False income, expenses
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.
Other tax con artists file excessive claims for relatively uncommon tax breaks, such as the fuel tax credit. This is designed to help farmers and similarly situated taxpayers who use fuel for off-highway business purposes. (See Slide No. 2 for more details.)
The key to avoid this tax scam is to accurately report your taxable income and expenses. If you don't, you could face interest on unpaid taxes, penalties and possible criminal prosecution.