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IRS - The Dirty Dozen.

By John Dietz - Email Editor

Date: Sep 12, 2006

Each year, around the first week of February, the IRS lists the 12 most abusive and fraudulent tax schemes. The Dirty Dozen, as they have been coined, are created by their relative mass use, or shall I say, misuse. The range of tax schemes varies from promoters hocking the latest "get-rich-quick-and-never-pay-tax-schemes," to the more sublime, such as individuals creating their own tax guidelines transcending the tax code. In all cases, in regards to the Dirty Dozen, the IRS is saying do not use these tactics; they will not work.

Although the Dirty Dozen is ever changing, there are a few tax abuses that make the list year after year. The one that has had the most legs and continues to defy all common sense is what the IRS calls the frivolous argument. This is one of those someone said, and now everyone believes, so therefore, it must be true. In this case, the tax cheat makes the claim that the 16th Amendment was never properly ratified, and therefore, it is unconstitutional for them to pay tax.

The amendment says: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

One of the more notable claims of the 16th Amendment, beyond the normal contention of tax protestors, is that paying tax somehow violates other provisions of the constitution, and that various states have passed bills of ratification with different spelling and punctuation. This argument is similar to the argument that one of your friends tried to use once when they got a traffic citation: "Your honor, the police officer spelled my name wrong, so therefore, the citation is null and void." I wonder how that courtroom decision turned out for your friend? It is also noteworthy to mention that in every single tax case all of the above arguments have been universally rejected by the courts. Seems fairly black and white.

Another favorite tax cheat maneuver is to take money offshore with the intent to try and avoid U.S. taxes by illegally hiding income. I often get calls about Asset Protection with the overt overtone of tax savings, or shall I call it what it really is: tax fraud. We have beat this drum till the cows came home, and I still get these calls from folks trying to evade tax. Notice the word "evade" versus "avoid."

It reminds us of the old adage that many people spend 75% of their time trying to get out of work rather than just doing the work. The point is, if you're going to spend time lowering your overall tax burden, learning legitimate, IRS approved, tax favorable planning is where you should spend your time. Tax reduction is an honest and lawful solution; where as tax evasion is a criminal offense with very unacceptable results. (A room at "Club Fed.")

When it comes to paying tax, for some reason, instead of thinking that tax is a function of income, people get busy creating ways to beat the system. I doubt the Dirty Dozen will go away anytime soon. For example, I recently received a call from someone who said their friend, who read one of our articles had told them our company, Trustmakers.com, is somehow a part of the IRS, and they wanted to know if that was true. It's a rather odd question, and after a brief conversation, I hung up the phone thinking, what was this person really asking me? Was he asking, "Are you the people that hide money," or "Are you connected to the IRS?" And my answer was "no" to both questions.

For a list of the 2006 dirty dozen, click here .

Until next time,

John

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