IRS Dirty Dozen List of Tax Scams for the 2015 Filing Season

Transcription

1 IRS Dirty Dozen List of Tax Scams for the 2015 Filing Season 1. Phone Scams Aggressive and threatening phone calls by criminals impersonating IRS agents remain near the top of the annual "Dirty Dozen" list of tax scams for the 2015 filing season, the Internal Revenue Service announced today. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season. "If someone calls unexpectedly claiming to be from the IRS with aggressive threats if you don't pay immediately, it's a scam artist calling, said IRS Commissioner John Koskinen. "The first IRS contact with taxpayers is usually through the mail. Taxpayers have rights, and this is not how we do business." Phone scams top the list this year because it has been a persistent and pervasive problem for many taxpayers for many months. Scammers are able to alter caller ID numbers to make it look like the IRS is calling. They use fake names and bogus IRS badge numbers. They often leave "urgent" callback requests. They prey on the most vulnerable people, such as the elderly, newly arrived immigrants and those whose first language is not English. Scammers have been known to impersonate agents from IRS Criminal Investigation as well. Protect Yourself As telephone scams continue across the country, the IRS recently put out a new YouTube video with a renewed warning to taxpayers not to be fooled by imposters posing as tax agency representatives. The new Tax Scams video describes some basic tips to help protect taxpayers from tax scams. These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you. The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never: Call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe. Require you to use a specific payment method for your taxes, such as a prepaid debit card. Ask for credit or debit card numbers over the phone. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

2 If you get a phone call from someone claiming to be from the IRS and asking for money, here s what you should do: If you know you owe taxes or think you might owe, call the IRS at The IRS workers can help you with a payment issue. If you know you don t owe taxes or have no reason to believe that you do, report the incident to the TIGTA at or at If you ve been targeted by this scam, also contact the Federal Trade Commission and use their FTC Complaint Assistant at FTC.gov. Please add &quotirs Telephone Scam&quot to the comments of your complaint. Remember, too, the IRS does not use , text messages or any social media to discuss your personal tax issue involving bills or refunds. For more information on reporting tax scams, go to and type scam in the search box. 2. Phishing "The IRS won t send you an about a bill or refund out of the blue. Don t click on one claiming to be from the IRS that takes you by surprise, said IRS Commissioner John Koskinen. I urge taxpayers to be wary of clicking on strange s and websites. They may be scams to steal your personal information. Stop and Think before Clicking Phishing is a scam typically carried out with the help of unsolicited or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft. If you receive an unsolicited that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov. It is important to keep in mind the IRS generally does not initiate contact with taxpayers by to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help you protect yourself from scams. 3. Identity Theft Scams can be sophisticated and take many forms. We urge people to protect themselves and use caution when viewing s, receiving telephone calls or getting advice on tax issues," Koskinen said. "Keep your personal information safe and secure. Taxpayers should protect their computers and only give out their Social Security numbers when absolutely necessary." Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. While the IRS has made significant strides over the past several years to address this issue, it remains a top concern for the IRS, which is why identity theft remains on the Dirty Dozen again list this year as the IRS works to protect taxpayers and help victims.

3 Fighting identity theft is an ongoing battle as identity thieves continue to create new ways of stealing personal information and using it for their gain. Identity theft cases are among the most complex handled by the IRS. The IRS is continually reviewing processes and policies to minimize the incidence of identity theft and to help those who find themselves victimized. The IRS is working hard to streamline its internal process, but more work remains. In an effort to help victims, the IRS has issued approximately 1.5 million Identity Protection PINs (IP PINs.) The IP PIN is a unique, six-digit number that is assigned annually to victims of identity theft with resolved cases for use when filing their federal tax return. The IP PIN will allow these individuals to avoid delays in filing returns and receiving refunds. This year, the IRS will continue its IP PIN pilot program that allows taxpayers who filed tax returns last year from Florida, Georgia or the District of Columbia to opt into the IP PIN program. Additionally, the IRS is offering approximately 1.7 million taxpayers the opportunity to opt in to the IP PIN program in instances where the IRS has identified indications of identity theft on their accounts. The IRS understands that identity theft is a frustrating, complex process for victims. While identity thieves steal information from sources outside the tax system, the IRS is often the first to inform a victim that identity theft has occurred. The IRS is working hard to resolve identity theft cases as quickly as possible. The IRS offers the following tips as ways to protect you from becoming a victim of identity theft: Don t carry your Social Security card or any documents that include your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN). Don t give a business your SSN or ITIN just because they ask. Give it only when required. Protect your financial information. Check your credit report every 12 months. Review your Social Security Administration earnings statement annually. Secure personal information in your home. Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts. Don t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with. Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at More information can be found on the special identity protection page. 4. Return Preparer Fraud The Internal Revenue Service today warned taxpayers to be on the lookout for unscrupulous return preparers, one of the most common Dirty Dozen tax scams seen during tax season. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. That's why unscrupulous preparers who prey on unsuspecting taxpayers with outlandish promises of overly large refunds make the Dirty Dozen list every year.

