IRS 2010 "Dirty Dozen" Tax Scams

The Internal Revenue Service has issued its 2010 “dirty dozen” list of tax scams, including schemes involving return preparer fraud, hiding income offshore and phishing.

“Taxpayers should be wary of anyone peddling scams that seem too good to be true," according to IRS Commissioner Doug Shulman. Tax schemes are illegal and can lead to imprisonment and fines for both scam artists and taxpayers. Taxpayers pulled into these schemes must repay unpaid taxes plus interest and penalties. The IRS pursues and shuts down promoters of these and numerous other scams.

The 2010 list:
Return Preparer Fraud - Dishonest return preparers derive financial gain by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by promising refunds that are too good to be true.

Hiding Income Offshore - Taxpayers who try to avoid or evade U.S. income tax by hiding income in offshore banks or brokerage accounts will be aggressively pursued by the IRS.

Phishing - Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. The IRS does not contact taxpayers via e-mail or phone.

Filing False or Misleading Forms - The IRS is seeing various instances where scam artists file false or misleading returns to claim refunds to which they are not entitled.

Nontaxable Social Security Benefits with Exaggerated Withholding Credit - Taxpayers reporting nontaxable Social Security Benefits with excessive withholding on their return may receive a $5,000 penalty for the false filing.

Abuse of Charitable Organizations and Deductions - The IRS continues to observe the misuse of tax-exempt organizations, including arrangements to improperly shield income or assets from taxation, attempts by donors to maintain control over donated assets or income from donated property, overvalued donations, and organizations promising that the donor can repurchase the items later at a price set by the donor.

Frivolous Arguments - Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is.

Abusive Retirement Plans - The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions.

Disguised Corporate Ownership - Corporations and other entities formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number.

Zero Wages - Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Taxpayers participating in any of the variations of this scheme may result in a $5,000 penalty.

Misuse of Trusts - While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and to hide assets from creditors, including the IRS.

Fuel Tax Credit Scams - The IRS receives claims for the fuel tax credit that are excessive. Some taxpayers may be eligible for the fuel tax credit, but other individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit potentially subjects those who improperly claim the credit to a $5,000 penalty.


Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.

Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.