The 2019 IRS “Dirty Dozen” Tax Scams #5 and #6: Inflating Tax Refunds and Falsifying Income

The next two items on the 2019 IRS Dirty Dozen tax scams list focus on how phony tax preparers manipulate the tax returns of unsuspecting taxpayers in order to collect some or all of an undeserved government refund.

In our last post, we warned taxpayers to beware of unscrupulous tax preparers, but didn’t describe the various ways that these con artists take advantage of their victims. Items #5 and #6 on this year’s IRS Dirty Dozen list of tax scams focus on some techniques they use to inflate tax refunds and falsify income that mainly target senior citizens, low-income taxpayers, and non-English speakers – scams that threaten their victim’s federal benefits including social security, veterans benefits, and low-income housing.

How scammers claim false IRS tax refunds

Scam artists use a number of different techniques to get the IRS to generate a tax refund. Some pose as tax preparers, getting unsuspecting clients to give them a percentage of their tax refund, or have the refund paid into their own account so that they can take off with the whole amount.

Their targets are taxpayers who are either due a federal or state tax refund, or who may not have to file at all, by inflating their income and claiming benefits and tax credits that they aren’t entitled to. To collect the false tax refund, these individuals get taxpayers to:

  • File false claims for education credits and/or the Earned Income Tax Credit (EITC), among others
  • File claims for fake rebates
  • Use made-up 1099 and fake W-2 forms to falsify income
  • File bogus Forms 1099-MISC that look like they were issued by legitimate financial institutions, and generate fake bonded promissory notes and worthless checks to substantiate the payment of a nonexistent credit card or mortgage debt
  • Make refund claims through Form 1099-OID, claiming that the federal government has secret accounts for U.S. citizens (it doesn’t)

Consequences of falsifying income and filing fake tax forms

Most people know that it is illegal to claim any expense, deduction, or credit that you are not entitled to, but many don’t realize that reporting income that you didn’t earn is also a crime. For example, falsifying income and receiving a corresponding increase in Social Security benefits is a felony punishable by up to $250,000 in fines and/or as much as five years in jail. Filing a tax return with a fake 1099-OID is likely to subject you to a $5,000 penalty.

Other false claims are also punishable by hefty fines and prison time. You may also lose your right to claim certain tax credits in the future, as well as federal benefits such as social security, veterans benefits, and low-income housing, as noted above.

Stopping the scammers

The IRS Criminal Investigations Division and the Department of Justice have been working diligently to put an end to these scams and to prosecute the perpetrators. In the meantime, taxpayers should be wary of tax return preparers that promise larger refunds than their competitors and/or who recommend making any of the filings described above.

Always check the credentials of your tax preparer and remember that YOU are ultimately responsible for the accuracy of your tax return, even if you hired someone else to prepare it!