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Getting organized


Doing your taxes can be less frustrating, less time consuming and less costly if you're prepared.

Watch out for these "dirty dozen" tax scams

Taxpayers are always looking for ways to cut tax bills. Unfortunately, scam operators are always looking for filers who are eager to find tax breaks.

Con artists work year round, but every filing season they get a bump in business as thousand of citizens are easy prey for tax-oriented schemes. To entrap taxpayers, some scammers come up with some patently false tax schemes to wheedle personal information and money from unsuspecting filers who think they are complying with tax laws.

Other scammers take real tax breaks, or portions of legal write-offs, and illegally apply them. That's the case with this year's top scam, a collection of questionable claims of the new, and legitimate, refund of federal telephone tax money. This tax break, which most people can easily claim by filling out one line on their individual tax return forms, has sparked a new crop of fraudulent tax applications.

Those various phone-refund abuses top the IRS's 2007 "dirty dozen" tax scam list. The collection of the 12 most blatant tax scams is updated each year. Joining phone refund rip-off, other new cons in 2007 involve Roth IRAs, the American Indian Employment Credit, domestic shell corporations and structured entities. Oldies but baddies returning to the list including "phishing" for personal information to assist in identity theft, zero wage claims and improper charitable deductions.

Some folks can't even trust their tax pros, with unscrupulous preparers once again making the annual list. "Don't get taken by scam artists making outrageous promises," warns IRS Commissioner Mark E. Everson in announcing this year's scam list. "If you use a tax professional, pick someone who is reputable. Taxpayers should remember they are ultimately responsible for what is on their tax return even if some unscrupulous preparers have steered them in the wrong direction."

12 ways to lose money
Here are a dozen common, and potentially costly, ways you could lose money to more than just the IRS if you're not careful.
IRS scam list for 2007
1. Telephone tax refund abuses
2. Abusive Roth IRAs
3. Tax-related identity theft phishing
4. Disguised corporate ownership
5. Zero wage claims
6. Return preparer fraud
7. American Indian employment credit
8. Illegitimate trusts
9. Structured entity credits
10. Improper charitable deductions
11. Form 843 tax abatement
12. Frivolous arguments

Telephone tax refund abuses
The IRS says some of those unscrupulous tax preparers are helping clients file improper telephone tax refund requests. Taxpayers can choose from standard refund amounts, ranging from $30 to $60, or file for the actual amount of taxes paid during the refund eligibility period. Some early 2006 returns, however, show excessively large and apparently improper amounts for the special telephone tax refund. In some cases, taxpayers are seeking a refund for the entire amount of their phone bills, rather than just the 3-percent tax on long-distance and bundled service to which they are entitled.

In cases where tax preparer abuses are suspected, the IRS is aggressively investigating. In mid-February, IRS criminal investigators served search warrants on several tax preparer offices, temporarily closing the businesses and seizing computers and documents. The IRS says additional offices are under investigation, as are individual taxpayers who file questionable phone tax claims.

Abusive Roth IRAs
Since the filing deadline is also the due date for individual retirement account contributions, it is prime time for scams that incorporate retirement plans. In this version, new to the IRS annual scam list, advisers encourage taxpayers to shift undervalued assets to Roth IRAs. This ploy, which the IRS has been tracking for years, typically involves a business in which the owner also creates a separate corporation with shares that are owned or acquired by the taxpayer's existing Roth IRA. Subsequent transactions involving the IRA and the corporation, says the IRS, are designed to allow the taxpayer to put in more than the annual maximum IRA contribution limit, meaning otherwise taxable income escapes taxation.

-- Updated: Feb. 28, 2007
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