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The IRS Is Watching Out for Padding


The IRS has compiled a list of "Dirty Dozen" tax scams, and one swindle that the agency is warning taxpayers to avoid is inflating deductions and expenses on tax returns. Common areas targeted by unscrupulous tax preparers involve overstating deductions.

Scammers hope that padding deductions will get them a larger refund or that they'll be able to pay less than what's owed, and the IRS is aware of this. Many schemes peak during tax filing season, so the agency is reminding taxpayers to be careful when claiming credits.

The IRS advises that preparing an accurate tax return is your best defense against scams and the best way to avoid triggering an audit. This means keeping meticulous records and not "rounding up" when giving numbers to your tax preparer.

The IRS says common areas of frauds include:

This doesn't mean that taxpayers who are legitimately entitled to these deductions and credits should avoid claiming them or that claiming them automatically triggers an audit. It just means you shouldn't try to pull a fast one, thinking that the IRS won't notice or care.

The IRS imposes significant penalties for taxpayers who file incorrect returns:

  • A penalty of 20% of the disallowed amount for filing an erroneous claim for a refund or credit.
  • A fine of $5,000 if the IRS determines you filed a frivolous tax return, one that doesn't include enough information to figure the correct tax or contains information clearly showing that the tax reported is substantially incorrect.
  • A penalty of 75% of the amount owed if the underpayment on the tax return resulted from tax fraud — in addition to the full amount of tax owed. You may be subject to criminal prosecution and be brought to trial for these actions:
    • Willful failure to file a return, supply information or pay any tax due.
    • Fraud and false statements.
    • Preparing and filing a fraudulent return. 
    • Identity theft.

Finally, don't make the mistake of thinking that the tax professional will take all the blame if you give him or her faulty information. According to official guidance: "Taxpayers should know that they are legally responsible for what is on their tax return, even if it is prepared by someone else."

Keep in touch with us throughout the year if you have any questions about what deductions and credits you're entitled to.

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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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