IRS Completes the "Dirty Dozen" Tax Scams for 2015
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IR-2015-26, Feb. 9, 2015
WASHINGTON — The Internal Revenue Service wrapped up the 2015 "Dirty Dozen" list of tax scams today with a warning to taxpayers about aggressive telephone scams continuing coast-to-coast during the early weeks of this year's filing season.
The aggressive, threatening phone calls from scam artists continue to be seen on a daily basis in states across the nation. The IRS urged taxpayers not give out money or personal financial information as a result of these phone calls or from emails claiming to be from the IRS.
Phone scams and email phishing schemes are among the "Dirty Dozen" tax scams the IRS highlighted, for the first time, on 12 straight business days from Jan. 22 to Feb. 6. The IRS has also set up a special section on IRS.gov highlighting these 12 schemes for taxpayers.
"We are doing everything we can to help taxpayers avoid scams as the tax season continues," said IRS Commissioner John Koskinen. "Whether it's a phone scam or scheme to steal a taxpayer's identity, there are simple steps to take to help stop these con artists. We urge taxpayers to visit IRS.gov for more information and to be wary of these dozen tax scams."
Illegal scams can lead to significant penalties and interest for taxpayers, as well as possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them. Taxpayers should remember that they are legally responsible for what is on their tax returns even if it is prepared by someone else. Make sure the preparer you hire is up to the task. For more see the Choosing a Tax Professional page.
For the first time, here is a recap of this year's "Dirty Dozen" scams:
Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. 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. (IR-2015-5)
Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email 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. Taxpayers should be wary of clicking on strange emails and websites. They may be scams to steal your personal information. (IR-2015-6)
Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim. (IR-2015-7)
Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. 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. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns. (IR-2015-8)
Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order. (IR-2015-09)
Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. 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 use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims. (IR-2015-12)
Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations. (IR-2015-16)
Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. 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. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns. (IR-2015-18)
Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2015-19)
Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return. (IR-2015-20)
Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including 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. (IR-2015-21)
Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. 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. (IR-2015-23)
Additional information about tax scams is available on IRS social media sites, including YouTube http://www.youtube.com/irsvideos
Special Rules Help Many People With Disabilities Qualify for the Earned Income Tax Credit; Up to 1.5 Million Fail to Claim Valuable Benefit
WASHINGTON – The Internal Revenue Service wants taxpayers with disabilities and parents of children with disabilities to be aware of the Earned Income Tax Credit (EITC) and correctly claim it if they qualify.
The EITC is a federal income tax credit for workers who don't earn a high income ($53,505 or less for 2016) and meet other eligibility requirements. Because it’s a refundable credit, those who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.
The EITC could put an extra $2 or up to $6,269 into a taxpayer’s pocket. Nevertheless, the IRS estimates that as many as 1.5 million people with disabilities miss out on this valuable credit because they fail to file a tax return. Many of these non-filers fall below the income threshold requiring them to file. Even so, the IRS urges them to consider filing anyway because the only way to receive this credit is to file a return and claim EITC.
To qualify for EITC, the taxpayer must have earned income. Usually, this means income either from a job or from self-employment. But taxpayers who retired on disability can also count as earned income any taxable benefits they receive under an employer’s disability retirement plan. These benefits remain earned income until the disability retiree reaches minimum retirement age. The IRS emphasized that social Security benefits or Social Security Disability Income (SSDI) do not count as earned income.
Additionally, taxpayers may claim a child with a disability or a relative with a disability of any age to get the credit if the person meets all other EITC requirements. Use the EITC Assistant, on IRS.gov, to determine eligibility, estimate the amount of credit and more.
People with disabilities are often concerned that a tax refund will impact their eligibility for one or more public benefits, including Social Security disability benefits, Medicaid, and Food Stamps. The law is clear that tax refunds, including refunds from tax credits such as the EITC, are not counted as income for purposes of determining eligibility for benefits. This applies to any federal program and any state or local program financed with federal funds.
The best way to get the EITC is to file electronically: through a qualified tax professional; using free community tax help sites; or through IRS Free File.
Many EITC filers will receive their refunds later this year than in past years. That’s because a new law requires the IRS to hold refunds claiming the EITC and the Additional Child Tax Credit (ACTC) until mid-February. The IRS cautions taxpayers that these refunds likely will not start arriving in bank accounts or on debit cards until the week of Feb. 27. Taxpayers claiming the EITC or ACTC should file as soon as they have all of the necessary documentation together to prepare an accurate return. In other words, file as they normally would.
Business Taxes for the Self-Employed: The Basics
For anyone starting a small business, especially those who are self-employed, the Internal Revenue Service offers some basic information on filing, reporting and paying taxes.
Generally, one is self-employed if they:
Carry on a trade or business as a sole proprietor or independent contractor, or are otherwise in business as an individual, including a part-time business
Own an unincorporated business
Independent contractors are generally people such as doctors, daycare providers, mechanics and contractors who are in an independent trade, business or profession in which they offer their services to the public. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.
