Every year, the IRS issues a list of the top tax scams the agency is seeing. Known as the â€œdirty dozenâ€, here are some highlights of the 2007 list.
1. Telephone Tax Refund â€“ This one has the IRS hot and bothered. For the first time in recent memory, the IRS has started launching audits before the tax filing season has even ended! Why? The telephone tax refund is being abused. The refund is the result of court rulings that a long-distance phone tax was being collected illegally. The IRS is allowing recovery of this tax for the past three years, but people are claiming outrageous numbers. If you do this, beware there is an extremely high chance the IRS will be auditing you.
2. Phishing â€“ The IRS is warning taxpayers about phishing scams designed for the purposes of identity theft. Scam artists are sending emails purportedly from the IRS to taxpayers suggesting that a form needs to be filled out to obtain something, often a refund. The link in the email takes you to a site that looks like the IRS site, but is not. Once you provide your financial information, you receive no refund but your identity is used to carry out fraudulent transactions. The IRS never sends taxpayers emails, so go ahead and delete all â€œIRSâ€ emails you receive. If you have any doubts about their authenticity, call the agency.
3. Structured Entity Tax Credit â€“ The IRS is attacking an inventive scheme involving state conservation tax credits. The strategy works by having people set up partnerships that invest in state conservation credits. The credits are eventually used up and a K-1 is issued to the partners who then take the credits on their personal return. The IRS is arguing that there is no legitimate business purpose for the partnership, which makes the strategy fraudulent.
4. Charity Abuse â€“ An oldie, but goodie. The IRS is hunting people that misuse charitable organizations. The idea is to contribute assets to the charity for a tax break. The problem is the contributors retain control of the assets, which makes it a sham contribution in the opinion of the IRS. There are other strategies as well. The important thing to understand is the IRS is very aggressive when it comes to charitable tax strategies, so make sure you are getting legitimate advice.
People hate paying taxes. Tax avoidance strategies are entirely legal and should be taken advantage of. Tax evasion, however, is not. Make sure you know where the fine line is.
Richard A. Chapo is with BusinessTaxRecovery.com – providing information on back taxes.