Category: Tax Law and Planning
Reprinted with permission from Steve Leimberg, creator of www.leimbergservices.com
, where I get my most up to date analysis of what is going on in the world of tax, estate planning, business planning, and employee and retirment benefits.
Normally, Steve's newletters are copyrights. But here, the internet scammers tried to fake Steve, a tax authority, into giving up some personal information in response to an "email from the IRS" about an after-discovered "refund."
First, the IRS NEVER communicates via email (other then auto-confirmations). All news, good and bad, arrives in the mail.
From Steve Leimberg's Estate Planning Newsletter # 942 (March 13, 2006) at http://www.leimbergservices.com EXECUTIVE
Each year the IRS issues a list of the 12 "most notorious tax scams" that it is monitoring. These are typically ploys that promise to reduce or eliminate taxes. Three relatively new schemes are: (1) "zero wages"
and (2) "Form 843 tax abatement"
- in which filers use IRS forms to claim that their tax bills have been wrongly
inflated, and (3) "phishing,"
a crime of identity
theft. This trickery involves criminals working through the Internet,
posing even as representatives of the IRS itself or as PayPal, specific
banks, or e-Bay, with the goal of tricking unsuspecting taxpayers into
revealing private information that can be used to steal from their financial
:The IRS continues to uncover and attack schemes designed to trick taxpayers into parting with their money through scams that are "too good to be true". Gullible, greedy, or ignorant
taxpayers - including charitable organizations, continue year after year to fall
for these tricks. Some are generated by promoters who know full well - or close
their eyes and minds and choose to believe what they know is not true about the
tax packages they are selling . And there's no dearth of people willing to
fall for the pitch. Some taxpayers, for instance, are still using frivolous
arguments to claim they do not owe taxes, despite the fact such reasoning has been thrown out of court time and again.IF YOU DO THE CRIME, YOU DO THE TIME: The IRS and the Courts have made it clear that "involvement with tax schemes can lead to imprisonment and fines. The IRS pursues and shuts down promoters of these and numerous other scams. Anyone pulled into these schemes can also face repayment of taxes plus interest and penalties."THE 2006 DIRTY DOZEN: 1. Zero Wages.
In this scam, new to the Dirty Dozen, a taxpayer attaches to his or her return either a Form 4852 (Substitute Form W-2) or a "corrected" Form 1099
that shows zero or little wages or other income. The taxpayer may include a
statement indicating the taxpayer is rebutting information submitted to the IRS
by the payer. An explanation on the Form 4852 may cite "statutory language
behind IRC 3401 and 3121" or may include some reference to the paying company
refusing to issue a corrected Form W-2 for fear of IRS retaliation. The Form
4852 or 1099 is usually attached to a "Zero Return." (See number four below.)2.
843 Tax Abatement.
This scam rests on a faulty interpretation of the Internal Revenue Code. It involves
the filer requesting abatement of previously assessed tax using Form 843. Many using this scam have not previously filed tax returns and the tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses the Form 843 to list reasons for the request. Often, one of the reasons is: "Failed to properly compute and/or calculate IRC Sec 83––Property Transferred in Connection with Performance of Service."3.
Phishing is a technique used by identity thieves to acquire personal financial data in order to gain access to the financial accounts of unsuspecting consumers, run up charges on their credit cards or apply for new loans in their names. These Internet-based criminals pose as representatives of a financial institution (or even the IRS) and send out fictitious e-mail correspondence in an
attempt to trick consumers into disclosing private information. In recent months, some taxpayers have received e-mails that appear to come from the IRS. A typical e-mail notifies a taxpayer of an outstanding refund and urges the taxpayer to click on a hyperlink and visit an official-looking Web site. The Web site then solicits a social security and credit card number. In a variation of this scheme, criminals have
used e-mail to announce to unsuspecting taxpayers they are "under audit" and
could make things right by divulging selected private financial information.
Taxpayers should take note: The IRS does not use e-mail to initiate contact with
taxpayers about issues related to their accounts. If a taxpayer has any doubt whether a contact from the IRS is authentic, the taxpayer should call 1-800-829-1040
to confirm it.4. Zero
Promoters instruct taxpayers
enter all zeros on their federal income tax filings. In a twist on this
filers enter zero income, report their withholding and then write
tunc"–– Latin for "now for then"––on the return. They often also
do this with
amended returns in the hope the IRS will disregard the original
return in which
they reported wages and other income.5.
