Unfortunately, there are loads of ways people and corporations can cheat the government out of its taxes. The IRS tells people to be on the lookout for people or businesses involved in things like kickbacks, faking exemptions or deductions, altering documents, failing to report income or not properly withholding taxes. It also issues an annual "Dirty Dozen" list of the year's most common forms of tax fraud. The 2013 Dirty Dozen list included:
- Identity theft: Someone steals your personal info and then uses it to commit tax fraud. A common tactic is to steal your identity, then file a tax return in your name and claim a refund.
- Phishing: Someone obtains personal or financial information via a fake website or email that appears legitimate. Once your identity is nabbed, it's used for tax fraud.
- Return preparer fraud: Tax preparers use your personal info to commit tax fraud or identity theft.
- Hiding income offshore: A person puts money in overseas accounts to avoid U.S. taxes.
- Scams involving Social Security or claiming IRS is giving out free money: Various schemes, with many targeting low-income individuals, the elderly and church communities.
- Impersonation of charitable organizations: Crooks create fake charities, often after major natural disasters, and obtain money and personal info from taxpayers, which is then used for tax fraud.
- False/inflated income and expenses: Taxpayer claims income he didn't earn or expenses he didn't pay.
- False form 1099 refund claim: A person files a fake supplementary return, such as 1099, to justify refund claim on corresponding tax return.
- Frivolous arguments: Filers don't pay what they owe for spurious reasons like federal income tax payment is optional.
- Falsely claiming zero wages: Filer rebuts the wages and taxes her employer reports paying her, or else files a fake supplementary return to bring her taxable income down to zero.
- Disguised corporation ownership: Creating corporations to disguise a business' true owner.
- Misuse of trusts: Transferring assets into a trust to avoid taxes.
Be aware of those trying to hook you into one of these schemes, because if you sign off on an erroneous return -- even unwittingly -- you're legally responsible [source: Internal Revenue Service].