4 Choosing Return Preparers Carefully It is important to choose carefully when hiring an individual or firm to prepare your return. Wellintentioned taxpayers can be misled by preparers who don t understand taxes or who mislead people into taking credits or deductions they aren t entitled to in order to increase their fee. Every year, these types of tax preparers face everything from penalties to even jail time for defrauding their clients. Here are a few tips when choosing a tax preparer: Check to be sure the preparer has an IRS Preparer Tax Identification Number (PTIN). Anyone with a valid 2015 PTIN is authorized to prepare federal tax returns. Tax return preparers, however, have differing levels of skills, education and expertise. An important difference in the types of practitioners is representation rights. You can learn more about the several different types of return preparers on IRS.gov/chooseataxpro. Ask the tax preparer if they have a professional credential (enrolled agent, certified public accountant, or attorney), belong to a professional organization or attend continuing education classes. A number of tax law changes, including the Affordable Care Act provisions, can be complex. A competent tax professional needs to be up-to-date in these matters. Tax return preparers aren t required to have a professional credential, but make sure you understand the qualifications of the preparer you select. Check on the service fees upfront. Avoid preparers who base their fee on a percentage of your refund or those who say they can get larger refunds than others can. Always make sure any refund due is sent to you or deposited into your bank account. Taxpayers should not deposit their refund into a preparer s bank account. Make sure your preparer offers IRS e-file and ask that your return be submitted to the IRS electronically. Any tax professional who gets paid to prepare and file more than 10 returns generally must file the returns electronically. It s the safest and most accurate way to file a return, whether you do it alone or pay someone to prepare and file for you. Make sure the preparer will be available. Make sure you ll be able to contact the tax preparer after you file your return even after the April 15 due date. This may be helpful in the event questions come up about your tax return. Provide records and receipts. Good preparers will ask to see your records and receipts. They ll ask you questions to determine your total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules. Never sign a blank return. Don t use a tax preparer that asks you to sign an incomplete or blank tax form. Review your return before signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you re comfortable with the accuracy of the return before you sign it. Ensure the preparer signs and includes their PTIN. Paid preparers must sign returns and include their PTIN as required by law. The preparer must also give you a copy of the return. Report abusive tax preparers to the IRS. You can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on IRS.gov. To find other tips about choosing a preparer, better understand the differences in credentials and qualifications, and learn how to submit a complaint regarding a tax return preparer, visit Remember: Taxpayers are legally responsible for what is on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task. 5. Hiding Money or Income Offshore

5 The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the Dirty Dozen for the 2015 filing season. Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 50,000 disclosures and we have collected more than $7 billion from this initiative alone. The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions. The IRS remains committed to our priority efforts to stop offshore tax evasion wherever it occurs. Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil. Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shut down scams and prosecute the criminals behind them. While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution. Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult. 6. Inflated Refund Claims "Every filing season, scam artists lure victims in by promising outlandish refunds, said IRS Commissioner John Koskinen. Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund." Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place. Scam artists use flyers, advertisements, phony store fronts and even word of mouth to throw out a wide net for victims. They may even spread the word through community groups or churches where trust is high. Scammers prey on people who do not have a filing requirement, such as lowincome individuals or the elderly. They also prey on non-english speakers, who may or may not have a filing requirement. Scammers build false hope by duping people into making claims for fictitious rebates, benefits or tax credits. They charge good money for very bad advice. Or worse, they file a false return in a person's name and that person never knows that a refund was paid. Scam artists also victimize people with a filing requirement and due a refund by promising inflated refunds based on fictitious Social Security benefits and false claims for education credits, the Earned Income Tax Credit (EITC), or the American Opportunity Tax Credit, among others. The IRS sometimes hears about scams from victims complaining about losing their federal benefits, such as Social Security benefits, certain veteran s benefits or low-income housing

