IRS has unveiled its latest list of notorious tax scams, which it calls the “Dirty Dozen”. The IRS highlighted tax schemes involving phishing, hiding income offshore and false claims of refunds. IRS warns that these tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.
Taxpayers should steer clear of these tax schemes and take corrective steps to remedy the situation for any tax schemes that you may have gotten involved in. Call us today at 818-649-8552.
IRS has identified the following tax scams as this year’s Dirty Dozen:
Return preparer fraud. Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their ploys. IRS is implementing a number of steps for future filing seasons. These include a requirement that all paid tax return preparers register with IRS and obtain a preparer tax identification number (PTIN), as well as both competency tests and ongoing continuing professional education for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents (see related article in Federal Taxes Weekly Alert 01/07/2010). Call us today at 818-649-8552.
Hiding income offshore. IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution. For IRS’s recent settlement offer for those that voluntarily disclose unreported offshore income, see Federal Taxes Weekly Alert 04/02/2009. Call us today at 818-649-8552.
Phishing. This is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name. Phishing scams often take the form of an e-mail that appears to come from a legitimate source. IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues.
Filing false or misleading forms. IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims. Call us today at 818-649-8552.
Nontaxable Social Security benefits with exaggerated withholding. IRS has identified returns where taxpayers report nontaxable Social Security benefits with excessive withholding. This tactic results in no income reported to IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty. Call us today at 818-649-8552.
Abuse of charitable organizations and deductions. IRS continues to observe the misuses of tax-exempt organizations. These include arrangements to improperly shield income or assets from taxation, as well as attempts by donors to maintain control over donated assets or income from donated property. IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property. Call us today at 818-649-8552.
Frivolous arguments. Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty. Call us today at 818-649-8552.
Abusive retirement plans. IRS continues to uncover abuses in retirement plan arrangements, including Roth IRAs. IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies (LLC) to engage in activity that is considered prohibited. Call us today at 818-649-8552.
Disguised corporate ownership. Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance. Call us today at 818-649-8552.
Zero wages. Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Call us today at 818-649-8552.
Misuse of trusts. For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including IRS. Call us today at 818-649-8552.
Fuel tax credit scams. IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty. Call us today at 818-649-8552.