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Spammed or Scammed?

The Internal Revenue Service has recently released what the Service has identified as the twelve most blatant scams affecting American taxpayers.  At the top of the list is an inflated refund request revolving around the Telephone Excise Tax.  New to the annual Dirty Dozen are abuses that pertain to Roth IRAs, the American Indian Employment Credit, domestic shell corporations and structured entities.  IRS Commissioner Mark Everson said concerning scams:  ‘Don’t be taken by scam artists making outrageous promises.’

 The following is this year’s list of the most common abuses:

             1.      Telephone Excise Tax Refund – Taxpayers entitled to 3% tax refund on long-distance and bundled services are instead claiming up to the entire amount of their phone bills. 

2.      Abusive Roth IRAs – Shifting property such as under-valued stock into these retirement arrangements results in otherwise taxable income going untaxed.

3.      Phishing – A technique in which scammer obtains personal financial data in order to gain access to the financial accounts of unsuspecting consumers so that they can then run up charges on their credit cards or obtain loans in their names.

4.      Disguised Corporate Ownership – Domestic shell corporations are formed in order to disguise ownership of spurious business activities such as underreporting income, not filing tax returns, money laundering, and other financial crimes.

5.      Zero Wages – Substitute Form W-2 or corrected Form 1099 shows little or no income for filing with federal tax return to replace regular reporting.

6.      Return Preparer Fraud – Tax return preparers who convince taxpayers that they can get them extraordinarily large refunds and then file fraudulent tax returns.

7.      American Indian Employment Credit – Unscrupulous promoters inform Native Americans that they are not subject to federal income taxation, and then file a tax return wrongly reducing taxable income under the Indian Employment Credit available to business entities.

8.      Trust Misuse – Over 150 abusive trusts are currently under investigation – trusts whose promoters have convinced taxpayers that they can reduce income subject to taxation, obtain deductions for personal expenses, and lower estate or gift taxes.

9.      Structured Entity Credits – Partnerships established to own and sell conservation easement credits, federal rehabilitation credits and other credits which when the credits are used up the investor receives a K-1 showing his investment to be a total deductible loss.

10.  Abuse of Charitable Organizations and Deductions – Taxpayer moves assets to tax-exempt charitable organization while maintaining control over the assets.

11.  Form 843 Tax Abatement – Tax filer requests abatement of previously assessed tax with Form 843 often on premise he failed to properly calculate certain property in return for performance of service.

12.  Frivolous Arguments – Promoters set out to deny the legality of filing income tax returns.

IRS continues to search out in order to destroy tax scams.  Suspected abuses can be reported to IRS on their Form 3949-A, downloadable from their website:  www.irs.gov.  Many of these so-called dirty dozen will never affect the majority of Americans living abroad.  Of much greater concern are scammers that hit closer to home.  Their schemes often show up as SPAM (unsolicited email), and include but not limited to 1) requests to help release millions of dollars in funds, 2) contest winnings, 3) credit card offers, 4) social security data verification, 5) working at home, 6) identity theft, 7) online dating, 8) college scholarships and university degrees, 9) international driving license, and 10) help needed.

Fraud statistics reveal that in 2006 some $49.3b was lost to identity fraud.  $437m was lost to online scams.  And 1.2m Americans inadvertently revealed their personal finances to criminals.  But whether one is an American or a world citizen, scamming and spamming affects everyone indirectly in costs of doing business and anyone directly in the pocketbook.  An interesting site about scams:  www.scambusters.org.