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IRS Warns Of Scams That YOU May Encounter
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IRS Warns of Scams that YOU may encounter

Every year the IRS gathers information on the frauds and schemes involving taxation to alert the taxpayers for the following year. By the time the following year comes around there is an entire new list of frauds, but there is one hitch in the scammer’s scheme. If it sounds too good to be true, it usually is!

Sometimes the same scams makes it around year after year and sometimes the good scammers “tweak” the old scam that is out there to disguise it. Involvement with any of these scams can result in financial penalties and worse yet, prison.

The high-risk group always includes senior citizens and charitable contributions.

1. Zero Returns or Zero Wages Scam – The Taxpayer uses Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 to report little or no wages. The taxpayer may also be instructed to write “nunc pro tunc’ on the form, which means “now for then” and is usually used by the clerk in changing retroactive errors as a remedy to correct a mistake. Taxpayers hope that the IRS will not honor the more favorable second return and disregard the first. Many people try to site statutory language to try to confuse the IRS.

2. Scammers posing as fake IRS agents by “phishing”, phishing is an internet scam that gathers personal financial information. These scammers are getting more and more authentic and can catch anyone off guard by confusing them. They may even appear as if they are a fraud alert from your very own bank who is claiming to protect you. Never subject your financial information to anyone you do not and without the proper security.

3. Trust Fraud – This scam is very easy to identify on the surface. If you hear the words “tax free transfer” when it comes to transferring your assets into a trust, it is a scam. Though there are ways to reduce taxation, it must be done according to the IRS code and reported to the IRS every year. These schemes promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts and their promoters do not deliver the promised tax benefits (by code or by promoter scam), and the IRS is actively investigating these fraudulent promises. There are currently more than 200 active investigations underway and three dozen injunctions have been obtained against promoters since 2001.

4. Faulty Interpretation of the tax code, ON PURPOSE – One of these examples is a Form 843 Tax Abatement. The filer uses Form 843 to request additional misappropriated funds or funds that were due on return and never filed or files for a tax abatement never received. These promoters usually blame the IRS or the confusing code. There are numerous frivolous arguments that preparers try to use on their tax returns and any of these put the preparer and the taxpayer at risk for fraud.

5. Credit Counseling Agencies – The IRS warns that taxpayer should be careful with companies who claim to fix credit ratings and eliminate debt. They generally impose a fee to cover a one-stop shop with credit. The IRS Tax Exempt and Government Entities Division is in the process of revoking the tax-exempt status of numerous credit counseling organizations that operated under the guise of educating financially distressed consumers with debt problems while charging debtors large fees and providing little or no counseling.

6. Return Preparer Fraud – Dishonest tax preparers are a problem for the IRS and a problem for the taxpayer. Often times they claim on the witness stand that the client was a part of it and offer the government to take down the taxpayers in return for a lighter sentence on themselves. When these scams are caught, the taxpayer is forced to pay the taxes due. The taxpayer is ultimately responsible for their return. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others. During fiscal year 2006, more than 120 tax return preparers were convicted of tax crimes.

7. Offshore Scams – Individuals who attempt to hold funds or accounts offshore to avoid “anything” are at risk of criminal penalty. The reason to move funds offshore is not to avoid taxes or to avoid a judgment in process. It is possible that the money may be unreachable in its offshore home, but it is important to remember that the taxpayer is reachable as a United States citizen and if indicted the taxpayer is usually brought to justice. The IRS works with FinCen to monitor all currencies (US and other currencies) to locate abusive transactions. The IRS monitors all credit cards, wire transfers, foreign trusts, offshore life insurance, private annuities and Captives; since 2000, there has been a steady increase in the number of individuals convicted of tax abusive offshore schemes.

8. Abusive Charitable Organizations – The IRS has reported an increase of using charitable organizations as a shield for tax avoidance. A property cannot simple be placed under a religious shield to avoid taxes. The IRS has reported everything from people putting signs on their houses claiming religious sanctuary to claiming that the home is used for the benefits of charity (and sometimes the taxpayer claims himself the charity).

9. The “No Gain” Deduction – Taxpayers attempt to eliminate their (AGI) adjusted gross income by filing “No Gain” on Schedule A, by finding outrageous miscellaneous deductions and attaches the phrase “No Gain Realized.” This is a flag for an audit.

10. Employment Tax Evasion – The IRS has seen a number of problems with home based businesses and Sole Proprietors and is likely to hold LLC owners who use the LLC to live, pay for their home and other non business expenses as participating in a scheme to defraud the IRS of employment taxes.

The IRS predicts that scams and frauds will be reduced in the year 2008. They have employed more agents and after a steady rise in tax crimes from 2000 – 2006, they believe the numbers will now decline.

The most important advice given by the IRS is that taxpayers should use a qualified tax preparer. The tax code has 86,000 changes since the year 2000 and is one of the most complicated documents enforced by the Department of Justice.

You can report tax fraud. Suspected tax fraud can be reported to the IRS using IRS Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS Web site at IRS.gov, or through the U.S. Mail by calling 1-800-829-3676. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The person filing the report is not required to report their identity, but the IRS requests as detailed information as possible.