2009 Dirty Dozen: IRS List of Most Common Scams to Avoid Paying Income Taxes that Land Victims in a World of Tax Trouble

According to the IRS annual Dirty Dozen list of most common tax schemes, phishing “expeditions”  are on the rise this year along with frivolous tax arguments.  I even got a phishy email the other day.  These scam email look real too.. on IRS simulated letterhead complete with the logo and all.

It’s no surprise that these tax scams are being peddled to Americans in full force -  as IRS enforcement is on the rise and struggling taxpayers may be desperate for any way out of paying their taxes in this down economy.

But fall victim to one of these scams, and you are certain to find yourself in serious trouble with the IRS.

“Taxpayers should be wary of scams and promises to avoid paying taxes that seem too good to be true,” Acting IRS Commissioner Linda Stiff said. “There is no secret formula that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”

With the tax deadline looming, this annual list from the IRS is an important reminder that it’s real easy to get in tax trouble. But it’s also possible to resolve your tax problems, if you help from certified tax resolution experts.

Here are the common tax scams taxpayers need to avoid:

1.  Phishing

Phishing is a tactic used by Internet-based thieves to trick unsuspecting victims into revealing personal information they can then use to access the victims’ financial accounts.   These criminals use the information obtained to empty the victims’ bank accounts, run up credit card charges and apply for loans or credit in the victims’ names. Phishing scams often take the form of an e-mail that appears to come from a legitimate source. Some scam e-mails falsely claim to come from the IRS.   To date, taxpayers have forwarded more than 33,000 of these scam e-mails, reflecting more than 1,500 different schemes, to the IRS.   The IRS never uses e-mail to contact taxpayers about their tax issues.   Taxpayers who receive unsolicited e-mail that claims to be from the IRS can forward the message to a special electronic mailbox, phishing@irs.gov, using instructions contained in an article titled “How to Protect Yourself from Suspicious E-Mails or Phishing Schemes.” Remember: the only official IRS Web site is located at www.irs.gov.

2.  Scams Related to the Economic Stimulus Payment

Some scam artists are trying to trick individuals into revealing personal financial information that can be used to access their financial accounts by making promises relating to the economic stimulus payment, often called a “rebate.”  To obtain the payment, eligible individuals in most cases will not have to do anything more than file a 2007 federal tax return.   But some criminals posing as IRS representatives are trying to trick taxpayers into revealing their personal financial information by falsely telling them they must provide information to get a payment.  For instance, a potential victim is told by phone or e-mail that he or she is eligible for a rebate but must provide a bank account number (or similar information) to get the payment.   If the target is unwilling, the victim is then told that he cannot receive the rebate unless the information is provided.   Individuals should remember that the only way to get a stimulus payment is to file a 2007 tax return.  The IRS urges taxpayers to be extra-vigilant.   The IRS will not contact taxpayers by phone or e-mail about their stimulus payment.

3. Frivolous Arguments

Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe.   Most recently, the IRS expanded its 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 these positions on the list are subject to a $5,000 penalty.   The most recent update of the list of frivolous positions includes: misinterpretation of the 9th Amendment to the U.S. Constitution regarding objections to military spending, erroneous claims that taxes are owed only by persons with a fiduciary relationship to the United States, a nonexistent “Mariner’s Tax Deduction” related to invalid deductions for meals and the misuse of the fuel tax credit (see below).   The complete list of frivolous arguments is on the IRS Web site at IRS.gov.

4.  Fuel Tax Credit Scams

The 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 was recently added to the list of frivolous tax claims, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

5.  Hiding Income Offshore

Individuals continue to try to avoid paying U.S.taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore debit cards, credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance plans.   The IRS and the tax agencies of U.S. states and possessions continue to aggressively pursue taxpayers and promoters involved in such abusive transactions.

