Every year, the IRS issues a list of tax scams. The goal is to
alert taxpayers to the lack of merit of certain strategies as
well as letting everyone know the IRS will not accept them.
2006 Scams
The IRS has kicked out its annual list of highly dubious tax
scams for 2006. Promoters often make these strategies sound
credible, but they simply aren't. If a taxpayer attempts to use
one of the scams, the IRS will audit and aggressively attack the
taxpayer as well as try to identify the promoter for
prosecution.
The 2006 list of scams contains most of the traditional claims.
There are, however, three new areas being targeted by the IRS.
They and a few others are highlighted in the following list.
Two new schemes have worked their way onto the list in 2006. In
recent months IRS personnel have noted the emergence of the two
scams--"zero wages" and "Form 843 tax abatement"-- in which
filers use IRS forms to claim that their tax bills have been
wrongly inflated.
Also high on the list in 2006 is "phishing," a favorite ploy of
identity thieves. Over the past few years, the IRS has observed
criminals working through the Internet, posing even as
representatives of the IRS itself, with the goal of tricking
unsuspecting taxpayers into revealing private information that
can be used to steal from their financial accounts.
1. Zero Wages - A new addition to the list, the zero wages scam
is designed to create a log jam in the system. A taxpayer is
supposed to file a tax return with no wages claimed and notice
of challenges to any W-2 or 1099 wage reports. In essence, the
idea is to not pay taxes while the IRS tries to figure out what
is going on. Ultimately, the goal is to get the IRS to accept a
zero income tax return, which of course requires no payment of
taxes.
2. Form 843 Tax Abatement - The tax abatement strategy is very
creative. It is typically used for taxpayers who have failed to
file taxes for a few years. In such a situation, the IRS will
often assess taxes to the individual based on a variety of
factors. The strategy is to abate this assessment and pay not
tax by challenging the assessed amount as being calculated
incorrectly. The IRS says it doesn't fly, but it is a very
creative strategy.
3. Identity Theft/Phishing. This isn't so much a tax reduction
scam as a nightmare wherein identity thieves try to obtain
information from taxpayers by acting as IRS agents. Often they
send out email as though they are from the IRS. The IRS never
sends emails to taxpayers, so don't respond to these emails. If
you're not sure, call the IRS and ask them if there is a
problem. You can reach the IRS at 800-829-1040.
8. Credit Repair Companies - You see these companies everywhere.
Some are legitimate while others are not. The ones that are not
charge high fees and do almost nothing other than putting
taxpayers on some kind of a payment plan. The IRS is currently
revoking the tax-exempt status of many credit repair companies.
10. Offshore Strategies - A traditional area of angst for the
IRS, offshore strategies continue to be closely watched. The IRS
is hyper sensitive to such strategies and tries to shut them
down. In 2005, 68 individuals were charged and convicted for
promotion offshore tax scams and thousands of taxpayers were
audited with nightmarish results. If you want to go offshore,
make sure you get qualified advice from a tax professional and
attorney. Don't buy something off a web site.
There is a fine line between tax evasion and tax avoidance. Tax
avoidance is legal while tax evasion is criminal. If you wish to
pursue advanced tax planning, make sure you do so with the
advice of a tax professional that is going to defend the
strategy to the IRS.
About the author:
Richard A. Chapo is with
http://www.businesstaxrecovery.com -
recovery of business taxes through tax help and tax relief.
Visit
http://www.businesstaxrecovery.com/articles to read more
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