US: IRS announce â€śDirty Dozenâ€?
The IRS recently released its annual listing of famliar tax scams.
1. Zero Wages - In this scam, a taxpayer attaches either a Form 4852 (subsitute Form W-2) or a â€ścorrectedâ€? Form 1099 that shows zero or little wages or other income.This probably includes a statement indicating that you are rebutting information that you previously submitted to the IRS. The explanation on Form 4852 may cite â€śstatutory language behind IRC 3401 and 3121â€ł or may include some reference to your employer refusing to issue a corrected Form W-2 for fear of IRS retaliation. The Form 4852 or 1099 is usually attached to a Zero Return. (See number four below.)
2. Form 843 Tax Abatement – Based on faulty interpretation of the Internal Revenue Code, this scam involves the tax filer requesting the cancellation of previously filed tax using Form 843. Many using this scam have not previously filed tax returns and the tax they are trying to recall has been assessed by the IRS through the Substitute for Return Program. Form 843 is used to list reasons for the request. Usually, one of the reasons is: â€śFailed to properly compute and/or calculate IRC Sec 83 – Property Transferred in Connection with Performance of Service.â€?
3. Phishing – This is a technique used by identity thieves to acquire personal financial data in order to gain access to accounts. They generally run up credit card charges or apply for loans in the victimâ€™s name. These criminals usually pose as representatives of a financial company and try and trick consumers through phony e-mails. They could even pose as the IRS itself.
A typical tax fruad e-mail notifies you of an oustanding refund and urges you to click on a link to go to a Web site and input your social security and credit card numbers. Another variation involves warning consumers through e-mail that they are under audit and can fix the situation by divulging certain financial and personal information.
4. Zero Return – If a preparer instructs you to enter all zeros on your federal tax return, report him or her immediately. They will typically have you enter zero for your income, report your withholding and then write â€śnunc pro tuncâ€?, Latin for â€śnow for thenâ€?, on your return.
5. Trust Misuse – If someone encourages you to transfer your assets into a trust to reduce your amount of income subject to tax, you should be cautious. Oftentimes promoters will tell you that transferring assets into a trust will give you more deductions related to personal expenses as reducing your estate or gift taxes.
6. Frivolous Arguments – If someone cites the 16th ammendment to the constitution, saying that congressional power to impose and collect taxes was never ratified and that wages are not income, beware. This is simply not true, and such claims have been thrown out in court. Income taxes in the United States are not a choice, and those that use this claim to avoid paying taxes will be prosecuted.
7. Return Preparer Fraud – If you suspect your tax preparer is skimming funds off the top of your refund or charging inflated fees for preparing your return, check into it. Ultimately, you are responsible for your tax return. Make sure the company or preparer you are working with is credible. Remember: If it sounds too good to be true, it probably is.
8. Credit Counseling Agencies – Heard that your credit rating can be fixed, that debt payment agreements with high fees will bring you out of debt? Think again. The IRS Tax Exempt and Government Entities Divison has made a commitment to audit tax-exempt credit counseling organizations because some of them are charging people large fees, while providing little or no counseling. One big monthly payment instead of several smaller ones may not be better.
9. Abuse of Charitable Organizations and Deducations – If you move assets or income, and the move results in a tax deduction for you without you actually transferring anything of benefit to a charity, then you could be prosecuted by the IRS. In other words, if you transfer money to a charity but still maintain control over the funds and they are never used for charitable purposes, then the IRS sees this as illegal.
10 .Offshore Transactions – If youâ€™ve ever thought of hiding income in an offshore account, think again. The IRS has been cracking down on this practice in recent years. Putting money in a foreign bank account, brokerage account or using offshore credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance are strictly prohibited and are considered illegal in the United States.
11. Employment Tax Evasion – Several schemes encourage employers to not withhold federal income tax or other employment taxes from their employeesâ€™ paychecks. Not only can employers be held responsible for back payments of employment tax plus penalties and interest, but employees can also be help responsible for payment of their personal taxes. If you believe your employer is not withholding enough tax from your paycheck, start by contacting your human resource department and if necessary, go to the IRS for resolution.
12. â€śNo Gainâ€? Deduction – Similar to the â€śClaim of Right,â€? this deduction occurs when taxpayers try to eliminate all of their adjusted gross income (AGI) by deducting it on Schedule A under the section labeled â€śOther Micellaneous Deductions.â€? Typically youâ€™ll be encouraged to attach a statement to the return, which refers to court documents and includes the words â€śNo Gain Realized.â€? If you run into this, donâ€™t be fooled. It wonâ€™t pass the muster of the IRS.