6 benefits. The loss of benefits was the result of false claims being filed with the IRS that provided false income amounts. While honest tax preparers provide their customers a copy of the tax return they ve prepared, victims of scam frequently are not given a copy of what was filed. Victims also report that the fraudulent refund is deposited into the scammer s bank account. The scammers deduct a large fee before paying victims, a practice not used by legitimate tax preparers. The IRS reminds all taxpayers that they are legally responsible for what s on their returns even if it was prepared by someone else. Taxpayers who buy into such schemes can end up being penalized for filing false claims or receiving fraudulent refunds. Taxpayers should take care when choosing an individual or firm to prepare their taxes. The IRS has a list of tips and other resources to help taxpayers select a qualified tax professional. 7. Fake Charities "When making a donation, taxpayers should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities, said IRS Commissioner John Koskinen. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. The IRS offers these basic tips to taxpayers making charitable donations: Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be taxdeductible. Don t give out personal financial information, such as Social Security numbers or passwords to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. People use credit card numbers to make legitimate donations but please be very careful when you are speaking with someone who called you. Don t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift. Call the IRS toll-free disaster assistance telephone number ( ) if you are a disaster victim with specific questions about tax relief or disaster related tax issues. Impersonation of Charitable Organizations Another long-standing type of abuse or fraud involves scams that occur in the wake of significant natural disasters. Following major disasters, it s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims identities or financial resources. Bogus websites may solicit funds for disaster victims. To help disaster victims, the IRS encourages taxpayers to donate to recognized charities. 8. Filing Fake Documents to Hide Income

7 The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. said IRS Commissioner John Koskinen. People should watch out for this type of scam especially when someone else prepares their returns. Falsely Claiming Zero Wages Filing a phony information return, such as a Form 1099 or W-2, is an illegal way to lower the amount of taxes an individual owes. These scofflaws use self-prepared, corrected or otherwise bogus forms that improperly report taxable income as zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a third-party payer to the IRS. Taxpayers should resist any temptation to participate in any variations of this scheme. The IRS is well-aware of this scam, the courts have consistently rejected attempts to use this tax dodge and perpetrators have received significant penalties, imprisonment or both. Just filing this type of return may result in a $5,000 penalty. Some people also attempt fraud using false Form 1099 refund claims. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this scam, the perpetrator files a fake information return to justify a false refund claim on a corresponding tax return. Again, the IRS is well-aware of this scam, the courts have consistently rejected attempts to use this tax dodge and perpetrators have received significant penalties, imprisonment or both. Don t fall prey to people who encourage you to claim deductions or credits to which you are not entitled. Do not allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution. 9. Abusive Tax Shelters Abusive tax schemes have evolved from simple structuring of abusive domestic and foreign trust arrangements into sophisticated strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions. IRS Criminal Investigation (CI) has developed a nationally coordinated program to combat these abusive tax schemes. CI's primary focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme, such as accountants or lawyers. Just as important is the investigation of investors who knowingly participate in abusive tax schemes. What is an abusive scheme? The Abusive Tax Schemes program encompasses violations of the Internal Revenue Code (IRC) and related statutes where multiple flow-through entities are used as an integral part of the taxpayer's scheme to evade taxes. These schemes are characterized by the use of Limited Liability Companies (LLCs), Limited Liability Partnerships (LLPs), International Business Companies (IBCs), foreign financial accounts, offshore credit/debit cards and other similar instruments. The schemes are usually complex involving multi-layer transactions for the purpose of concealing the true nature and ownership of the taxable income and/or assets. Whether something is too good to be true is important to consider before buying into any arrangements that promise to eliminate or substantially reduce your tax liability. If an arrangement uses unnecessary steps or a form that does not match its substance, then that arrangement is an abusive scheme. Another thing to remember is that the promoters of abusive tax schemes often employ financial instruments in their schemes; however, the instruments are used for improper purposes including the facilitation of tax evasion.

