From
the IRS Website
Phishing Scams, Frivolous Arguments Top the 2008 “Dirty
Dozen” Tax Scams
The
Internal Revenue Service issued its 2008 list of the 12 most
egregious tax schemes and scams, highlighted by Internet phishing
scams and several frivolous tax arguments.
Topping this year’s list of scams is phishing, which encompasses
numerous Internet-based ploys to steal financial information
from taxpayers. New to the “Dirty Dozen” this year
is a scheme, which IRS auditors discovered, that relates to
unreasonable and/or excessive fuel tax credit claims.
“Taxpayers
should be wary of scams and promises to avoid paying taxes that
seem too good to be true,” Acting IRS Commissioner Linda
Stiff said. “There is no secret formula that can eliminate
a person’s tax obligations. People should be wary of anyone
peddling any of these scams.”
Tax
schemes can lead to problems for both scam artists and taxpayers.
Tax return preparers and promoters also risk significant penalties,
interest and possible criminal prosecution.
The
IRS urges taxpayers to avoid these common schemes:
1.
Phishing
Phishing
is a tactic used by Internet-based thieves to trick unsuspecting
victims into revealing personal information they can then use
to access the victims’ financial accounts. These criminals
use the information obtained to empty the victims’ bank
accounts, run up credit card charges and apply for loans or
credit in the victims’ names. Phishing scams often take
the form of an e-mail that appears to come from a legitimate
source. Some scam e-mails falsely claim to come from the IRS.
To date, taxpayers have forwarded more than 33,000 of these
scam e-mails, reflecting more than 1,500 different schemes,
to the IRS. The IRS never uses e-mail to contact taxpayers about
their tax issues. Taxpayers who receive unsolicited e-mail that
claims to be from the IRS can forward the message to a special
electronic mailbox, phishing@irs.gov, using instructions contained
in an article titled “How to Protect Yourself from Suspicious
E-Mails or Phishing Schemes.” Remember: the only official
IRS Web site is located at www.irs.gov.
2.
Scams Related to the Economic Stimulus Payment
Some
scam artists are trying to trick individuals into revealing
personal financial information that can be used to access their
financial accounts by making promises relating to the economic
stimulus payment, often called a “rebate.” To obtain
the payment, eligible individuals in most cases will not have
to do anything more than file a 2007 federal tax return. But
some criminals posing as IRS representatives are trying to trick
taxpayers into revealing their personal financial information
by falsely telling them they must provide information to get
a payment. For instance, a potential victim is told by phone
or e-mail that he or she is eligible for a rebate but must provide
a bank account number (or similar information) to get the payment.
If the target is unwilling, the victim is then told that he
cannot receive the rebate unless the information is provided.
Individuals should remember that the only way to get a stimulus
payment is to file a 2007 tax return. The IRS urges taxpayers
to be extra-vigilant. The IRS will not contact taxpayers by
phone or e-mail about their stimulus payment.
3.
Frivolous Arguments
Promoters
of frivolous schemes encourage people to make unreasonable and
unfounded claims to avoid paying the taxes they owe. Most recently,
the IRS expanded its list of frivolous legal positions that
taxpayers should stay away from. Taxpayers who file a tax return
or make a submission based on one of these positions on the
list are subject to a $5,000 penalty. The most recent update
of the list of frivolous positions includes: misinterpretation
of the 9th Amendment to the U.S. Constitution regarding objections
to military spending, erroneous claims that taxes are owed only
by persons with a fiduciary relationship to the United States,
a nonexistent “Mariner’s Tax Deduction” related
to invalid deductions for meals and the misuse of the fuel tax
credit (see below). The complete list of frivolous arguments
is on the IRS Web site at IRS.gov.
4.
Fuel Tax Credit Scams
The
IRS is receiving claims for the fuel tax credit that are unreasonable.
Some taxpayers, such as farmers who use fuel for off-highway
business purposes, may be eligible for the fuel tax credit.
But some individuals are claiming the tax credit for nontaxable
uses of fuel when their occupation or income level makes the
claim unreasonable. Fraud involving the fuel tax credit was
recently added to the list of frivolous tax claims, potentially
subjecting those who improperly claim the credit to a $5,000
penalty.
5.
Hiding Income Offshore
Individuals
continue to try to avoid paying U.S.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.
The IRS and the tax agencies of U.S. states and possessions
continue to aggressively pursue taxpayers and promoters involved
in such abusive transactions.
6.
Abusive Retirement Plans
The
IRS continues to uncover abuses in retirement plan arrangements,
including Roth Individual Retirement Arrangements (IRAs). The
IRS is looking for transactions that taxpayers are using to
avoid the limitations on contributions to Roth IRAs. Taxpayers
should be wary of advisers who encourage them to shift appreciated
assets into Roth IRAs or companies owned by their Roth IRAs
at less than fair market value. In one variation of the scheme,
a promoter has the taxpayer move a highly appreciated asset
into a Roth IRA at cost value, which is below annual contribution
limits even though the fair market value far exceeds the amount
allowed.
7.
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.
8.
False Claims for Refund and Requests for Abatement
This scam involves a request for abatement of previously assessed
tax using Form 843, “Claim for Refund and Request for Abatement.”
Many individuals who try this have not previously filed tax
returns. The tax they are trying to have abated has been assessed
by the IRS through the Substitute for Return Program. The filer
uses Form 843 to list reasons for the request. Often, one of
the reasons given is "Failed to properly compute and/or
calculate Section 83-Property Transferred in Connection with
Performance of Service."
9.
Return Preparer Fraud
Dishonest
tax return preparers can cause many problems for taxpayers who
fall victim to their schemes. These scam artists make their
money by skimming a portion of their clients’ refunds and
charging inflated fees for return preparation services. They
attract new clients by promising large refunds. Some preparers
promote the filing of fraudulent claims for refunds on items
such as fuel tax credits to recover taxes paid in prior years.
Taxpayers should choose carefully when hiring a tax preparer,
especially one who promises something that seems too good to
be true.
10.
Diguised Corporate Ownership
Some
people are going as far as forming domestic shell corporations
in certain states for the purpose of disguising the ownership
of a business or financial activity. Once formed, these anonymous
entities can be used to facilitate underreporting of income,
non-filing of tax returns, engaging in listed transactions,
money laundering, financial crimes and even terrorist financing.
The IRS is working with state authorities to identify these
entities and to bring the owners of these entities into compliance.
11.
Misuse of Trusts
For
years, unscrupulous promoters have urged taxpayers to transfer
assets into trusts. They promise reduction of income subject
to tax, deductions for personal expenses and reduced estate
or gift taxes. However, some trusts do not deliver the promised
tax benefits. As with other arrangements, taxpayers should seek
the advice of a trusted professional before entering into a
trust.
12.
Abuse of Charitable Organizations and Deductions
The
IRS continues to observe the misuse of tax-exempt organizations.
Misuse includes arrangements to improperly shield income or
assets from taxation, attempts by donors to maintain control
over donated assets or income from donated property and overvaluation
of contributed property. In addition, IRS examiners are seeing
an upturn in instances where taxpayers try to disguise private
tuition payments as contributions to charitable or religious
organizations.
IRS
Watches Scams That Fall Off the List
While
the IRS has seen a decline in the occurrence of some of these
scams, other problems, such as abuse of the American Indian
Employment Credit and misuse of structured entity credits, continue
to be areas of concern. The absence of a particular scheme from
the Dirty Dozen should not be taken as an indication that the
IRS is unaware of it or not taking steps to counter it.
How
to Report Suspected Tax Fraud Activity
Suspected
tax fraud can be reported to the IRS using IRS 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.
