Filing fake documents with the IRS is once again on the “Dirty Dozen” list of tax scams. The IRS has caught on to many of these schemes, and is warning taxpayers not to fall prey to anyone who encourages you to claim deductions or credits to which you are not entitled, and not to allow anyone to use your information to file false documentation with the IRS.
Here are a few of the ways that people file fake documents in an attempt to defraud the IRS:
- Fake tax return. The filing of a tax return in which the taxpayer claims lower income than what was received in that taxable year, or higher deductions than is warranted.
- False form W-2. An employee’s W2 does not accurately reflect wages paid or taxes withheld.
- False statements. A taxpayer submits a statement to the IRS rebutting wages reported by a third party payer that were in fact earned as reported, including “corrected” or other bogus forms that reduce or eliminate taxable income.
- False Form 1099 refund claims. This is where a taxpayer files a fake information return in order to claim a corresponding deduction on their tax return. A popular version of this tax scam is where the taxpayer claims that they are the holder of an original issue discount (OID) obligation, and falsely reports withheld interest income on a Form 1099-OID.
The IRS is picking up on these and other scams involving false forms. An increasing number of taxpayers are getting caught and the penalties are significant. Filing a false Form 1099 refund claim may result in a $5,000 penalty. Any attempt to evade or defeat tax may result in a felony conviction punishable by 5 years in prison and/or a fine of up to $100,000 ($500,000 in the case of a corporation). The taxpayer may also be liable for the costs of the prosecution.
It is crucial that taxpayers be wary of any tax preparer or other party who even suggests falsifying a tax-related document to reduce tax liability or inflate a refund. Always remember that you are ultimately responsible for everything filed in your name.
Keep out of trouble by hiring an honest and responsible tax preparer. If it is too late and you are facing a criminal tax investigation, the dedicated tax attorneys at Moskowitz LLP have experience in this area and are here to assist you. Contact our office today for a consultation.
Look for our next post in this series on the IRS “Dirty Dozen” list of tax scams - #9 is all about Abusive Tax Shelters.