Most Common Tax Scams
Previous-
The IRS 'Dirty Dozen'
The IRS recently unveiled the 12 most common tax schemes and scams affecting American taxpayers in 2008.
This year's list is highlighted by Internet phishing scams and several new frivolous tax arguments.
Click through our gallery to see the "Dirty Dozen" schemes that the IRS urges taxpayers to avoid.
· An Overview by WalletPop.com
First Scam: Phishing -
Cassandra Shie, AOL
1. Phishing
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.
Next: "Rebate" Scams -
Spencer Plat, Getty Images
2. Scams Related to the Economic Stimulus Payment
Some scam artists are trying to trick individuals into revealing 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 reps are trying to trick taxpayers by falsely telling them they must provide information to get a payment.
Next: Frivolous Arguments -
3. Frivolous Arguments
Don't believe these outlandish claims: wages are not income; filing a return and paying taxes are merely voluntary; and being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Taxpayers who file a return or make a submission based on one of these positions are subject to a $5,000 penalty. The "frivolous" list has been updated to include a nonexistent "Mariner's Tax Deduction," among other things.
Next: Fuel Tax Credit Scams -
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.
Next: Hiding Income Offshore -
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.
Next: Abusive Retirement Plans -
6. Abusive Retirement Plans
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.
Next: Zero Wages -
7. Zero Wages
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.
Next: Abatements -
8. 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."
Next: Return Preparer Fraud -
9. Return Preparer Fraud
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.
Next: Disguised Ownership -
10. Disguised
Corporate OwnershipSome 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.
Next: Misuse of Trusts -
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.
Next: Charitable Abuses -
12. Abuse of Charitable Organizations & 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.
More on AOL: Tax Audit Red Flags -
More on AOL:
Tax Audit Red Flags
If you think you have to be caught stowing away cash in an offshore bank account to trigger an audit, you better think again. One tiny error on your return can have the IRS knocking on your door. In 2007, the IRS audited approximately 1.4 million returns, a 7% increase from 2006 and the highest number on record since 1998.
Here are five common red flags that catch the IRS's eye and how to avoid them.
Five Tax Audit Red FlagsMore in Money & Finance:
Recent Comments
PatricBullingt 10:02:21 PM Apr 14 2008
Isn't illegals and goverment all the same kind of people (all not legal).Paying tax has always been out of hand, but now it is really out of hand and the person who said the usa is a dictatorship is so right.the people don't run gov. anymore ,if they ever did, the goverment is trying to run every part of our life from child birth to what we can and cannot say,how to teach our children and all these different ways of taking our freedom ,little by little until no freedom is left.they want to take God out of the usa and then blame him for every bad thing that happens ,forgetting about free will which is very evil at times and they also ask the question where was God when the bad happened but forget they wanted him to leave every place.Back to taxes ,they even tax our tax.We pay taxes on our salary and sales tax,house tax ,school tax,car tax,insurance and more tax, tax to drive our car.suppose to own our houses ,but,miss your tax on it and see what happens,luxery tax and probably a lot I c
Bouncingpen60 06:04:49 PM Apr 14 2008
The problem is that people are afraid of the government because this country is no longer a democracy - it is a dictatorship/communistic government. You are being watched on the internet, watched by cameras in your public streets, have no right to own guns or keep them in your house - if you're caught you go to jail, can't defend your own property - criminals have the rights to attack you, do not actually own your property since the supreme court took away the right of imminent domain and it can be sold out from under you to a higher bidder. ALSO, your congressmen and senators DON'T CARE what bills you do or don't want passed - they pass these things according to how much money goes into their bank accounts. AND - none of the current presidential candidates will do anything differently.
Cokerkenly 04:45:35 PM Apr 14 2008
THINK ABOUT THIS: THE RATIO OF GOVERNMENT EMPLOYEES, LOCAL, STATE, AND FEDERAL IS EQUAL TO ABOUT 20 % OF THE POPULATION NATION WIDE. WHY DO WE NEED 1 GOVERNMENT EMPLOYEE OUT OF EVERY 5 CITIZENS? I AGREE THAT WE NEED A GOVERNMENT AND TAXES, BUT AT THE SAME TIME, WE ARE NOT CHILDREN. WE CAN DO SOME THINGS ON OUR OWN AS WELL AS TAKE CARE OF OUR OWN IN MOST CASES. MY POINT IS THAT THE "IN PLACE GOVERNMENT" IS FAR TO BIG AND FAR TOO EXPENSIVE FOR THE NEEDS OF THE AMERICAN PEOPLE. GET THE FAT OUT AND IT WILL WORK GREAT FOR EVERYONE AT WAY LESS OF A COST.
ROCA477 09:25:31 AM Apr 14 2008
There are lots of Mexicans here, however don't forget, there are lots of illegals here from other countries as well. Remember 911. They come here for free college benefits and find out our security system and plan to destroy us. Mexicans come here to work hard for little money which helps the economy. I agree control needs to be accomplished, however, stricter rules in allowing others from further away contries from eating up our children's futures by destroying our World Trade Center!
