The IRS recently released its “Dirty Dozen” tax scams for 2019. This annual list covers the major areas where the IRS is seeing the largest amount of tax cheating and fraud. This year the IRS chose to focus on the more pedestrian forms of tax cheating as opposed to the more complex but less common forms of tax fraud such as identity theft.
The first area that the IRS is warning taxpayers to beware of is the padding of charitable contributions in an effort to reduce their tax liability. Padding medical expenses to qualify for a deduction is another area where the IRS has flagged as a common problem. Lastly, unsubstantiated business expenses are also a problem. The IRS stresses that taxpayers must have documentation to support all of the deductions claimed on their income tax returns.
In addition to taxpayers claiming excessive deductions the fraudulent claiming of the Earned Income Tax Credit (EITC) continues to be an ongoing problem for the IRS.
Taxpayers who falsely claim deductions or credits may face a variety of different penalties. The IRS can apply a penalty of 20% of any additional tax assessed due to erroneous deductions or credits. If a tax position is considered frivolous, the IRS may also apply a $5,000 penalty. If the taxpayer’s actions constitute fraud the taxpayer may be subject to an additional penalty of 75% of the amount due. In addition to these penalties, a taxpayer may also face criminal charges if the IRS can show that the taxpayer willfully failed to file an accurate tax return.