Want to reduce or eliminate your income tax obligations? Sure, who doesn't. There are legal ways to cut your taxes, and there is a cadre of tax scammers who want to show you the extra-legal ways, for a fee of course. These promoters call themselves high-sounding things like, "Constitutionalists" or "Tax Patriots" "Tax Resisters" "Tax Protestors."
Some like Irwin Schiff and Lynne Meredith have made millions of dollars off ordinary Americans who should know better. Too bad, Schiff and Meredith will have a hard time enjoying their millions as they are both now in federal prison. Don't risk being one of their cellmates.
And, last of all, there are the otherwise intelligent, but woefully self-deluded types who have come to believe on their own that the cock-eyed notion that the income tax laws don't apply to them. Here are ten tax tricks that turn into tax traps:
1. Frivolous Positions
The tax code lists "frivolous tax return positions, " a collection of no-nos that can't ever be claimed on a filing with the IRS. If you file a tax return, amendment, or another writing as defined in this section, you can be slapped with a $5,000 penalty. Ouch! Also, if you request a collection due process hearing, apply for an installment agreement, offer-in-compromise, or taxpayer assistance order based on a frivolous position, and your true intent was to delay or impede the tax law.
So, what's frivolous? Under IRC Section 6702, it is stating that the tax law doesn't apply to you because of one of the following reasons:
a. Filing a return or paying a tax is voluntary, not mandatory, under the law
b. You're not required to file or pay unless the IRS first responds to your questions, correspondence, or request
c. The instructions to the tax forms do not display an OMB control number
d. The IRS must prepare a return for you if you don't file before collecting a tax
e. You have the option to file a document of some kind instead of a tax return, or you have the right to file a tax return reporting zero tax due.
2.Abusive Trusts: Illegal Tax Shelters
A trust is an entity, which can be formed in the U.S. or abroad, for various legal reasons. Trusts most often hold funds or other assets for individuals, called "beneficiaries." Annual U.S. trust tax returns are required if a U.S. taxpayer holds a beneficial ownership in the trust. And, of course, income tax must be paid on income from the trust assets, either by the recipient or the trust, depending on how the trust is structured.
Folks calling themselves financial advisors, some claiming to be attorneys and accountants, offer their services and trust forms . Their promise is to create a trust which can magically transform your personal living expenses--housing, food and transportation--into tax deductions. The happy result is a "tax shelter" to greatly reduce, or even eliminate income taxes.
Sorry folks, it just can't be done. Don't sign up for a course or respond to an internet site peddling this snake oil. At best, you can get hit with back taxes and heavy penalties, and at worst, you can end up in federal prison.
The IRS is actively pursuing abusive trusts, estimating that over 200,000 of them are out there--7% of the total of trust tax returns filed, holding over $1 billion in assets.
3. Offshore Credit Cards
There's nothing wrong with holding a credit card issued outside the US--unless you are using it to hide taxable income. If the IRS finds out, and many of the offshore credit card issuing banks do supply customer info to the US, be prepared for an audit, or worse a visit from the IRS Criminal Investigation Division.
4. Identity Theft By IRS Impostors
Don't respond to emails or letters from anyone claiming to be from the IRS and seeking Social Security numbers or financial data, unless you are absolutely certain they are with the IRS. They must provide a photo ID and employee number on request, and even then, verify who they are by visiting an IRS office or calling 800 829-1040.
5. Tax Refund for African-Americans
There is no law authorizing tax credits or refunds related to reparations for slavery. Don't let anyone tell you otherwise. If they want to "help" you claim such a refund, report them to the IRS fraud hotline 800 829-0433.
6. Phony home-based business
More and more folks run a small business from home, either full or part-time. And, it's true that home based ventures can provide tax -saving deductions. But the biz must be legitimate and for profit, and the deductions must be reasonable. Unscrupulous promoters of work-at-home plans promise to show you (for a fee) how make all or most of your personal living expenses tax deductible. If you see this come on advertised in media, or see it on the internet-run the other way.
7. Secret No Tax Plans
For as long as I've been around the tax business (40 years and counting), con artists pop up like dandelions in the spring, boasting that they don't file or pay taxes. Or, that the Rockefellers and the ultra-rich don't pay taxes either. They will share their "secrets" in a book or seminar or internet course. The truth, the IRS has found, is that many of these scammers actually do file and pay taxes. Since their tax return information is not public, they can openly lie about it without fear. What's more is that these folks can be forced to turn over their client and customer lists to the IRS! Falling for this con could cost you dearly, in civil or even criminal tax penalties.
