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IRS releases 'dirty dozen' list of tax scams

The Internal Revenue Service has issued its annual 2010 "dirty dozen" list of tax scams taxpayers should avoid.

The IRS pursues and shuts down many promoters of tax scams, but taxpayers pulled into these schemes usually must pay any taxes due, plus interest, along with penalties as high as $5,000 or more.

"Anyone can be a target of any of these tax scams, so beware. If it sounds too good to be true, it probably is," said IRS spokesperson Carrie Resch.

Topping this year's list of scams are return preparer fraud, hiding income offshore and phishing scams.

Dishonest return preparers can cause serious trouble for taxpayers who fall for their ploys. Such preparers may attract new clients by promising big refunds that are too good to be true. Choose a tax preparer carefully. To increase confidence in the tax system and improve compliance, the IRS is implementing the regulation of paid preparers for future filing seasons.

The IRS aggressively pursues taxpayers involved in abusive offshore schemes as well as those who promote them. The schemes hide income in offshore banks to avoid tax, but may allow access to funds through debit or credit cards, wire transfers, foreign trusts and other schemes. IRS aggressively investigates these, but participants can make a voluntary disclosure that may mitigate their risk of criminal prosecution.

Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing private information. IRS impersonation schemes may take the form of e-mails, tweets, phony websites, phone calls or faxes. Taxpayers who get e-mails claiming to come from the IRS should not open any attachments or click on any links in the e-mail, but should visit the "Report Phishing" page at Remember, the IRS never sends e-mails to taxpayers about their taxes.

Other tax scams include:

•Claiming false refunds by fabricating information returns, like a Form W-2, then claiming a refund of tax withheld.

•Reporting nontaxable Social Security benefits and exaggerated withholding, which results in no income reported to the IRS on the return.

•Over-valuing non-cash donations, and schemes in which someone appears to donate, but maintains control of or gets the assets back.

•Citing frivolous tax arguments, which have been repeatedly rejected by the courts but continue to be promoted as ways to avoid paying taxes.

•Abusing retirement plans by using methods to circumvent annual contribution limits and not properly reporting early distributions.

•Setting up corporations or other entities to assist in financial crimes. The IRS is working with state authorities to identify businesses that exist to facilitate underreporting of income, fictitious deductions, money laundering, non-filing and even terrorist financing.

•Filing bogus documents to "correct" information on W-2s and 1099s in order to falsely lower the amount of tax owed or to get a refund.

•Misusing trusts to hide income and evade taxes.

•Illegally claiming fuel tax credits meant for farmers and other off-highway users.

For more details on each of the scams, see the full 2010 Dirty Dozen at

Report suspected tax fraud to the IRS using Form 3949-A, Information Referral, available at 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.