Tanner jpa 10:29:53 AM Apr 08 2008
Shadowed Havoc 06:57:37 PM Apr 05 2008
Report This! I'm tired of the ilegals breaking our countries laws and then being rewarded for their crimes.... It is against the law to come into our country without permission, It is against the law to show false I.D " this is called fraud" If WE THE AMERICAN PEOPLE DID THE THINGS THEY ARE DOING WE WOULD BE BURRIED UNDER OUR PRISONS!!!! WE THE PEOPLE SHOULD BE ABLE TO SUE OUR GOVERMENT FOR BREAKING OUR COUNTRIES LAWS!!! My husband works where there are ilegals, he knows of 2 with fake I.D's one got back $8,000 another $10,000 on taxes.They plan to pay 2,500 fine to stay in the U.S we the people are paying their fines WAKE UP PEOPLE!!!
///////////////////////////////////////////////
"WE THE PAOPLE" will have to kick our representatives in their TU-TUs and wake them up!!! Call your representatives today! Your Congressmen. Your Senators. Let them know you want to be heard!!!!
Richcuch 09:32:20 AM Apr 08 2008
stimulus package should also go to people not working not by their choice ssi not their choice to having a disease whats up with that
Martelskip 09:03:47 AM Apr 08 2008
First - Congress votes to eliminate automatic pay hikes for themselves! 2nd - Congess votes for all of CONGRESS to go on SOCIAL SECURITY instead of CURRENT retirement PLAN! 3rd - Congress votes - to set a time limit on serving in Congress! 4th - Congress votes - for a plan to get people OFF WELFARE! OH YEAH! Did I mention that not only for CONGRESS TO VOTE FOR THESE MEASURES - BUT ALSO TO PASS THEM - POST HASTE! AMERICA BELONGS TO AMERICANS! LETS MAKE IT DESIREABLE TO BECOME AN AMERICAN CITIZEN LIKE IT USED TO BE! GJ
DAMEONKENNEX 06:40:20 AM Apr 08 2008
WERE DID AMERICA GO
WE ARE NOW UNDER SAUDI RULE
THEY ATTACKED OUR CITY WITH AIRPLANE S
THERE BUYING AMERICAN COMPANY S
PROPERTY AND STOCK WITH OUR MONEY
WE INVADE THE WRONG COUNTRY
NO ONE HELD ACCOUNTABLE
KILL THOUSAND S OF INACENT PROPLE
WITH SOMETHING WE CALL A SMART BOMB
LOOSE MILLION S IN SUITCASE MONEY
AND A PRESIDENT THAT DOESENT LISTEN TO THE PEOPLE
Shadowed Havoc 06:57:37 PM Apr 05 2008
I'm tired of the ilegals breaking our countries laws and then being rewarded for their crimes.... It is against the law to come into our country without permission, It is against the law to show false I.D " this is called fraud" If WE THE AMERICAN PEOPLE DID THE THINGS THEY ARE DOING WE WOULD BE BURRIED UNDER OUR PRISONS!!!! WE THE PEOPLE SHOULD BE ABLE TO SUE OUR GOVERMENT FOR BREAKING OUR COUNTRIES LAWS!!! My husband works where there are ilegals, he knows of 2 with fake I.D's one got back $8,000 another $10,000 on taxes.They plan to pay 2,500 fine to stay in the U.S we the people are paying their fines WAKE UP PEOPLE!!!
Featured Sponsor
Electronic Filing
Free Electronic Filing & Tax Tools- E-file FREE with TurboTax Online
- Free Download - Deduction Tracker Toolbar
- E-file for up to a $1200 Tax Rebate
Taxes: Basics
Anyone seeking help with taxes should start with the fundamentals. Here are the basics of taxes.
- Who Must File a Return
- Audits & Penalties
- Taxes on Capital Gains
- Withholding Your Taxes
- Common Tax Credits
- Personal Exemptions
- All About AMT Tax
- Calculate Taxable Income
- Itemizing Deductions
- Filing a Return Online
- 2007 Tax Brackets
- 2008 Tax Brackets
- Standard Deductions
- How to File an Extension
Featured Sponsor
Tax Calculators
Get a quick and easy estimate of your tax savings.- Tax Rebate Calculator
- Tax Estimator
- Deduction Finder
- Home Loan Tax saver
- Paycheck Withholding Calculator
Tax Specials
Stay on top of tax season with these timely features.
- Top 5 New Tax Laws
- Top 5 Audit Red Flags
- 13 Most Overlooked Tax Deductions
- 12 Most Common Taxpayer Mistakes to Avoid
- Top Tips for Procrasinators
- Which Tax Form Should You Use?
- 10 Sure-Fire Tax Breaks
- Do-It-Yourself Tax Savings for All Life Stages
- 7 Filing Fears That Freak Out Taxpayers
- Famous Tax Cheats
- 10 Tax Preparer Secrets
- Top 10 Must-Know Tax Terms
- World's Top Tax Havens
- Biggest Tax Procastinating Cities
- 10 Wackiest Tax Deductions
- Dirty Dozen Tax Scams to Avoid
- 8 Hidden Taxes
