The Internal Revenue Service on March 12, 2019 warned taxpayers in IR-2019-36 to avoid falsely inflating deductions or credits on tax returns as part of its 2019 list of the “Dirty Dozen” tax scams.

Taxpayers should watch for areas frequently targeted by unscrupulous tax preparers include overstating deductions such as charitable contributions, medical expenses, padding business expenses or falsely claiming the Earned Income Tax Credit, Child Tax Credit and other tax benefits.

Padding deductions and credits is part of this year’s “Dirty Dozen” list of common tax scams. Taxpayers may encounter these schemes any time, but many of them peak during the tax filing season as people prepare their tax returns or hire others to help with their taxes.

The IRS reminds taxpayers that they are still personally at risk, even if someone suggests using these strategies or a paid tax preparer actually prepares their return. By the time the IRS contacts the taxpayer about these problems, the promoter or preparer is often long gone.

Avoids scams, file an accurate return

Preparing an accurate tax return is a taxpayer’s best defense against scams – and the best way to avoid triggering an audit. Significant penalties may apply to those 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.” This is a return 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 tax return resulted from tax fraud.

Taxpayers may be subject to criminal prosecution and be brought to trial for actions such as willful failure to file a return; supply information; or pay any tax due; fraud and false statements; preparing and filing a fraudulent return and identity theft.

One way for taxpayers to ensure they file an accurate tax return and claim only the tax benefits they’re eligible to receive is by using tax preparation software.