With the ongoing recession, it is not uncommon to find tax scams getting more widespread. Most tax scams are aimed at either stealing your identity online or claiming your tax refund. If you have not been a victim of any form of tax fraud, prevention is better than cure. And a huge part of prevention has to do with knowing the wiles of the scammers and their tactics. Here are some of the most common tax scam tactics you should be aware of.

Tax Preparation scams

Scammers act as tax preparers providing tax preparation services with the promise of obtaining large refunds. These scam artists make their money by either skimming a portion of your refunds or charging inflated tax preparation fees. Some scammers are willing to file fraudulent claims for you for refunds on items such as fuel tax credits to recover taxes paid in prior years. You should not hire such preparers, no matter how tempting it is to game the system. Appoint only reputable tax preparers or approach the government sponsored ones like the free Volunteer Income Tax Assistant (VITA) at VITA centers located nationwide.

Phishing scams

Phishing means stealing your personal identification details such as Social Security numbers, credit card or bank account details via email. Once such information is obtained, scammers would often empty your bank accounts electronically, steal your tax refunds or masquerade as you to apply for loans or rack up high charges on your credit cards. The IRS never contacts people via email, so if you receive an email purportedly from the IRS, you should report it to the IRS by forwarding it to phishing@irs.gov before deleting it.

Financial incentives scams

Sometimes, scammers bring you ‘news’ that you are entitled to a ‘rebate’ from the IRS but you have to divulge your bank account numbers to receive it. You may be informed by phone or email about this matter and if you are not willing to provide the details, you are told that you cannot receive the rebate unless the information is provided. But usually, if you are eligible for any form of refund, you will not have to do anything other than file your normal federal tax return.

About a month ago, three officials from Wegelin, Switzerland’s oldest bank, were indicted for abetting tax evasion. Now the bank itself has gone down the same path as the Justice Department indicts Wegelin on charges of assisting wealthy American taxpayers hide their taxable income in offshore accounts with the bank. It is estimated that at least $1.2 billion has been hidden in bank accounts held in Wegelin, based in St Gallen.

The latest move by the Justice Department has certainly set off speculation as to which bank the US government will go after next. A private banker based in Geneva commented, “It seems the US is shooting at everything in sight and we don't know when it's going to stop. I think the chances of another bank being indicted are pretty big. After all, why should the U.S. stop? Switzerland is small, it’s an easy target, but a lot of money can be made out of it. When this whole thing started we didn't know how far the US would go, but now we've found out.”

The recent events have caused many Swiss private bankers to avoid stepping into the US, even for personal holidays for fear of being arrested. The events have also prompted the sale of the 270 year old bank, which took place last week.

Some quarters have blamed Wegelin’s outspoken Chief Executive Officer, Konrad Hummler of “brining the indictment himself” because of his unrestrained comments against the US in their hunt for tax evaders in offshore banking havens like Switzerland. Apparently, the Justice Department was irked by a “farewell, America” letter Hummler wrote to Wegelin clients in 2009, in which Hummler urged clients to sell any US securities they owned due to the increased Internal Revenue Service scrutiny of tax evaders.

Wegelin’s rival banks have largely regarded Hummler’s letter as a veiled invitation for clients to move their funds to Wegelin now that the US has begun its crackdown on tax evasion in Swiss banks like UBS Bank and Credit Suisse. Some in the Swiss banking circles deduced that Hummler’s mistake was thinking Wegelin would not be targeted by the IRS because the bank does not have any US branches.

In the Wegelin sale, the bank moved most of its employees, along with clients and assets worth 21 billion Swiss francs to Notenstein Privatbank, which was itself bought by Swiss cooperative bank Raiffeisen for an undisclosed sum.

The indictment of Wegelin bank coincides with the IRS’ latest offshore voluntary disclosure program in which the government allows taxpayers to confess to their tax evasion in exchange for a waiver of criminal prosecution.

After collecting more than $4.4 billion in tax revenue from the first two voluntary offshore disclosure programs (VODP) in 2009 and 2011, the IRS has launched its third and latest disclosure program aimed at getting more taxpayers with offshore accounts to declare their assets therein. One prominent difference between the current VODP is that this newest one is going to be open indefinitely. The present VODP is similar to the ones held before with these following points:

1. Subject to change
While there is officially no deadline at this point, this does not give you the liberty to be lackadaisical about declaring your offshore taxable assets. The IRS said the indefinite status of the VODP may be changed at any time, as may the penalties under the VODP.

2. Inclusivity
If you have stepped forward to declare your taxable income since the close of the second VODP, you will be granted the same terms as the third VODP. This inclusive move was also done for those who confessed to their tax evasion between the first and second VODPs.

