IRS Annual “Dirty Dozen” List of Tax Scams to Avoid Includes Falsely Padding Deductions

Michael Lodge –

When we get the call from a new client that is scared to death because they got a letter from the IRS saying they are being audited most of the time they know they may have padded their deductions.  The IRS is warning everyone about this scam. A lot of time when we go through the interview process of a client and we ask them questions and the first thing they do is look up in the sky, that is where all the good numbers are it seems, we pretty much know that this may be a padded number.  At the end of the interview we always tell them that the numbers they put down may be audited, make sure you have documentation to prove your deduction.  Don’t look up in the air for the numbers, those numbers spell trouble if your audited.

Avoid the temptation to falsely inflate deductions or expenses on tax returns, the IRS warned today in its 2017 “Dirty Dozen” list of tax scams. Doing so may result in paying less than is owed or receiving a larger refund than is due.

The majority of taxpayers file honest and accurate tax returns each year. However, each year some taxpayers “fudge” their information. This is why falsely claiming deductions, expenses or credits on tax returns remains on the “Dirty Dozen” list of tax scams.

Taxpayers should think twice before overstating deductions such as charitable contributions, padding  business expenses or including credits that they are not entitled to receive – like the Earned Income Tax Credit or Child Tax Credit.

Each year, increasingly efficient automated systems generate most IRS audits. The IRS can normally audit returns filed within the last three years. Additional years can be added if substantial errors are identified or fraud is suspected. Although there is no way to entirely avoid an audit, preparing an accurate tax return is a taxpayer’s best defense.

Significant penalties may apply for taxpayers who file incorrect returns including: 

  • 20 percent of the disallowed amount for filing an erroneous claim for a refund or credit.
  • $5,000 if the IRS determines a taxpayer has filed a “frivolous tax return.” A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax reported is substantially incorrect.
  • In addition to the full amount of tax owed, a taxpayer could be assessed a penalty of 75 percent of the amount owed if the underpayment on the return resulted from tax fraud.

Taxpayers may be subject to criminal prosecution and be brought to trial for actions such as:  

  • Tax evasion
  • Willful failure to file a return, supply information, or pay any tax due
  • Fraud and false statements
  • Preparing and filing a fraudulent return, or
  • Identity theft.

Criminal prosecution could lead to additional penalties and even prison time.

File an Accurate Return

Using tax software is one way for taxpayers to ensure they file an accurate return and claim only the tax benefits they’re eligible to receive. Question and answer formats lead taxpayers through each section of the tax return.  IRS Free File is an option for taxpayers to use software to prepare and e-file their tax returns for free.

Taxpayers should know that they are legally responsible for what is on their tax return, even if it is prepared by someone else.

Make sure you use a tax practitioner that will help you through the deduction process and keep you in compliance with the tax laws.  If you need help, call our office at:  877.778.1770 and you will be assigned to one of our professional tax practitioners.