2. Filing false or misleading formsThis is the lone new scam on the 2009 list. In these cases, scam artists file false or misleading returns to claim refunds to which they are not entitled.
One popular ploy is the filing of Form 1099-Original Issue Discount, or OID, by which false withholding credits are used to legitimize erroneous refund claims. Interest that you receive or that is credited to an account you own is taxable income and must be reported on your tax return. One type of such interest is from a bond, note or other long-term debt instrument that was originally issued for a lower price than its redemption price at maturity. This original issue discount is a form of such taxable interest. By crediting this false interest to the taxpayer, the scammer then claims an illegal refund using the falsely reported income.
This scam has evolved from an earlier phony "strawman" bank account scam. Here a fake account was created for a taxpayer, who then produced an information return, contending that the "strawman" account was used to pay for goods and services. They then falsely claimed the corresponding amount as withholding, which they then filed for in order to get the money "back" as a refund.
3. Frivolous tax argumentsThis group of tax evasion techniques is probably the most notorious of scams. Over the years, tax avoidance promoters have advocated numerous false claims as to why individuals don't have to file tax returns. They include the perennial claims that the 16th Amendment concerning congressional power to lay and collect income taxes was never ratified, and that wages are not income to newer arguments involving a misinterpretation of the 9th Amendment regarding objections to military spending and claims that taxes are owed only by persons with a fiduciary relationship to the United States.
Taxpayers do have the right to contest their tax liabilities in court, says the IRS, but no one has the right to disobey the law that allows the government to collect the taxes. The IRS regularly updates an online list of frivolous tax arguments. If a taxpayer files a tax return or makes a submission based on one of these positions, that person is subject to a $5,000 penalty.
4. Fuel tax credit scamThe credit is a legitimate tax break claimed by taxpayers such as farmers, who use fuel for off-highway business purposes. But in this scam, the IRS has received claims it says are unreasonable. Some filers, whose occupation or income level makes the claim suspect, are claiming the tax credit for nontaxable uses of fuel. The IRS recently added this credit claim to its list of frivolous tax arguments, meaning that a person found to fraudulently use it could face a $5,000 penalty.
5. Hiding income offshoreWhile hiding income in offshore accounts is nothing new when it comes to tax avoidance, the IRS has recently stepped up its efforts to combat this tax evasion technique.
Individuals continually try to avoid paying taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore debit cards, credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance plans, says the IRS. 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.
The IRS is conducting a two-pronged effort to stem these tax avoidance schemes. In addition to increased enforcement efforts, the IRS is offering those involved in such schemes a chance to come clean on their own. Those who come forward and pay back taxes, interest and a penalty, which in some cases may be reduced, will not face criminal prosecution for tax evasion.