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IR-2019-35, March 11, 2019
WASHINGTON — The Internal Revenue Service today warned taxpayers to avoid schemes involving falsifying income, including the creation of bogus Forms 1099.
Con artists commonly use this trick as well as related scams designed to get taxpayers to erroneously claim tax credits they aren’t entitled to.
The warning about falsified income came as part of the agency’s release of its 2019 list of “Dirty Dozen” tax scams.
The list, compiled annually by the IRS, describes a variety of common scams that taxpayers may encounter. Many of the “Dirty Dozen” schemes peak during filing season as people prepare their tax returns or hire others to help them.
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.
Don’t make up income or create forms
Some people falsely increase the income they report to the IRS. This scam involves inflating or including income on a tax return that was never earned, either as wages or self-employment income, usually to maximize refundable tax credits, such as the Earned Income Tax Credit (EITC).
Like falsely claiming an expense or deduction, claiming income that was never earned is also illegal. Taxpayers can face a large bill to repay the erroneous refunds, along with penalties and interest. In addition, their future eligibility to claim the EITC may also be affected. They could even face criminal prosecution.
Remember, taxpayers are ultimately responsible for the accuracy of their tax return even if they pay someone else to prepare it.
Fake Forms 1099-MISC
The IRS also cautions taxpayers to avoid getting caught up in scams disguised as a debt payment option for credit cards or mortgage debt. This scheme usually involves the filing of a Form 1099-MISC, Miscellaneous Income, and/or bogus financial instruments such as bonds, bonded promissory notes or worthless checks.
Unscrupulous promoters of these scams often argue that the proper way to redeem or draw on a fictitious “held-aside” account is to use some form of made-up financial instrument, such as a bonded promissory note, that purports to be a debt payment method for credit cards or mortgage debt. These con artists provide fraudulent Forms 1099-MISC that appear to be issued by a large bank, loan service or mortgage company with which the taxpayer may have had a prior relationship. Form 56, Notice Concerning Fiduciary Relationship, may also be used by participants to assign fiduciary responsibilities to the lenders. Taxpayers may encounter unethical return preparers who try to lure them into these scams.
Choose a tax professional wisely
Hiring a tax professional is an important decision. Choose carefully. Well-intentioned taxpayers can be misled by tax preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to just to increase their fee. Every year, these types of tax preparers face penalties including prison time for defrauding their clients.
IRS.gov/chooseataxpro has additional information to help taxpayers including tips on choosing a preparer, the differences in credentials and qualifications, as well as how to submit a complaint regarding an unscrupulous tax return preparer.