3. Increased penalty
To be fair to those who declared their assets in the earlier two VODPs, the penalty under this current one is increased to 27.5% of the highest total balance in your offshore bank accounts or value of your total foreign assets during eight years before your disclosure. The penalty rate for 2009 was 20% while that in 2011 was 25%.

4. Smaller offshore accounts rates
Those holding smaller offshore accounts (under $75,000 in any calendar year covered by the new VODP) will pay penalties of 12.5%. This rate is unchanged from the previous disclosure program. As under the prior programs, if you feel the penalty is disproportionate, you may opt instead to be examined.

5. Completion of returns and FBARs
As with previous VODPs, those participating in this one will have to submit their tax returns and FBARs, pay up all back taxes and interest for up to eight years as well as pay accuracy-related and/or delinquency penalties.

6. Option to opt out
You can declare your offshore assets without participating in the VODP. This means the IRS will deal with your case as an audit item. The plus side to this is that you have more options for appeal recourse (such as filing an appeal in the IRS Appeals Office) if you are not happy with the way things go.
The IRS will provide a list of Frequently Asked Question on the newest VODP to provide details on the program.

Tampa, Florida has been identified as one of the cities of high identity theft in the country, the others being Miami, Atlanta, Birmingham, AL, Washington D.C., Chicago, New York, Phoenix, and Los Angeles, according to the IRS. Tampa is one of the areas covered in a 23-state federal sweep targeting check-cashing operations and other businesses. The IRS says identity theft is most commonly carried out as stealing social security numbers from places like schools and hospitals.

In view of this, Hillsborough County Consumer Protection Agency Deputy Chief Investigator Eric Olsen advises people not to give out their Social Security numbers unless absolutely necessary. Olsen said, “If it's a routine application for a telephone, it may not be necessary. It may not even be required. Often times, the last four digits of a social security number will suffice.”

If you receive email purported to be from the IRS, you should not entertain them. The IRS never contacts you via email.

“Do not give any information to them,” Olsen said. “Then call the IRS, the local office, or whichever agency may be attempting to contact you, to verify whether that's the case.”

Last year, the IRS stopped about $1.4 billion of fraudulent claims as it now has new filters in place to stop fraudulent filings. Nevertheless, the safety measures in place do not seem to be good enough. Detectives from the Tampa Police Department say they have referred nearly 100 cases of suspected tax fraud to the IRS months ago, and yet till now federal charges still have not been filed.

If you receive an email supposedly from the IRS, it is likely an attempt to steal your personal data like Social Security number, bank account details etc. Do not open such emails and even if you do, do not click on any attachment or link therein. Report the incident to the IRS immediately by emailing phishing@irs.gov.

Three men who are former UBS clients, were indicted on charges of hiding millions of dollars in taxable income from the IRS using their offshore accounts. Two of the three, Stephen M. Kerr and Michael Quiel, ran capital venture firms while the third is former San Diego lawyer, Christopher M. Rusch. Rusch was arrested January 29 after being expelled from Panama at the behest of the US government. The charges against Kerr and Quiel were for filing false tax returns in 2007 and 2008 and for failing to file Reports of Foreign Bank and Financial Accounts (FBAR) for those years.

Kerr ran capital venture firm CCN Worldwide Inc, hid more than $5.6 million in offshore accounts from the IRS in 2007. Similarly, Quiel who ran Legend Advisory Corp, had more than $2.6 million in taxable assets hidden in offshore accounts also in 2007. On the other hand, prosecutors revealed in the indictment that Rusch had signature authority over these accounts held by Kerr and Quiel, and helped facilitate their transactions. He also serviced others at UBS and a Panamanian bank.

Using a trust account he controlled, Rusch facilitated the transfer of money from Kerr and Quiel out of the US into their Swiss bank accounts and back again. Some of the money was used by Rusch to fund the purchase of a Colorado golf course for Kerr through a Panamanian entity he (Rusch) controlled.

Kerr and Quiel are not the first neither will they be the last that the IRS will charge in their efforts to catch tax evaders. Over the last few years, at least 40 US clients of various offshore banks including UBS and Credit Suisse Group AG, Switzerland’s two biggest banks, London-based HSBC Holding Plc, Europe’s biggest bank and other banks have been charged by the IRS on tax evasion-related charges. They also have charged at least 24 bankers, advisers and attorneys.

All three individuals, Kerr, Quiel and Rusch have been charged with conspiring to defraud the IRS. Rusch’s legal representative said Rusch will vigorously fight to defend his innocence and expects to be cleared of these charges.