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IR-2009-41, April 13, 2009
WASHINGTON — The Internal Revenue Service
today issued its 2009 “dirty dozen” list of tax scams, including schemes
involving phishing, hiding income offshore and false claims for
refunds.
“Taxpayers should be wary of scams to avoid paying taxes that
seem too good to be true, especially during these challenging economic times,”
IRS Commissioner Doug Shulman said. “There is no secret trick that can eliminate
a person’s tax obligations. People should be wary of anyone peddling any of
these scams.”
Tax schemes are illegal and can lead to problems for both
scam artists and taxpayers who risk significant penalties, interest and possible
criminal prosecution.
The IRS urges taxpayers to avoid these common
schemes:
Phishing
Phishing is a tactic used by
Internet-based scam artists to trick unsuspecting victims into revealing
personal or financial information. The criminals use the information to steal
the victim’s identity, access bank accounts, run up credit card charges or apply
for loans in the victim’s name.
Phishing scams often take the form of an
e-mail that appears to come from a legitimate source, including the IRS. The IRS
never initiates unsolicited e-mail contact with taxpayers about their tax
issues. Taxpayers who receive unsolicited e-mails that claim to be from the IRS
can forward the message to phishing@irs.gov. Further instructions are available at
IRS.gov. To date, taxpayers have forwarded scam e-mails reflecting thousands of
confirmed IRS phishing sites. If you believe you have been the target of an
identity thief, information
is available at IRS.gov.
Hiding Income
Offshore
The IRS aggressively pursues taxpayers and promoters
involved in abusive offshore transactions. Taxpayers have tried to avoid or
evade U.S. income tax by hiding income in offshore banks, brokerage accounts or
through other entities. Recently, the IRS provided guidance to auditors on how
to deal with those hiding income offshore in undisclosed accounts. The IRS draws
a clear line between taxpayers with offshore accounts who voluntarily come
forward and those who fail to come forward.
Taxpayers also evade taxes by using offshore debit cards, credit cards, wire
transfers, foreign trusts, employee-leasing schemes, private annuities or life
insurance plans. The IRS has also identified abusive offshore schemes including
those that involve use of electronic funds transfer and payment systems,
offshore business merchant accounts and private banking
relationships.
Filing False or Misleading
Forms
The IRS is seeing scam artists file false or misleading
returns to claim refunds that they are not entitled to. Frivolous information
returns, such as Form 1099-Original Issue
Discount (OID), claiming false withholding credits are used to legitimize
erroneous refund claims. The new scam has evolved from an earlier phony argument
that a “strawman” bank account has been created for each citizen. Under this
scheme, taxpayers fabricate an information return, arguing they used their
“strawman” account to pay for goods and services and falsely claim the
corresponding amount as withholding as a way to seek a tax
refund.
Abuse of Charitable Organizations and
Deductions
The IRS continues to observe the misuse of tax-exempt
organizations. Abuse includes arrangements to improperly shield income or assets
from taxation and attempts by donors to maintain control over donated assets or
income from donated property. The IRS also continues to investigate various
schemes involving the donation of non-cash assets, including easements on
property, closely-held corporate stock and real property. Often, the donations
are highly overvalued or the organization receiving the donation promises that
the donor can purchase the items back at a later date at a price the donor sets.
The Pension Protection Act of 2006 imposed increased penalties for inaccurate
appraisals and new definitions of qualified appraisals and qualified appraisers
for taxpayers claiming charitable contributions.
Return Preparer
Fraud
Dishonest return preparers can cause many headaches for
taxpayers who fall victim to their ploys. Such preparers derive financial gain
by skimming a portion of their clients’ refunds and charging inflated fees for
return preparation services. They attract new clients by promising large
refunds. Taxpayers should choose carefully when hiring a tax preparer. As
the saying goes, if it sounds too good to be true, it probably is. No matter who
prepares the return, the taxpayer is ultimately responsible for its accuracy.
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, which are pending in court.
Frivolous
Arguments
Promoters of frivolous schemes encourage people to
make unreasonable and unfounded claims to avoid paying the taxes they owe. The
IRS has a 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 the positions on the list are subject to a
$5,000 penalty. More information is available on IRS.gov.
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."
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 IRAs as well as transactions
that are not properly reported as early distributions. Taxpayers should be wary
of advisers who encourage them to shift appreciated assets into IRAs or
companies owned by their IRAs at less than fair market value to circumvent
annual contribution limits. Other variations have included the use of limited
liability companies to engage in activity which is considered
prohibited.
Disguised Corporate Ownership
Some
taxpayers form corporations and other entities in certain states for the primary
purpose of disguising the ownership of a business or financial activity. Such
entities can be used to facilitate underreporting of income, fictitious
deductions, non-filing of tax returns, participating 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.
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.
Misuse of
Trusts
For years, unscrupulous promoters have urged taxpayers to
transfer assets into trusts. While there are many legitimate, valid uses of
trusts in tax and estate planning, some promoted transactions promise reduction
of income subject to tax, deductions for personal expenses and reduced estate or
gift taxes. Such trusts rarely deliver the promised tax benefits and are being
used primarily as a means to avoid income tax liability and hide assets from
creditors, including the IRS.
The IRS has recently seen an increase in
the improper use of private annuity trusts and foreign trusts to divert income
and deduct personal expenses. As with other arrangements, taxpayers should seek
the advice of a trusted professional before entering into a trust
arrangement.
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 is considered a frivolous tax
claim, potentially subjecting those who improperly claim the credit to a $5,000
penalty.
How to Report Suspected Tax Fraud
Activity
Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. Form
3949-A is available for download from the IRS Web site at IRS.gov. The completed
form or a letter detailing the alleged fraudulent activity should be addressed
to the Internal Revenue Service, Fresno, CA 93888. The mailing should include
specific information about who is being reported, the activity being reported,
how the activity became known, when the alleged violation took place, the amount
of money involved and any other information that might be helpful in an
investigation. The person filing the report is not required to self-identify,
although it is helpful to do so. The identity of the person filing the report
can be kept confidential.
Whistleblowers also may provide allegations of
fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original
Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS
Whistleblower Office under Section 7623.
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