Most businesses need to obtain an Employer Identification Number (EIN) from the IRS. A taxpayer needs to get one if they:
Pay wages to employees
Have a self-employed retirement plan
Operate a business as a corporation or partnership
Are required to file any tax returns for employment, excise, fiduciary, or alcohol, tobacco and firearms
The EIN identifies tax returns filed with the IRS. If a taxpayer does not need an EIN, they can generally use their Social Security number (SSN) as their taxpayer identification number.
The fastest and easiest way to get an EIN is online at IRS.gov. Type “EIN” in the search box. The IRS issues the EIN immediately after validating the applicant’s information.
Filing Tax Returns
As a self-employed individual, generally a taxpayer is required to file an annual federal income tax return. A return is required if their net earnings from self-employment are $400 or more. If their net earnings are less than $400, they still need to file an income tax return if they meet any other filing requirement listed in the Form 1040 instructions.
Taxpayers need to use Schedule C or Schedule C-EZ to report income or loss from a business operated or profession practiced as a sole proprietor. Also, be sure to include any self-employment income reported on Form 1099-MISC.
Taxpayers may use Schedule C-EZ instead of Schedule C only if they:
Had business expenses of $5,000 or less
Use a cash method of accounting
Did not have an inventory at any time during the year
Did not have a net loss from the business
Had only one business as either a sole proprietor, qualified joint venture or statutory employee
Taxpayers can deduct the costs of operating their business. These costs are known as business expenses. They are costs taxpayers do not have to capitalize or include in the cost of goods sold, such as inventory for sale, but can deduct in the current year. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in a taxpayer’s field of business. A necessary expense is one that is helpful and appropriate for a business.
Business use of a Home
If a taxpayer uses part of their home for business, they may be able to deduct expenses for the business use of their home. The home office deduction is available for homeowners and renters, and applies to all types of homes.
IRS offers a simplified method for figuring this deduction. The standard method has calculation, allocation and substantiation requirements that are complex and often burdensome for small business owners. The simplified option can significantly reduce recordkeeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office instead of determining actual expenses.
Publication 587, Business Use of Your Home, has a full explanation of tax deductions for a home office.
Taxpayers must generally pay self-employment tax as well as income tax. Self-employment tax is Social Security and Medicare. It’s similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. Taxpayers figure self-employment tax using Form 1040, Schedule SE. Taxpayers can deduct half of their self-employment tax in computing their adjusted gross income. If a taxpayer has more than one business, use one Schedule SE and combine the profits and losses from all businesses.
Estimated Tax Payments
Business taxpayers generally have to make estimated tax payments. This applies even if a taxpayer has a full-time or part-time job and their employer withholds taxes from their wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If a taxpayer doesn't make quarterly payments, they may be penalized for underpayment at the end of the tax year. Quarterly estimated tax payments are due April 15, June 15, Sept. 15 and Jan. 15. For details including a worksheet and 2015 tax rate schedules, see Form 1040-ES.
Taxpayers must keep receipts, sales slips, invoices, bank deposit slips, cancelled checks and other documents. These documents, either electronic or paper files, can substantiate items of income, deductions and credits. Keeping these records will help a taxpayer pay only the tax they owe.
Unless a taxpayer has records showing the sources of receipts, they may not be able to prove that some are nonbusiness or nontaxable. Taxpayer records should show the amount of earnings reportable for self-employment tax purposes. See Publication 583 for details.
Visit the IRS video portal to see a short video on recordkeeping. The portal also features a series titled, “Your Guide to an IRS Audit.” This series of videos takes the viewer through the steps of an audit from notification to closing.
IRS Direct Pay is a free, secure service that enables individual taxpayers to electronically pay a tax bill or make an estimated tax payment directly from a checking or savings account. Taxpayers receive instant confirmation that they submitted a payment. IRS systems do not retain taxpayer bank account information after payments are made.
Alternatively, individuals and businesses can pay their taxes electronically, free of charge, through the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). Payments can be made via the Internet or by phone 24 hours a day, 7 days a week.
Online Learning Tools and information
IRS video portal contains video and audio presentations on topics of interest to small businesses and individuals.
Small Business Taxes: The Virtual Workshop contains nine interactive lessons to help new small business owners learn their tax rights and responsibilities.
Small Business and Self-Employed Tax Center
Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ).
Identity Theft Scams
The IRS has issued several consumer warnings about the fraudulent use of the IRS name or logo by scamsters trying to gain access to consumers’ financial information in order to steal their identity and assets. Scamsters will use the regular mail, telephone, fax or email to set up their victims. When identity theft takes place over the Internet (email), it is called phishing.
The IRS does not initiate taxpayer communications through email. Unsolicited email claiming to be from the IRS, or from an IRS-related component such as EFTPS, should be reported to the IRS at firstname.lastname@example.org.
Additionally, clicking on attachments to or links within an unsolicited email claiming to come from the IRS may download a malicious computer virus onto your computer.Type your paragraph here.
