It seems like every time you open your email or get a phone call, there is someone trying to solicit you to do something. Some of those solicitations are legitimate, but a lot are not. If you respond to those requests you will probably end up in some sort of trouble. Some are easier to get out of than others. If you do get involved with or duped by one of these scams, you will still be subject to the consequences. That may mean paying back a sum of money, paying a penalty, or even jail time if it is severe enough. I have compiled here a summary of some of the most common tax scams.
Hiding Income Offshore
You are invited to a seminar about offshore accounts. You are told that they can hide income and assets in offshore banks, brokerage accounts, or through the use of nominee entities. You are also told to use offshore debit/credit cards, wire transfers and foreign trusts to further hide income offshore. The IRS is aggressively pursuing taxpayers involved in these sorts of schemes.
Identity Theft and Phishing
Identity theft happens when someone uses your name, social security number, credit card number(s) or other personal information without your permission to commit a crime. I know I get at least three emails a day from Nigeria telling me that I have inherited a large sum of money. All I have to do is call a number and let them know how to contact me. This is called Phishing. The sender is hoping that you won’t question anything and will immediately call them or click on the link provided. Once you give them any personal information, you are at their mercy. They are now free to conduct all sorts of mayhem in your name. They can open credit cards, take out loans, or even file fraudulent tax returns to collect refunds. It can take months, if not years, to clean up the mess if you are a victim of identity theft. NOTE: THE IRS WILL NEVER, EVER CONTACT YOU VIA EMAIL. If you get an email from the IRS, you are asked to forward it to: phishing@irs.gov.
Disguised Corporate Ownership
Some states allow corporations and other entities to be formed for the purpose of disguising the ownership of the business. While there are valid reasons for disguising ownership, they are also formed for more nefarious purposes. These entities can be used to facilitate criminal activities and fraud, such as underreporting of income, fictitious deductions and money laundering, to name a few. The IRS is working with state authorities to identify these entities and bring them into compliance.
Misuse of Trusts
For years, promoters have urged taxpayers to transfer assets into trusts promising a reduction of income subject to tax, deductions for personal expenses, and reduced estate or gift taxes. While trusts are very valuable in tax and estate planning, not all deliver what is promised. If you are thinking about establishing a trust, please contact an attorney that specializes in trusts.
Fuel Tax Credit Scams
Some taxpayers who use fuel for off-highway business purposes (such as farmers) are eligible for a fuel tax credit. Sometimes this credit is used when the occupation or income level makes the claim unreasonable. That is considered a frivolous tax claim and can result in a penalty of $5,000.
Abusive Retirement Plans
The IRS is looking for transactions that are used to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. If your adviser is encouraging you to move appreciated assets into your IRA at less than fair market value or to do something else that just doesn’t seem right, beware. FBN
Written by E Neils Mickelson, Northern AZ Financial Services