Promoters doing nothing but selling trust packages
taxpayers to transfer assets into trusts which the claim that the use
trust will reduce income subject to tax, create deductions for
and reduce estate or gift taxes. However, most of these
packaged trusts do not
deliver the promised tax benefits, and the IRS is
very aggressive in examining
and prosecuting these arrangements.6.
Promoters make totally false and misleading
claims such as:
The Sixteenth Amendment concerning congressional power to lay and collect
taxes was never ratified;
Wages are not income;
Filing a return and paying taxes are merely voluntary; and
Being required to file Form 1040 violates the Fifth Amendment right against
self-incrimination or the Fourth Amendment right to privacy.
are continually thrown out of court.7. Return Preparer
Dishonest return preparers skim a portion of their
refunds and charge inflated fees for return preparation services.
new clients by promising large refunds. Taxpayers should choose
hiring a tax preparer. Taxpayers should remember that no
matter who prepares the
return, the taxpayer is ultimately responsible for
its accuracy.8. Credit Counseling
The IRS Tax Exempt
and Government Entities Division is
in the process of revoking the tax-exempt
status of numerous credit
counseling organizations that operate under the guise
financially distressed consumers with debt problems while charging
large fees and providing little or no counseling. These counseling
organizations claim they can fix credit ratings. But all too often, they are
merely pushing debt payment plans or impose high set-up fees or monthly
charges that may add to existing debt.9.
Abuse of Charitable
Tax-exempt organizations are
constantly used in various
ways to improperly shield income or assets from
taxation. This can occur, for
example, when a taxpayer moves assets or
income to a tax-exempt supporting
organization or donor-advised fund but
maintains control over the assets or
income, thereby obtaining a tax
deduction without transferring a commensurate
benefit to charity. A
"contribution" of a historic facade easement to a
organization is another example. In many cases, local
laws already prohibit alteration of the home's facade,
contributed easement superfluous. Even if the facade could be
deduction claimed for the easement contribution may far exceed the
easement's impact on the value of the property.10. Offshore
Individuals avoid U.S. taxes by illegally hiding income
in offshore bank
and brokerage accounts or using offshore credit cards, wire
foreign trusts, employee leasing schemes, private annuities or life
Employment Tax Evasion.
The promoter tells an employer not to
withhold federal income tax or other employment taxes from wages paid to
employees. Such advice is based on an incorrect interpretation of Code
861 and other parts of the tax law and has been refuted in court.
There are also
"double-dip" parking and medical reimbursement schemes.
Note that employer
participants can be held responsible for back
payments of employment
taxes, plus penalties and interest and that employees
who have nothing withheld
from their wages are still responsible for payment
of their personal
"No Gain" Deduction.
Filers attempt to eliminate their entire
adjusted gross income (AGI) by deducting it on Schedule A. The filer lists
or her AGI under the Schedule A section labeled "Other Miscellaneous
and attaches a statement to the return that refers to court
includes the words "No Gain Realized."HERE'S HOW TO REPORT SUSPECTED TAX
Download IRS Form 3949-A, Information Referral
the IRS Web site at http://www.IRS.gov
through the U.S. Mail
by calling 1-800-829-3676.
Send the completed form or
a letter detailing
the alleged fraudulent activity to the IRS, Fresno, CA 93888.
Service as much as possible
Who the tricksters
What they are
How you found out about the activity,
When the alleged violation took place,
The amount of money involved, and
Any other information that might be helpful in an investigation.
You do not have to give your name. If you do, your identity can be
You may be entitled to a reward.
NOTE TO THE IRS:I
really will understand if you don't send my refund. But as a reward
alerting so many people, could you please send some Wild Turkey my
THIS HELPS YOU HELP OTHERS STAY OUT OF HARM'S
Leimberg's Estate Planning
Newsletter # 942 (March 13,
2006) at http://www.leimbergservices.com
Due to the public nature and interest of this information, and
fact that these con artists had the unmitigated gall to try to con me,
permission granted to reproduce it.
Information on both legitimate and illegitimate
tax planning and a whole chapter on trust related schemes and
scams can be found
in THE BOOK OF
(610 924 0515). Be sure also to check out Jay Adkisson's
and JJ MacNab's
Scams: How to Recognize and Avoid ThemIdentity
Theft and Your Tax RecordsAbusive
Return Preparer EnforcementHow
to Report Suspected Tax Fraud Activity
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