8 The IRS encourages taxpayers to report unlawful tax evasion. Find out how to report suspected tax fraud activity. Misuse of Trusts Trusts also commonly show up in abusive tax structures. They are highlighted here because unscrupulous promoters continue to urge taxpayers to transfer large amounts of assets into trusts. These assets include not only cash and investments, but also successful on-going businesses. There are legitimate uses of trusts in tax and estate planning, but the IRS commonly sees highly questionable transactions. These transactions promise reduced taxable income, inflated deductions for personal expenses, reduced (even to zero) self-employment taxes, and reduced estate or gift transfer taxes. These transactions commonly arise when taxpayers are transferring wealth from one generation to another. Questionable trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS. IRS personnel continue to see an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses, as well as to avoid estate transfer taxes. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement. Captive Insurance Another abuse involving a legitimate tax structure involves certain small or micro captive insurance companies. Tax law allows businesses to create captive insurance companies to enable those businesses to protect against certain risks. The insured claims deductions under the tax code for premiums paid for the insurance policies while the premiums end up with the captive insurance company owned by same owners of the insured or family members. The captive insurance company, in turn, can elect under a separate section of the tax code to be taxed only on the investment income from the pool of premiums, excluding taxable income of up to $1.2 million per year in net written premiums. In the abusive structure, unscrupulous promoters persuade closely held entities to participate in this scheme by assisting entities to create captive insurance companies onshore or offshore, drafting organizational documents and preparing initial filings to state insurance authorities and the IRS. The promoters assist with creating and selling to the entities often times poorly drafted insurance binders and policies to cover ordinary business risks or esoteric, implausible risks for exorbitant premiums, while maintaining their economical commercial coverage with traditional insurers. Total amounts of annual premiums often equal the amount of deductions business entities need to reduce income for the year; or, for a wealthy entity, total premiums amount to $1.2 million annually to take full advantage of the Code provision. Underwriting and actuarial substantiation for the insurance premiums paid are either missing or insufficient. The promoters manage the entities captive insurance companies year after year for hefty fees, assisting taxpayers unsophisticated in insurance to continue the charade. 10. Falsifying Income to Claim Tax Credits Some people falsely increase the income they report to the IRS. This scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income, usually in order to maximize refundable credits. Just like falsely claiming an expense or deduction you did not pay, claiming income you did not earn in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in taxpayers facing a large bill to repay the

9 erroneous refunds, including interest and penalties. In some cases, they can even face criminal prosecution. Taxpayers may encounter unscrupulous return preparers who make them aware of this scam. Remember: Taxpayers are legally responsible for what s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task. Here are a few tips when choosing a tax preparer: Check to be sure the preparer has an IRS Preparer Tax Identification Number (PTIN). Anyone with a valid 2015 PTIN is authorized to prepare federal tax returns. Tax return preparers, however, have differing levels of skills, education and expertise. An important difference in the types of practitioners is representation rights. You can learn more about the several different types of return preparers on IRS.gov/chooseataxpro. Ask the tax preparer if they have a professional credential (enrolled agent, certified public accountant, or attorney), belong to a professional organization or attend continuing education classes. A number of tax law changes, including the Affordable Care Act provisions, can be complex. A competent tax professional needs to be up-to-date in these matters. Tax return preparers aren t required to have a professional credential, but make sure you understand the qualifications of the preparer you select. Check on the service fees upfront. Avoid preparers who base their fee on a percentage of your refund or those who say they can get larger refunds than others can. Always make sure any refund due is sent to you or deposited into your bank account. Taxpayers should not deposit their refund into a preparer s bank account. Make sure your preparer offers IRS e-file and ask that your return be submitted to the IRS electronically. Any tax professional who gets paid to prepare and file more than 10 returns generally must file the returns electronically. It s the safest and most accurate way to file a return, whether you do it alone or pay someone to prepare and file for you. Make sure the preparer will be available. Make sure you ll be able to contact the tax preparer after you file your return even after the April 15 due date. This may be helpful in the event questions come up about your tax return. Provide records and receipts. Good preparers will ask to see your records and receipts. They ll ask you questions to determine your total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules. Never sign a blank return. Don t use a tax preparer that asks you to sign an incomplete or blank tax form. Review your return before signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you re comfortable with the accuracy of the return before you sign it. Ensure the preparer signs and includes their PTIN. Paid preparers must sign returns and include their PTIN as required by law. The preparer must also give you a copy of the return. Report abusive tax preparers to the IRS. You can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on IRS.gov. IRS.gov has general information on reporting tax fraud. More specifically, you report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form and fill it out or order by mail at 800-TAX FORM ( ). The form includes a return address.

