Each year, the Internal Revenue Service compiles a list of the 12 most common, dangerous or costly tax scams. They call this list their “dirty dozen” and recommend that taxpayers stay vigilant during tax season. We will summarize these twelve scams for you, and highlight the steps you should take to protect yourself.
One last scheme in the mini-series of fraudulent credits and deductions is falsifying income to claim credits. As with previous tactics, like inflating refund claims or falsely padding deductions, the IRS sees taxpayers falsify their income to lower their overall tax burden or increase their refund. Shady tax preparers may also advise this so they can guarantee a larger refund. This scam often involves inflating the taxpayer’s income to qualify for credits they otherwise would not have, like the Earned Income Tax Credit. This practice is not allowed by the IRS and must be repaid with interest and penalties when caught.
Another elaborate scheme has the taxpayer file a fraudulent Form 1099 under the guise of a debt repayment plan. The IRS says that scammers present fraudulent Form 1099s from banks or loan services. The form is used to convince the taxpayer that they can "redeem or draw on a fictitious 'held-aside' account" to pay off credit card or mortgage debt. Of course, no option exists, and the taxpayer receives a penalty while the shady tax preparer disappears with their fees.