The Internal Revenue Service (IRS) conitues to warn taxpayers – Beware of the “Dirty Dozen” – a list of tax scams for the 2015 filing season. One of the items on this list is hiding taxable income by filing false Form 1099s or other fake documents.
“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,” IRS Commissioner John Koskinen said. “People should watch out for this type of scam especially when someone else prepares their returns.”
Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter any time but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes.
Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.
Falsely Claiming Zero Wages
Filing a phony information return, such as a Form 1099 or W-2, is an illegal way to lower the amount of taxes an individual owes. These scofflaws use self-prepared, “corrected” or otherwise bogus forms to improperly report taxable income as zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a third-party payer to the IRS.
Some people also attempt fraud using false Form 1099 refund claims. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.
In this scam, the perpetrator files a fake information return to justify a false refund claim on a corresponding tax return.
Taxpayers should resist any temptation to participate in any variations of these schemes. The IRS is well aware of these scams, the courts have consistently rejected attempts to use this tax dodge and perpetrators have received significant penalties, imprisonment or both. Just filing a fake information return may result in a $5,000 penalty.