The good news is five of last year’s scams have dropped off the list – the bad news is that five new ones have popped up, including the special Telephone Excise Tax Refund available to most taxpayers this filing season, the American Indian Employment Credit (there is an Indian Employment Credit available for businesses that employ Native Americans or their spouses, but there is no provision for its use by employees – and, in a somewhat related scam, some have been telling Native Americans that they are not subject to federal income taxation), domestic shell corporations and structured entities – and abuses pertaining to Roth IRAs.
Here’s this year’s “Dirty Dozen”:
- Abusive Roth IRAs
- Phishing . A technique used by identity thieves to acquire personal financial data in order to gain access to the financial accounts of unsuspecting consumers, run up charges on their credit cards or apply for loans in their names. So-called “Phishers” pose as representatives of a financial institution – sometimes the IRS itself – and send out fictitious e-mail correspondence in an attempt to trick consumers into disclosing private information. A typical e-mail notifies a taxpayer of an outstanding refund and urges the taxpayer to click on a hyperlink and visit an official-looking Web site, where it asks for a social security and credit card number. By the way, the IRS does not use e-mail to initiate contact with taxpayers about issues related to their accounts.
- Disguised Corporate Ownership
- Zero Wages
- Return Preparer Fraud The IRS cautions that, no matter who prepares the return, the taxpayer is ultimately responsible for its accuracy.
- American Indian Employment Credit
- Trust Misuse
Structured Entity Credits : Promoters of this newly identified scheme are setting up partnerships to own and sell state conservation easement credits, federal rehabilitation credits and other credits. The purported credits are the only assets owned by the partnership and once the credits are fully used, an investor receives a K-1 indicating the initial investment is a total loss, which is then deducted on the investor's individual tax return. However, forming such an entity is not a viable business purpose - the investments are not valid, and the losses are not deductible.
- Abuse of Charitable Organizations and Deductions : The IRS continues to observe the use of tax-exempt organizations to improperly shield income or assets from taxation. This can occur when a taxpayer moves assets or income to a tax-exempt supporting organization or donor-advised fund but maintains control over the assets or income. Contributions of non-cash assets continue to be an area of abuse, especially with regard to overvaluation of contributed property. The IRS also notes that it has noticed the return of private tuition payments being disguised as charitable contributions to religious organizations.
- Form 843 Tax Abatement : This scam rests on faulty interpretation of the Internal Revenue Code. It involves the filer requesting abatement of previously assessed tax using Form 843. Many using this scam have not previously filed tax returns and the tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses the Form 843 to list reasons for the request. Ironically, often, one of the reasons is: "Failed to properly compute and/or calculate IRC Sec 83-Property Transferred in Connection with Performance of Service."
- Frivolous Arguments : Promoters claim that the Sixteenth Amendment concerning congressional power to lay and collect income taxes was never ratified; wages are not income; filing a return and paying taxes are merely voluntary; and being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy.
"Taxpayers shouldn't let their guard down," IRS Commissioner Mark W. Everson said in a press release. "Don't get taken by scam artists making outrageous promises. If you use a tax professional, pick someone who is reputable. Taxpayers should remember they are ultimately responsible for what is on their tax return even if some unscrupulous preparers have steered them in the wrong direction."