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Top Tax Scams - Beware! - Part 1

As long as there have been taxes, there have been tax scams. People are continually tempted to try to get away with something that they probably know will not work, or to believe someone touting a plan that sounds too good to be true, and is.

Whether people get involved in tax fraud scams knowingly or unknowingly, they still end up paying all the back taxes due, and interest and penalties.

The Internal Revenue Service recently released their "Dirty Dozen" top tax scams. They are:

Undeclared Offshore Bank Accounts

If you read this blog with any regularity, you know that the IRS and the Justice Department have been pursuing holders of offshore bank accounts very aggressively. The IRS recently announced a special voluntary disclosure initiative that allows people to come forward and declare their hidden assets, in exchange for reduced penalties and a promise of no jail time.

People have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.

Filing False or Misleading Tax Forms

There are scam artists who file false returns in order to claim refunds that they are not entitled to. They frequently "support" their claims with false Form 1099s claiming false withholding credits.

One version of this scam is based on an old wives' tale that the federal government maintains secret accounts for its citizens and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS. Needless to say, this is not true.

This type of scammer frequently uses information from family members, so beware of relatives seeking financial and tax information that they would not really need to know.

Frivolous Tax Arguments

Many scammers try to convince people to make frivolous arguments to the IRS, such as the notion that the federal government does not have the authority to levy an income tax. Orange County tax attorneys point out that arguments like these are false and are thrown out of court again and again.

In the next post, we will continue with the Dirty Dozen tax scams.

Source: irs.gov "Don't Fall Prey to the 2011 Dirty Dozen Tax Scams" 4/7/2011

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