6.  Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs).  The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to Roth IRAs.   Taxpayers should be wary of advisers who encourage them to shift appreciated assets into Roth IRAs or companies owned by their Roth IRAs at less than fair market value.   In one variation of the scheme, a promoter has the taxpayer move a highly appreciated asset into a Roth IRA at cost value, which is below annual contribution limits even though the fair market value far exceeds the amount allowed.

7.  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.   Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero.   The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS. Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme.

8.  False Claims for Refund and Requests for Abatement

This scam involves a request for abatement of previously assessed tax using Form 843, “Claim for Refund and Request for Abatement.”  Many individuals who try this have not previously filed tax returns.   The tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program.   The filer uses Form 843 to list reasons for the request. Often, one of the reasons given is “Failed to properly compute and/or calculate Section 83-Property Transferred in Connection with Performance of Service.”

9.  Return Preparer Fraud

Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their schemes.   These scam artists make their money by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds.   Some preparers promote the filing of fraudulent claims for refunds on items such as fuel tax credits to recover taxes paid in prior years. Taxpayers should choose carefully when hiring a tax preparer, especially one who promises something that seems too good to be true.

10.  Disguised Corporate Ownership

Some people are going as far as forming domestic shell corporations in certain states for the purpose of disguising the ownership of a business or financial activity.   Once formed, these anonymous entities can be used to facilitate underreporting of income, non-filing of tax returns, engaging in listed transactions, money laundering, financial crimes and even terrorist financing.   The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

11.  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.   However, some trusts do not deliver the promised tax benefits.   As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust.

12.  Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Misuse includes arrangements to improperly shield income or assets from taxation, attempts by donors to maintain control over donated assets or income from donated property and overvaluation of contributed property.   In addition, IRS examiners are seeing an upturn in instances where taxpayers try to disguise private tuition payments as contributions to charitable or religious organizations.

** If you are in trouble with the IRS and need tax help, contact our specialized staff of tax attorneys, CPAs, EAs and tax professionals. Visit the Tax Resolution Services web site  for a free tax relief consultation or call us at 866-IRS-PROBLEMS.

More Tax Help, IRS News and Tax Relief Tips:

  1. We’ve Expanded to Help More Taxpayers Resolve Their IRS Tax Problems!
  2. IRS Asserts Position on Tax Protesters: Sanctions Imposed for Advancing and Maintaining a Frivolous Argument
  3. Why the IRS Picks on Small Businesses and How to Avoid Triggering an Audit
  4. Insight into Most Serious Tax Problems from from National Taxpayer Advocate
  5. Is there a Double Standard for Delinquent Taxpayers and Tax Cheats That Favors Powerful Individuals?

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4 Responses to “2009 Dirty Dozen: IRS List of Most Common Scams to Avoid Paying Income Taxes that Land Victims in a World of Tax Trouble”

  1. In Bad Economoy, Tax Enforcement and Convictions of Tax Defiers Are on the Rise | Tax Relief Tips from the Experts at Tax Resolution University Says:

    [...] recently blogged about how frivolous arguments topped the IRS Dirty Dozen list of most common tax schemes. And in this bad economy, there will be more individuals maintaining [...]

  2. Sentence Imposed on Individual for Aiding and Assisting Preparation of Fraudulent Returns | Tax Relief Tips from the Experts at Tax Resolution University Says:

    [...] up in a world of tax trouble – it’s no wonder return preparer fraud made this year’s IRS Dirty Dozen list of common scams taxpayers should avoid.

  3. The IRS’s Dirty Dozen: 12 Tax Scams to Avoid | Tax Relief Tips from the Experts at Tax Resolution University Says:

    [...] Dozen” list — the 12 most common tax scams that could put you in a world of financial hurt.

  4. Tax Help Alert: How to Protect Yourself as Zeus Trojan Hides Under IRS Name! Again! | Tax Attorney and Tax Resolution Services: IRS Help Blog Says:

    [...] I recommend that you take a look at our 2009 Dirty Dozen Roundup of the Top IRS Scams to watch out for to learn some of the other shapes and sizes these scams can come in. Read the full [...]

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