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California taxpayers should be on the lookout for tax trouble

The deadline to file taxes is now less than two months away. This may be a source of anxiety and hand-wringing for some Orange County residents, who dislike gathering the necessary documentation and worry about the possibility of an audit. Others may look forward to filing their returns because they eagerly expect a plump refund check. The IRS, however, has issued a cautionary message to people in both groups.

The agency recently listed 12 scams that could affect taxpayers this year. Broadly speaking, they can be divided into schemes where another person tries to take advantage of a taxpayer, and ploys where the taxpayer tries to take advantage of the IRS.

Taxpayers should be especially wary of unscrupulous tax preparers. Some preparers attract clients by advertising large refunds. These are often empty promises, since some preparers may falsely claim credits in order to boost a client's refund. This will attract the IRS's attention and may have consequences for the client, including penalties and interest. All preparers should have a government-issued Preparer Tax Identification Number.

Other scams targeted at taxpayers include identity theft and phishing. In both instances, a party will attempt to obtain a taxpayer's personal information in order to file a return and take the refund. The IRS has resources for those who believe they are victims of identity theft or phishing.

The IRS is also on guard against taxpayers who wrongly attempt to increase their refund or decrease their taxes. A common way to do this is to claim credits or deductions, such as charitable deductions, to which the person is not entitled. Some taxpayers also claim that they have earned no wages during the past taxable year. Still others do not claim income from a business they own.

In addition, the IRS has increased its scrutiny of sophisticated asset protection vehicles, which can be used in an attempt to shelter money from taxes. These include offshore accounts and trusts. While offshore accounts and trusts are perfectly legal, the government requires that those who have either must comply with certain regulations.

As April approaches, the advice of an experienced tax attorney can be especially helpful in avoiding trouble with the IRS. Taxpayers should know how to avoid becoming a victim of a tax scam, and those with assets in trusts or offshore accounts may want to ensure that they have met all IRS requirements.

Source: CNN.com, "IRS: Beware of 'dirty dozen' tax scams," Blake Ellis, Feb. 16, 2012.

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