The Internal Revenue Service yesterday warned taxpayers to be alert to unscrupulous tax return preparers touting inflated tax refunds. This scam remains on the annual list of tax scams known as the “Dirty Dozen” for 2017. The “Dirty Dozen,” an annual list compiled by the IRS, outlines common scams that taxpayers may encounter. These schemes peak during filing season as people prepare their returns or hire others to help with their taxes.
In addition to falsely inflating deductions or expenses on their returns people also include income on a tax return that was never earned, either as wages or self-employment income, usually to maximize refundable credits. The IRS cautions taxpayers to avoid getting caught up in scheme disguised as a debt payment option for credit cards or mortgage debt. It involves the filing of a Form 1099-MISC, Miscellaneous Income, and/or bogus financial instruments such as bonds, bonded promissory notes or worthless checks. Taxpayers may encounter unethical return preparers who make them aware of these scams. Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else.
The IRS notes that it is important to choose carefully when hiring an individual or firm to prepare your return. Well-intentioned taxpayers can be misled by tax return preparers who do not understand the tax system or who mislead people into taking credits or deductions they are not entitled to in order to increase their fee. Every year, these types of tax preparers face penalties including time in prison for defrauding their clients.