The Top IRS Tax Scams – Part 2

In part one of this blog on the top twelve scams or the “Dirty Dozen” identified by the Internal Revenue Service (IRS),  I talked about the first six –  identity theft, phishing,  return preparer fraud, hiding income offshore, “free money” and Social Security scams, and false/inflated income and expenses. This blog discusses the next six scams: false form 1099 refund claims, frivolous arguments, falsely claiming zero wages, abuse of charitable organizations and deductions, disguised corporate ownership, and misuse of trusts.

7. False Form 1099 Refund Claims – The taxpayer files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return. They believe that the federal government maintains secret accounts for U.S. citizens and taxpayers can gain access by using this form.

8. Frivolous Arguments – These are unreasonable and outlandish claims to avoid paying taxes. The Internal Revenue Service has a list of these, which do not hold up in court.

9. Falsely Claiming Zero Wages – A Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used by the taxpayer to improperly reduce taxable income to zero. The taxpayer may also submit a statement denying the wages and taxes reported by the employer to the Internal Revenue Service.

10. Abuse of Charitable Organizations and Deductions – These involve intentional abuse of 501(c) (3) organizations to hide income or assets from taxation and the donor maintains control of the donation. These are usually for non-cash donations, in which the donation is overvalued or the organization lets the donor repurchase the item at a set price.

11. Disguised Corporate Ownership – Third parties are improperly used to request employer identification numbers and form corporations that hide the true ownership of the business. These have been used to under report income, claim fictitious deductions, avoid filing tax returns, facilitate money laundering, and financial crimes.

12. Misuse of Trusts – There are legitimate uses of trusts in tax and estate planning. The highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses, and reduced estate or gift taxes. These trusts are mainly used to avoid income tax liability and hide assets from creditors, including the Internal Revenue Service. It is best to seek the advice of a trusted professional before entering a trust arrangement.

Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Civil Penalty, Credit Monitoring, Debt, Government, Internal Revenue Service, Money & Identity

This post was written by John Ulzheimer