You may also report instances of IRS-related phishing attempts and fraud to the Treasury Inspector General for Tax Administration at 1-800-366-4484.
Three Tax Considerations during Marketplace Open Enrollment
When you apply for assistance to help pay the premiums for health coverage through the Health Insurance Marketplace, the Marketplace will estimate the amount of the premium tax credit that you may be able to claim. The Marketplace will use information you provide about your family composition, your projected household income, whether those that you are enrolling are eligible for other non-Marketplace coverage, and certain other information to estimate your credit.
Here are three things you should consider during the Health Insurance Marketplace Open Enrollment period:
1. Advance credit payments lower premiums - You can choose to have all, some, or none of your estimated credit paid in advance directly to your insurance company on your behalf to lower what you pay out-of-pocket for your monthly premiums. These payments are called advance payments of the premium tax credit or advance credit payments. If you do not get advance credit payments, you will be responsible for paying the full monthly premium.
2. A tax return may be required - If you received the benefit of advance credit payments, you must file a tax return to reconcile the amount of advance credit payments made on your behalf with the amount of your actual premium tax credit. You must file an income tax return for this purpose even if you are otherwise not required to file a return.
3. Credit can be claimed at tax time - If you choose not to get advance credit payments, or get less than the full amount in advance, you can claim the full benefit of the premium tax credit that you are allowed when you file your tax return. This will increase your refund or lower the amount of tax that you would otherwise owe.
For more information about open season enrollment, which runs through January 31, 2016, visit Healthcare.gov. See our Questions and Answers on IRS.gov/ca for information about the premium tax credit.
Understanding Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
Employers with 50 or more full-time employees, including full-time equivalent employees, in the previous year use Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to report the information required about offers of health coverage and enrollment in health coverage for their employees. Form 1095-C is used to report information about each employee.
Employers that offer employer-sponsored self-insured coverage also use Form 1095-C to report information to the IRS and to employees about individuals who have minimum essential coverage under the employer plan and therefore are not liable for the individual shared responsibility payment for the months that they are covered under the plan. An employer must furnish a Form 1095-C to each of its full-time employees by January 31 of the year following the year to which the Form 1095-C relates.
Employers will meet the requirement to furnish Form 1095-C to an employee if the form is properly addressed and mailed on or before the due date. If the regular due date falls on a Saturday, Sunday, or legal holiday, employers may file by the next business day. The Form 1095-C that employers send may include only the last four digits of the employee’s social security number, replacing the first five digits with asterisks or Xs.
Forms 1095-C must be sent on paper by mail or hand delivered, unless the employee consents to receive the statement in an electronic format. The consent ensures that the employee can access the electronic statement. If mailed, the statement must be sent to the employee’s last known permanent address, or if no permanent address is known, to the employee’s temporary address.
Individuals who worked for multiple employers that are required to file Form 1095-C may receive a Form 1095-C from each employer.
Four Things to Know about Advance Payments of the Premium Tax Credit
When you enroll in coverage through the Marketplace during Open Season, which runs through Jan. 31, 2016, you can choose to have monthly advance credit payments sent directly to your insurer. If you get the benefit of advance credit payments in any amount, or if you plan to claim the premium tax credit, you must file a federal income tax return and use a Form 8962, Premium Tax Credit (PTC) to reconcile the amount of advance credit payments made on your behalf with the amount of your actual premium tax credit. You must file an income tax return for this purpose even if you are otherwise not required to file a return.
Here are four things to know about advance payments of the premium tax credit:
• If the premium tax credit computed on your return is more than the advance credit payments made on your behalf during the year, the difference will increase your refund or lower the amount of tax you owe. This will be reported in the ‘Payments’ section of Form 1040.
• If the advance credit payments are more than the amount of the premium tax credit you are allowed, you will add all or a portion of the excess advance credit payments made on your behalf to your tax liability by entering it in the ‘Tax and Credits’ section of your tax return. This will result in either a smaller refund or a larger balance due.
• If advance credit payments are made on behalf of you or an individual in your family, and you do not file a tax return, you will not be eligible for advance credit payments or cost-sharing reductions to help pay for your Marketplace health insurance coverage in future years. • The amount of excess advance credit payments that you are required to repay may be limited based on your household income and filing status. If your household income is 400 percent or more of the applicable federal poverty line, you will have to repay all of the advance credit payments. The repayment limits are listed in the table below.
Household Income Percentage of Federal Poverty Line
Less than 200%
Limitation Amount for Single
Limitation Amount for all other filing statuses
At least 200%, but less than 300%
Limitation Amount for Single
Limitation Amount for all other filing statuses
At least 300%, but less than 400%
Limitation Amount for Single
Limitation Amount for all other filing statuses
400% or more
Limitation Amount for Single
Limitation Amount for all other filing statuses
For more information, see the Premium Tax Credit Questions and Answers at IRS.gov/aca. You can also use our Interactive Tax Assistant tool to find out if you are eligible for the premium tax credit.