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This is Part 2 of our discussion of the top tax scams that taxpayers everywhere should avoid.

Zero Wages Scam

Don’t believe anyone who says you can file a false wage-or-income-related informational return to replace a legitimate information return. In this scam, it is common to use a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 as a way to improperly reduce taxable income to zero. Another aspect of this scheme that is common: a $5,000 penalty.

Identity Theft and Phishing

Criminals who have someone else’s personal information can file a fraudulent tax return and collect a refund. Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. Many scammers pretend to be from the IRS. Any website or e-mail from the IRS would have an address that begins with Report any others to the IRS at [email protected].

Fraud by Tax Return Preparers

Orange County tax fraud attorneys will tell you that most tax return preparers are professional and honest, but if you have a dishonest one, they will cause you a lot of trouble. Beware high fees or schemes to inflate your refund in exchange for a percentage of the money you get back.

Fake Charitable Donations

In this scam the taxpayer frequently overstates donations to charity, or the taxpayer tries to control assets that have supposedly been donated. Since 2006, there have been increased penalties for inaccurate appraisals of donations to charity.

Abuse of IRAs

The IRS is on the lookout for suspicious transactions involving IRAs and other retirement accounts. Scammers try to advise taxpayers to avoid contribution limits, or how to take early distributions without detection.

Nontaxable Social Security Benefits and/or Exaggerated Withholding Credit

Claiming nontaxable Social Security benefits, or overstating tax withheld, or both, are common, and are commonly detected by the IRS. The result is commonly a $5000 penalty.

Disguised Corporate Ownership

Using a third party to request an employer identification number is a scam that aims to hide corporate ownership. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.

Bad Trusts

Trusts have some very beneficial tax advantages, but if the advantages sound too good to be true, they probably are.

Fuel Tax Credit Scams

Most of the taxpayers who get the fuel tax credit are farmers. If a scammer tries to convince you that you are eligible for a large fuel tax credit, beware.

Finally, the IRS is serious about cracking down on tax fraud. If you believe you have been scammed or have been advised to take part in a scam, report the activity to the IRS at

Source: “Don’t Fall Prey to the 2011 Dirty Dozen Tax Scams” 4/7/2011