Watch Out for these Tax Scams, Frauds, Schemes, & Abuses

March 26, 2008

Every year the Internal Revenue Service provides a list of “tax schemes and scams” that they’re on the lookout for, the list for this year was just released two weeks ago.  Here are a few of the items to watch out for.

Phishing for Financial Information
Most of you probably already know that phishing is the practice of sending forged emails that appear to come from a trusted source, with the intention of tricking the recipient into revealing information such as account logins, personal data, or financial information.  The IRS explains how this data is then used:

“These criminals use the information obtained to empty the victims’ bank accounts, run up credit card charges and apply for loans or credit in the victims’ names.”

A key point to this scam is that the IRS never uses e-mail to contact taxpayers about their tax issues so if you get an email saying it’s from the IRS don’t click any links inside the email and report it.

Economic Stimulus Payment Scam
Who hasn’t heard of the economic stimulus package by now? Criminals are taking advantage of it’s publicity and people’s eagerness to get their money. 

“some criminals posing as IRS representatives are trying to trick pose as IRS representatives are trying to trick taxpayers into revealing their personal financial information by falsely telling them they must provide information to get a payment.  For instance, a potential victim is told by phone or e-mail that he or she is eligible for a rebate but must provide a bank account number (or similar information) to get the payment.”

The IRS reminds tax payers that “the only way to get a stimulus payment is to file a 2007 tax return“; and that they will not contact taxpayers by phone or e-mail about their stimulus payment.  So if you get a call or email about the stimulus package don’t give out any information.

Fuel Tax Credit Scams
I don’t know much about the fuel tax credit but apparently some people are claiming it when they shouldn’t be. I’m sure we’d all like a fuel credit on our taxes since gas keeps getting more expensive but I wouldn’t recommend trying it. The IRS is warning people that they’re onto the scam:

“… some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit was recently added to the list of frivolous tax claims, potentially subjecting those who improperly claim the credit to a $5,000 penalty.” 

Abusive Retirement Plans
Most retirement plans have certain qualifications on who can participate and who cannot, some people are trying to get around those requirements:

“The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to Roth IRAs.   Taxpayers should be wary of advisers who encourage them to shift appreciated assets into Roth IRAs or companies owned by their Roth IRAs at less than fair market value.”

Basically people are playing a numbers game between the cost value of the investment and the fair market value and reporting the cost value instead since it’s usually lower.

Return Preparer Fraud
If it seems too good to be true then it probably is.  Everyone would love a big tax refund every year but if you’re being promised large refunds just beware:

“Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their schemes.   These scam artists make their money by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds.”

Remember, you’re the one who signs your tax return, so make sure you find someone whose work you trust to sign off on.

Abuse of Charitable Organizations and Deductions
Every year we keep track of the things we donate for charity.  We keep a list of the items, in one case there were so many it was easier to just take some pictures.  Come tax season you can write off those donations, apparently some people are claiming more than they should. 

“The IRS continues to observe the misuse of tax-exempt organizations. Misuse includes arrangements to improperly shield income or assets from taxation, attempts by donors to maintain control over donated assets or income from donated property and overvaluation of contributed property.   In addition, IRS examiners are seeing an upturn in instances where taxpayers try to disguise private tuition payments as contributions to charitable or religious organizations.”


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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