Falsely claiming zero wages
The IRS gets copies of W-2 forms that businesses send to employees. In cases of contractors, employers issue 1099 forms, again to both the workers and the IRS.
When a business doesn't issue a W-2, a taxpayer can file using Form 4852, Substitute for Form W-2. And mistakes on 1099s can be fixed by the issuer sending a corrected form.
But some con artists try to get taxpayers to use doctored income statements to reduce their wages to nothing. To validate such false income filings, the zero-income fraudsters include explanations on the fake forms that cite statutory language on the definition of wages or claim a company won't issue a corrected W-2 for fear of IRS retaliation.
These false claims might slow down IRS detection as it double-checks its copies of your real earnings statements, but it won't stop the tax agency from eventually finding the fraud and coming after you for payment of your proper tax bill. When that happens, in addition to owing your real tax amount, you also could face a $5,000 penalty.