Top Tax Scams to Be Aware of in 2012

Every year, the IRS releases its “Dirty Dozen” list of tax scams in an effort to warn taxpayers about individuals or groups who may be promoting fraudulent schemes that promise free money to those who participate. These scams can leave unsuspecting individuals on the hook for penalties, interest and possible criminal prosecution if the fraud is detected by the IRS.

The following list details some of this year’s most popular scams and what you can do to avoid them:

Identity Theft

With the IRS reportedly seeing an increase in the number of returns being filed using stolen information, identity theft tops this year’s Dirty Dozen list. In January 2012, a joint effort involving the IRS and the U.S. Justice Department lead to the arrest of 105 individuals in 23 states who participated in identity theft tax scams.

In many cases, victims of identity theft scams don’t realize their information has been compromised until they receive a letter from the IRS notifying them about a problem with their return. By this time, the identity thieves have already made off with the illegally-obtained tax refund, leaving the unsuspecting taxpayer to try and clean up the mess.

Phishing Scams

“Phishing” scams usually involve an unsolicited or spam email that is designed to trick the recipient into giving out their personal information. These types of emails may include a link to an external website, which can appear legitimate to the unsuspecting eye. Once you provide your information to the scammer, he or she can use it to file a false tax return or commit other identity theft crimes.

One such scam involves sending emails that are reportedly from the IRS or related agencies, such as the Electronic Federal Tax Payment System (EFTPS). The IRS advises consumers that it never asks for personal information via email and urges taxpayers to report suspicious emails to phishing@irs.gov.

“Free Money” Scams

While the promise of free money can be tempting, it can also result in a $5,000 penalty if the IRS determines that you filed a fraudulent return. So-called “free money” scams promise participants a tax refund for claiming credits that they aren’t actually eligible for.

Earlier this month, the IRS warned of a scam making the rounds in several states involving the American Opportunity Tax Credit. Scammers tell their victims that they can get a refund or “stimulus payment” by claiming the credit, regardless of whether they ever attended college. The victims typically pay a hefty fee to the scammer, who then files the bogus return on their behalf. When the error is detected by the IRS, the scam victim is on the hook for repaying any money they weren’t entitled to, along with penalties and interest.

Protecting Yourself from Tax Scams

Scammers are always on the lookout for potential victims and knowing how to protect yourself can help you avoid a tax nightmare. The IRS offers the following tips to help consumers avoid falling prey to tax scams.

• Don’t carry your Social Security card with you
• Only provide your Social Security number to businesses or other entities if required
• Check your credit report regularly for errors
• Protect your computer using firewalls and anti-virus software
• Change your passwords regularly for Internet accounts
• Don’t give out personal information over the phone or via email if you don’t know the person or business you’re communicating with
• Avoid unsolicited offers of tax help, specifically those that promise a bigger refund or charge a substantial fee

For more information on this year’s Dirty Dozen or for additional tips on spotting tax scams, visit the IRS website or read more on how to spot a tax scam and what to do next.