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People use scam No. 2 to pull off scam No. 3, among other things.

They use your name, address, Social Security number and all that other personal data you provided to fill out a fake tax return in your name. Then, they get a big refund, and your return gets rejected because the IRS thinks you already filed.

The problem can be fixed, but it’s a giant headache. Your best bet is to guard your Social Security number closely and file your return as soon as you have all of your paperwork.

4. Sketchy promises of a monster tax refund

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Trust me when I say you probably don’t want to have your taxes done by someone advertising on a telephone pole. Such individuals may say they are going to get you the biggest refund ever, but there’s a chance they are going to falsify your information to do so.

That faked return may get you a refund — but maybe that’s only after your preparer skims some off the top. It could also mean you lose certain Social Security and low-income housing benefits because the income listed on your tax return no longer meets eligibility criteria.

Plus, if you get audited, it’s your problem because the IRS holds taxpayers legally responsible for the information on their returns.

5. Shady tax preparers

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This scam is a variation of scam No. 4. These people don’t necessarily claim they will give you the biggest refund. They simply claim they will do your taxes at a reasonable rate.

The problem? They’re really crooks.

These so-called tax preparers may take your money and run. Or they may file a return for you but then help themselves to your Social Security number and other information to be used later for devious deeds such as identity theft and retail fraud.

You can protect yourself by carefully vetting any tax preparer. Search for reviews online, ask for referrals and read our article on how to pick the best tax professional.

6. Fraudulent charities

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Fraudulent charities are a problem anytime of the year, but they can come back to bite you at tax time. If you are audited and have deducted donations to a charity that really isn’t a charity, you could get hit with more taxes and a penalty.

Typically, fake charities make look-alike logos and websites that trick you into thinking you’re donating to established organizations. They may also spring up after a disaster and take advantage of the fact that you want to help.

In reality, little to none of your money given to these charities will make it to the stated cause.

In addition, if a charity says it needs your Social Security number to take your donation, hang up the phone. No charity needs that information, and it’s likely a ploy to steal your identity.

7. Moving money into offshore accounts

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Now we move away from the scams that bad guys try to pull on you to the scams taxpayers try to pull on the government.

First up is hiding money in offshore accounts. While this has long been acknowledged as a form of tax evasion, it’s only in recent years that the IRS has started cracking down on offenders.

It’s harder now to hide that money. If you want to come clean about past misdeeds, you may be able to reduce your penalties under the Offshore Voluntary Disclosure Program.

8. Not claiming all income

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Another way people try to scam the government is by not claiming all of their income.

In some cases, they may simply fail to declare money from side jobs on their taxes. Others may falsify their W-2s and 1099s, while still others split hairs over what’s considered “wages” and insist they didn’t earn any.

It’s all fun and games until you’re audited or the IRS notices discrepancies in the information provided.

9. Claiming credits without meeting requirements

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On the other hand, some people try to claim credits for which they do not meet requirements — either by claiming income they did not earn, or by claiming too little of their income.

That’s one reason why those who claim Earned Income Tax Credits are more likely to get audited than other taxpayers. The EITC is intended to supplement the income of low- and moderate-income individuals and families. So the claimants must show they did earn money from an employer or through self-employment, but not exceeding defined levels that vary according to status and dependents.

10. Not-so-trustworthy trusts

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Some people may intentionally misuse trusts to shelter money from taxes. Or, they may act under the advice of unscrupulous or incompetent finance “professionals.”

A trust can be a legitimate and valuable way to arrange estate planning. However, before you inadvertently run afoul of the IRS, check with someone who specializes in trusts to help you set one up.

11. Elaborate schemes to elude the law

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This scam is something the IRS calls “abusive tax structures.”

Essentially, it involves taxpayers creating elaborate systems to pass money through multiple layers of businesses and accounts to conceal it from the government.

If someone approaches you about investing your money in a way that seems incomprehensible, it’s possibly a scam. If they also tell you it will nearly eliminate your tax liability, forget about that being a possibility — it’s almost surely a scam.

12. False claims that income tax is optional

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Apparently, there’s a whole segment of the population that believes the 16th Amendment — the one authorizing an income tax — was never ratified to become part of the U.S. Constitution.

Their arguments range from the idea that Ohio wasn’t actually a state when it ratified the amendment to apparent transcription errors that occurred when preparing the amendment for votes in various states.

If you buy these ideas, you may call yourself a “sovereign citizen.” However, the IRS will call you a scam artist. And you can certainly fight the law if you want, but I can practically guarantee the law will win.

Have you ever been the victim of a tax scam? Share with us in comments below or on our Facebook page.

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