Taxpayers are always looking
for ways to cut tax bills. Unfortunately, scam operators
are always looking for filers who are eager to find
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."
|Here are a dozen
common, and potentially costly, ways you could
lose money to more than just the IRS if you're
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