Understanding & Avoiding the Tax Scams 7 through 12 on the IRS’ 2016 Dirty Dozen List in Califor
In our previous blog post we discussed the first six tax scams. In this post, we will take a brief look at the additional scams identified by the agency and some steps taxpayers can take to avoid falling victim to these scams. After all, taxpayers have more than enough on their plates considering their need to maintain accuracy in all filings, and to make timely tax filings and payments. Many individuals may also have offshore account compliance obligations to satisfy. Concerned about any tax law issues? Contact a Sacramento tax lawyer of NewPoint Law Group, LLP.
7. Taxpayers Who Make Donations to Fake Charities
While the reference may be somewhat dated, taxpayers should take heed from Jerry Seinfeld’s experience after making a fraudulent donation to a Krakatoa volcano relief fund. The result of his misplaced generosity was an IRS audit. Not all fake charities are as outlandish as the one featured in the show, and many spring into existence after a well-publicized natural or man-made disaster. Taxpayers can avoid falling for this scam by only using traceable methods of payment. Furthermore, they should conduct their own due diligence before donating and should not provide their Social Security number.
8. Individuals Who Inflate Tax Deductions
The U.S. Tax Code does not require a taxpayer to maximize his or her tax bill, and it permits taxpayers to pay only what they are legally entitled to pay. However, many taxpayers are tempted to inflate the amount they may otherwise legally claim for educational expenses or charitable donations. They may think, “The IRS will never know how far I drove for a business trip.” Unfortunately, scams by the taxpayer of this type frequently result in little to no real tax savings, while simultaneously subjecting the taxpayer to substantial penalties for submitting a false return.
9. False Claims for Business Credits
The IRS has stated that it notices improper claims regarding taxpayers seeking fuel tax and research credits. Before claiming either of these business tax credits, the taxpayer should ensure that he or she has sufficient records to support the deduction. Taxpayers who select to claim these credits may face a higher than average likelihood of an audit due to the IRS’s focus on this issue.
10. Misrepresentation of Taxpayer Income to Fraudulently Claim Tax Credits
In some cases a taxpayer may attempt to misrepresent income or inflate certain types of income when the net result is a tax decrease due to tax credits or other reasons. In the case of the former, the taxpayer may attempt to disguise their 1099 contractor income as employment income so they may avoid the self-employment tax. In cases where income is inflated, the taxpayer may be seeking to maximize tax credits or refundable tax credits.
11. Use of Abusive Tax Shelters & Paper Transactions to Reduce Tax Liability
Abusive tax shelters can take all forms, ranging from multi-million dollar schemes to small scale tax evasion. At the core, an abusive tax shelter promises short-term savings at the cost of long-term exposures to criminal penalties and fines. Generally, an abusive tax structure will make use of multiple transactions to conceal the true owner or beneficiary of funds. Particularly complex, these sophisticated schemes may attempt to leverage the bank secrecy laws of a large portion of foreign jurisdictions using trusts and pass-through entities. The fact of the matter is that abusive tax structures are more likely than ever to be identified. The IRS and Department of Justice have a range of international agreements – more than 100 — that they can use to receive and leverage financial data from foreign jurisdictions around the globe.
12. Proffering Frivolous Tax Arguments to Reduce or Eliminate One’s Tax Burden
Frivolous tax arguments are offered by people from all walks of life. In some cases they are anti-government activists. In others, they are successful actors, like Wesley Snipes. In any case, the IRS and U.S. federal government does not look kindly upon those who attempt to avoid their tax obligations through frivolous arguments. Frivolous arguments include claim that filing a tax return is voluntary, paying taxes is voluntary, taxpayers can file a zero return to reduce tax liability, and other well-worn arguments.
Rely on an Experienced Sacramento Tax Lawyer to Avoid Tax Scams and Clean-up the Mess if You Have Fallen Victim to a Scam
A NewPoint Law Group, LLP, a Sacramento tax attorney can assist taxpayers with achieving tax compliance regarding income tax compliance, offshore tax filing compliance, and a multitude of other tax duties. If you have fallen victim to a tax scam, you are likely to be held accountable for any falsehoods or other inaccurate information that appeared on your return. To schedule a free and confidential consultation, call 800-358-0305 or contact us online.