10 The IRS reminds taxpayers that tax scams can take many forms beyond the Dirty Dozen, and people should be on the lookout for many other schemes. More information on tax scams is available at IRS.gov. 11. Excessive Claims for fuel Tax Credits Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000. Furthermore, illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them. The fuel tax credit is generally limited to off-highway business use or use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds. Fuel Tax Credit Scams The federal government taxes gasoline, diesel fuel, kerosene, alternative fuels and certain other types of fuel. Certain commercial uses of these fuels are nontaxable. Individuals and businesses that purchase fuel for one of those purposes can claim a tax credit by filing Form 4136, Credit for Federal Tax Paid on Fuels. The tax is on fuels used to power vehicles and equipment on roads and highways. Taxes paid for fuel to power vehicles and equipment used off-road may qualify for the tax credit and may include farm equipment, certain boats, trains and airplanes. Improper claims for the fuel tax credit generally come in two forms. An individual or business may make an erroneous claim on their otherwise legitimate tax return. Or an identity thief may claim the credit in a broader fraudulent scheme. The IRS has taken a number of steps to improve compliance processes involving fuel tax credits. IRS compliance filters are preventing a significant number of questionable fuel tax credit claims from being processed. For example, new identity theft screening filters have also improved the IRS s ability to identify questionable fuel tax credit claims during return processing, including preventing the issuance of $33 million in questionable credit claims in For the upcoming filing season, the IRS has taken additional steps to identify returns for review that claim fuel tax credits, including broadening the identification criteria to ensure a more comprehensive compliance approach in selecting questionable tax returns. 12. Frivolous Tax Arguments The Internal Revenue Service wrapped up its 2015 Dirty Dozen tax scams list by warning taxpayers against using frivolous tax arguments to avoid paying their taxes. The IRS today also released the 2015 version of The Truth about Frivolous Tax Arguments. The 69-page document describes and responds to some of the common frivolous tax arguments made by those who oppose compliance with federal tax laws. Examples include contentions that taxpayers can refuse to pay taxes on religious or moral grounds by invoking the First Amendment. The cases cited in the document demonstrate how frivolous arguments are treated by the IRS and the courts. Debunking Frivolous Tax Arguments The Truth about Frivolous Tax Arguments describes and responds to some of the common frivolous tax arguments made by those who oppose compliance with federal tax laws. The cases cited demonstrate how frivolous arguments are treated by the IRS and the courts. The 2015

11 version includes numerous recently-decided cases that demonstrate that the courts continue to regard such arguments as illegitimate. Examples of frivolous arguments also include contentions that employees subject to federal income tax are employees of the federal government, and that only foreign-source income is taxable. Don t Get Talked into Using a Frivolous Argument Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. The penalty applies to anyone who submits a purported tax return or other specified submission, if any portion of the submission is based on a position the IRS identified as frivolous in Notice , I.R.B. 609 or reflects a desire to delay or impede administration of the tax laws. Those who promote or adopt frivolous positions also risk a variety of other penalties. For example, taxpayers could be responsible for an accuracy-related penalty, a civil fraud penalty, an erroneous refund claim penalty, or a failure to file penalty. The Tax Court may also impose a penalty against taxpayers who make frivolous arguments in court. Taxpayers who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax. Similarly, taxpayers may be convicted of a felony for willfully making and signing under penalties of perjury any return, statement, or other document that the person does not believe to be true and correct as to every material matter. Persons who promote frivolous arguments and those who assist taxpayers in claiming tax benefits based on frivolous arguments may be prosecuted for a felony.