Dirty Dozen for 2010

LPC
Trusted Keeper of the All True FAQ
Posts: 5233
Joined: Sun Mar 02, 2003 3:38 am
Location: Earth

Dirty Dozen for 2010

Post by LPC »

Each year around this time, the IRS releases a list of the "dirty dozen" tax frauds to avoid. This year's list is less about tax denial schemes and more about garden-variety frauds:

1. Return Preparer Fraud

2. Hiding Income Offshore

3. Phishing

4. Filing False or Misleading Forms
The IRS is seeing various instances where scam artists file false or misleading returns to claim refunds that they are not entitled to. Under the scheme, taxpayers fabricate an information return and falsely claim the corresponding amount as withholding as a way to seek a tax refund. Phony information returns, such as a Form 1099-Original Issue Discount (OID), claiming false withholding credits usually are used to legitimize erroneous refund claims. One version of the scheme is based on a false theory that the federal government maintains secret accounts for its citizens, and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS.
5. Nontaxable Social Security Benefits with Exaggerated Withholding Credit

6. Abuse of Charitable Organizations and Deductions

7. Frivolous Arguments
Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance.
8. Abusive Retirement Plans

9. Disguised Corporate Ownership

10. 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. Filings of this type of return may result in a $5,000 penalty.
11. 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 tax benefits promised and are used primarily as a means to avoid income tax liability and to 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 shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.
12. Fuel Tax Credit Scams

And, finally:
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.
Dan Evans
Foreman of the Unified Citizens' Grand Jury for Pennsylvania
(And author of the Tax Protester FAQ: evans-legal.com/dan/tpfaq.html)
"Nothing is more terrible than ignorance in action." Johann Wolfgang von Goethe.
Red Cedar PM
Burnished Vanquisher of the Kooloohs
Posts: 221
Joined: Mon Jan 30, 2006 3:10 pm

Re: Dirty Dozen for 2010

Post by Red Cedar PM »

Is this the 2nd or 3rd year the CtC method (filing a 4852 and claiming zero wages) has been on the list? You'd think the dunces over at LH would have figured out by now that the IRS is wise to their little scam and would have moved on to something else by now.
"Pride cometh before thy fall."

--Dantonio 11:03:07
Grixit wrote:Hey Diller: forget terms like "wages", "income", "derived from", "received", etc. If you did something, and got paid for it, you owe tax.
LPC
Trusted Keeper of the All True FAQ
Posts: 5233
Joined: Sun Mar 02, 2003 3:38 am
Location: Earth

Re: Dirty Dozen for 2010

Post by LPC »

Red Cedar PM wrote:Is this the 2nd or 3rd year the CtC method (filing a 4852 and claiming zero wages) has been on the list?
Fifth. It first appeared on the Dirty Dozen list in 2006 (in the #1 slot).

And it moved down the list for the first four years, from #1 to #5, then to #7, and then to #10 for the last two years, which suggests that it's becoming less of a concern for the IRS each year.
Red Cedar PM wrote:You'd think the dunces over at LH would have figured out by now that the IRS is wise to their little scam and would have moved on to something else by now.
You call them dunces and expect them to learn?
Dan Evans
Foreman of the Unified Citizens' Grand Jury for Pennsylvania
(And author of the Tax Protester FAQ: evans-legal.com/dan/tpfaq.html)
"Nothing is more terrible than ignorance in action." Johann Wolfgang von Goethe.
Red Cedar PM
Burnished Vanquisher of the Kooloohs
Posts: 221
Joined: Mon Jan 30, 2006 3:10 pm

Re: Dirty Dozen for 2010

Post by Red Cedar PM »

LPC wrote:
Red Cedar PM wrote:You'd think the dunces over at LH would have figured out by now that the IRS is wise to their little scam and would have moved on to something else by now.
You call them dunces and expect them to learn?
You're right, I probably shouldn't. You would think maybe a few of them would have seen the light though - of course, those are the ones that would have been banned from there awhile ago. The only ones left are the real hardcore morons, not just the lightweight idiots. You have to be really dumb to qualify to hang around there now. I think the clinical definition is dumb as a bag of hammers.
"Pride cometh before thy fall."

--Dantonio 11:03:07
Grixit wrote:Hey Diller: forget terms like "wages", "income", "derived from", "received", etc. If you did something, and got paid for it, you owe tax.
Number Six
Hereditary Margrave of Mooloosia
Posts: 1232
Joined: Fri Aug 29, 2008 6:35 pm
Location: Connecticut, "The Constitution State"

Re: Dirty Dozen for 2010

Post by Number Six »

Preparer fraud is the big one, and if the I.R.S. had really smart stings going on, maybe devised at a think tank and properly funded, they could throw enough scare into the preparer cheats that the preparers would be insisting on proof before deductions could be made, or net profit established. If someone is audited, unproven deductions are disallowed and gross income becomes fully taxable.

The "sting" team walks into the preparer's office with all types of inducements and incentives for cooking the books, but the gotcha guys and girls look like ordinary schlubs who have a lot to hide and a great deal of anxiety about how much they will have to pay. Invariably the preparer or CPA sloughs off concerns over the taxpayer having to pay taxes on cash transactions, and transactions unlikely to generate a paper trail. Cash kickbacks are seen changing hands as the preparer provides an entirely plausible but thoroughly dishonest return to the client. Like the Acorn sting operation, the players are wired for sound and video. But from my experience, you have to have thoroughly damning evidence for enforcement to even listen to you. Submit the proof to the state ethics committee, which gets forwarded down to the accountants' oversight board; the accountant or preparer has time to do a snowjob on the accusation, and it will only be taken seriously if there are signs of systemic fraud: but evidence of this requires rigorous audits.
'There are two kinds of injustice: the first is found in those who do an injury, the second in those who fail to protect another from injury when they can.' (Roman. Cicero, De Off. I. vii)

'Choose loss rather than shameful gains.' (Chilon Fr. 10. Diels)
LOBO

Re: Dirty Dozen for 2010

Post by LOBO »

Red Cedar PM wrote:Is this the 2nd or 3rd year the CtC method (filing a 4852 and claiming zero wages) has been on the list? You'd think the dunces over at LH would have figured out by now that the IRS is wise to their little scam and would have moved on to something else by now.
A lot of them graduated to the 1099-OID scheme.
Nikki

Re: Dirty Dozen for 2010

Post by Nikki »

If so, then they're a couple of years too late. The IRS has been screening for unreasonable 1099-OID claims for several years. DoJ, on information from the IRS, has aleady obtained injunctions against several 1099-OID preparers.
Tax Man

Re: Dirty Dozen for 2010

Post by Tax Man »

Red Cedar PM wrote:Is this the 2nd or 3rd year the CtC method (filing a 4852 and claiming zero wages) has been on the list? You'd think the dunces over at LH would have figured out by now that the IRS is wise to their little scam and would have moved on to something else by now.
Remember Larken Rose? He's one of my favorite one-hit wonders.