Beware of the “Dirty Dozen.” No, this isn’t a review of the famous movie many of us remember from a few years ago, but an annual list of tax scams that the IRS makes the public aware of. Unscrupulous tax preparers try a number of things to “increase your refund” in order to increase the size of their wallets. Here are a few of the most notorious scams for 2007:
Valerie RumboughTelephone excise tax refund abuse. There is a refund for the 3 percent long-distance telephone tax, but some tax payers who have already filed are asking for a refund of their entire phone bill.
Abusive Roth IRAs. Advisors encourage taxpayers to shift undervalued property to their Roth IRA, causing them to place more than the annual maximum contribution limit into their account.
Identity theft. A typical e-mail notifies a taxpayer that a refund is due them and guides them to an official-looking website, where they are asked to give their Social Security and credit card number.
Zero wages. A form “correcting” the taxpayer’s W-2 or other wages is filed with the return, showing little or no income.
American Indian employment credit. Native American employees reduce the income on their returns, citing an American Indian employment or treaty credit. Unscrupulous promoters have also informed them that they are not subject to federal tax, and have sent false IRS notices to solicit personal financial information in order to process their “non-tax” status.
Trust misuse. Some have encouraged taxpayers to place funds into certain trusts to reduce income and deduct personal expenses.
Abuse of charitable organizations. Tax-exempt organizations are being used to shield income or assets from taxation, claim deductions for items such as tuition to private schools, and place assets in donor-advised funds but still maintain control over them.
If you or someone you know has been asked to participate in any of these schemes, you can file a Form 3949-A, Information Referral. Download this form at the IRS website, www.irs.gov. The form or a letter detailing the alleged activity should be sent to IRS, Fresno, Calif. 93888. You don’t have to reveal your identity, but if you do, it will be kept confidential, and a reward may also be possible.
Editor’s note: In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purposes.