AUGUSTA – If there was any doubt, erase it.

Says Internal Revenue Service Commissioner Mark W. Everson: “There is no secret way to escape paying taxes.”

Everson offered the quip in updating the IRS’ annual “Dirty Dozen” tax scams.

“At the IRS, we’re augmenting our enforcement resources to attack schemes and scams,” he said. “While we’re actively targeting promoters, taxpayers themselves should be wary of anyone who promises to eliminate their taxes. Don’t be fooled by these outrageous claims.”

The IRS urges people to avoid these common schemes:

• Misuse of trusts. Promoters of abusive tax transactions are increasingly urging taxpayers to transfer their assets into trusts. Promoters promise reduction of income subject to tax, deductions for personal expenses and reduced gift or estate taxes.

• “Claim of Right” doctrine. People file returns and attempt to take a deduction equal to the entire amount of their wages, calling the deduction a “necessary expense for the production of income” or “compensation for personal services actually rendered.”

• Corporation Sole. Participants apply for incorporation under the pretext of being a “bishop” or “overseer” of a one-person, phony religious organization or society. The rules have been twisted at seminars, where promoters charge fees of up to $1,000. Participants are wrongly told that Corporation Sole laws provide a legal way to escape paying federal income taxes, child support and other personal debts.

• Offshore transactions. Some people use offshore transactions to avoid paying taxes. Use of an offshore bank account, brokerage account, credit card, wire transfer, trust, offshore employee leasing or other arrangement to hide or under-report income or to claim false deductions on a federal tax return is illegal, the IRS says.

• Employment tax evasion. The IRS has seen illegal schemes that instruct employers not to withhold federal income or other employment taxes from employee wages. The schemes are based on an incorrect interpretation of Section 861 and have been refuted in court.

• Return preparer fraud. Unscrupulous tax return preparers can cause problems for taxpayers. Abusive return preparers derive financial gain by diverting a portion of the taxpayer’s refund for their own benefit, charging inflated fees for the return preparation services and increasing their clientele by advertising guaranteed larger refunds.

• Americans with Disabilities Act. As a tax scheme, this involves the purchase of equipment and services alleged to meet criteria of the Disabled Access Credit created with passage of the Americans with Disabilities Act.

• African-Americans get special tax refund. Thousands of African-Americans have been duped by people offering to file for tax credits or refunds related to reparations for slavery. There is no such provision in the tax law.

• Improper home-based business. This scheme claims to offer tax “relief” but in reality is illegal tax avoidance. Promoters claim taxpayers can deduct most or all of their personal expenses as business expenses by setting up a bogus home-based business.

• Frivolous arguments. When a scheme promoter says “I don’t pay taxes, why should you?” or urges you to “untax yourself for $49.95,” beware. Numerous sellers of the bogus schemes have been convicted on criminal tax charges, according to the IRS. More than a dozen injunctions have been issued.

• Identity theft. Identity thieves use someone’s personal data to steal his or her financial accounts, run up charges on the victim’s credit cards, apply for loans, credit cards, services or benefits and file fraudulent tax returns. Abusive tax preparers have used clients’ Social Security numbers and other information to file false tax returns without the clients’ knowledge.

• Share or borrow EITC dependents. Unscrupulous tax preparers “share” one client’s qualifying children with another client in order to allow both clients to claim the Earned Income Tax Credit. The preparer and the client “selling” the dependents split a fee.

Taxpayers who suspect tax fraud can report it to the IRS at 1-800-829-0433.


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