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Most tax cheats report less income than they make, so their tax liability will be less. But in some cases, a taxpayer needs more money to get a tax break's maximum benefit.
The IRS says it regularly sees fraudulent income inflated by individuals seeking a refundable tax credit, such as the earned income tax credit, for which they otherwise wouldn't qualify.
Credits prompt such unscrupulous acts because they are better tax breaks than deductions. A deduction lowers taxable income, while a credit lowers the actual tax bill dollar for dollar. Refundable credits, as the name indicates, allow filers who don't owe any taxes to get a refund.
Another related scam involves filing a fake form 1099-MISC that appears to be issued by a legitimate financial company a taxpayer may have done business with. If a tax preparer produces a fake 1099 and a bogus financial instrument such as a bonded promissory note that's supposed to be a "debt payment option" for credit cards or mortgage debt, your scam detector should go off loudly.
Remember: Even if your tax return is prepared by someone else, you are legally responsible for the information it contains.
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