The Dirty Dozen Tax Scams

1. Telephone Excise Tax Refund Abuses: Filings show some taxpayers have requested large and apparently improper amounts for the special tax refund.

2. Abusive Roth IRAs: Taxpayers should be wary of advisers who encourage them to shift under-valued property to Roth IRAs.

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. The IRS does not use emails to contact taxpayers about account issues.

4. Disguised Corporate Ownership: Domestic shell corporations and other entities are being formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity.

5. Zero Wages: A Form 4852 or a “corrected” Form 1099 showing zero or little income is submitted with a federal tax return.

6. Return Preparer Fraud: Dishonest return preparers can cause many headaches for taxpayers who fall victim to their schemes.

7. American Indian Employment Credit: Taxpayers submit returns and claims reducing taxable income by substantial amounts citing an American Indian employment or treaty credit.

8. Trust Misuse: Unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses, and reduced estate or gift taxes. Some trusts do not deliver the promised tax benefits.

9. Structured Entity Credits: Promoters are setting up partnerships to own and sell state conservation easement credits, federal rehabilitation credits and other credits. The purported credits are the only assets owned by the partnership and once the credits are fully used, an investor receives a K-1 indicating the initial investment is a total loss. Forming such an entity is not a viable business purpose.

10. Abuse of Charitable Organizations and Deductions: The IRS continues to observe the use of tax-exempt organizations to improperly shield income or assets from taxation.

11. Form 843 Tax Abatement: This scam rests on faulty interpretation of the Internal Revenue Code. It involves the filer requesting abatement of previously filed tax using Form 843.

12. Frivolous Arguments: Promoters have been known to make the following claims: the Sixteenth Amendment concerning congressional power to lay and collect income 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.