8. False Tax Refund Claims
Beware of those who ask for your Social Security number to use on a tax refund claim form that makes it look like you qualify for a tax refund. Typically these smooth talking thieves offer to split the refund with you. When the illegal refund is discovered, you end up paying back the money along with stiff penalties and interest. Your "partner" has usually skipped town. If you're tempted to try this, first ask movie star Wesley Snipes how it turned out for him.
9. Earned Income Credit For Dependents
The Earned Income tax credit offers folks with dependent children a tax refund, even if they didn't pay any taxes. Crooked tax preparers file returns claiming phantom minor kids, and even file multiple phony tax returns for the same taxpayer. The usual deal is that they will split the tax refunds-and then they will split, leaving you holding the bag. Go for this one and you could face fines and even jail.
10. IRS Impostors
Posing as IRS agents, the really bold scam operators try to collect what they say is additional tax you owe. Never let any unknown person come into your home claiming to be from the IRS. Collectors will always try to contact you in writing or by phone first. To check on anyone who might be an impostors, call the IRS at (800) 366-4484.
Some like Irwin Schiff and Lynne Meredith have made millions of dollars off ordinary Americans who should know better. Too bad, Schiff and Meredith will have a hard time enjoying their millions as they are both now in federal prison. Don't risk being one of their cellmates.
And, last of all, there are the otherwise intelligent, but woefully self-deluded types who have come to believe on their own that the cock-eyed notion that the income tax laws don't apply to them. Here are ten tax tricks that turn into tax traps:
1. Frivolous Positions
The tax code lists "frivolous tax return positions, " a collection of no-nos that can't ever be claimed on a filing with the IRS. If you file a tax return, amendment, or another writing as defined in this section, you can be slapped with a $5,000 penalty. Ouch! Also, if you request a collection due process hearing, apply for an installment agreement, offer-in-compromise, or taxpayer assistance order based on a frivolous position, and your true intent was to delay or impede the tax law.
So, what's frivolous? Under IRC Section 6702, it is stating that the tax law doesn't apply to you because of one of the following reasons:
a. Filing a return or paying a tax is voluntary, not mandatory, under the law
b. You're not required to file or pay unless the IRS first responds to your questions, correspondence, or request
c. The instructions to the tax forms do not display an OMB control number
d. The IRS must prepare a return for you if you don't file before collecting a tax
e. You have the option to file a document of some kind instead of a tax return, or you have the right to file a tax return reporting zero tax due.
2.Abusive Trusts: Illegal Tax Shelters
A trust is an entity, which can be formed in the U.S. or abroad, for various legal reasons. Trusts most often hold funds or other assets for individuals, called "beneficiaries." Annual U.S. trust tax returns are required if a U.S. taxpayer holds a beneficial ownership in the trust. And, of course, income tax must be paid on income from the trust assets, either by the recipient or the trust, depending on how the trust is structured.
Folks calling themselves financial advisors, some claiming to be attorneys and accountants, offer their services and trust forms . Their promise is to create a trust which can magically transform your personal living expenses--housing, food and transportation--into tax deductions. The happy result is a "tax shelter" to greatly reduce, or even eliminate income taxes.
Sorry folks, it just can't be done. Don't sign up for a course or respond to an internet site peddling this snake oil. At best, you can get hit with back taxes and heavy penalties, and at worst, you can end up in federal prison.
The IRS is actively pursuing abusive trusts, estimating that over 200,000 of them are out there--7% of the total of trust tax returns filed, holding over $1 billion in assets.
3. Offshore Credit Cards
There's nothing wrong with holding a credit card issued outside the US--unless you are using it to hide taxable income. If the IRS finds out, and many of the offshore credit card issuing banks do supply customer info to the US, be prepared for an audit, or worse a visit from the IRS Criminal Investigation Division.
4. Identity Theft By IRS Impostors
Don't respond to emails or letters from anyone claiming to be from the IRS and seeking Social Security numbers or financial data, unless you are absolutely certain they are with the IRS. They must provide a photo ID and employee number on request, and even then, verify who they are by visiting an IRS office or calling 800 829-1040.
5. Tax Refund for African-Americans
There is no law authorizing tax credits or refunds related to reparations for slavery. Don't let anyone tell you otherwise. If they want to "help" you claim such a refund, report them to the IRS fraud hotline 800 829-0433.
6. Phony home-based business
More and more folks run a small business from home, either full or part-time. And, it's true that home based ventures can provide tax -saving deductions. But the biz must be legitimate and for profit, and the deductions must be reasonable. Unscrupulous promoters of work-at-home plans promise to show you (for a fee) how make all or most of your personal living expenses tax deductible. If you see this come on advertised in media, or see it on the internet-run the other way.
7. Secret No Tax Plans
For as long as I've been around the tax business (40 years and counting), con artists pop up like dandelions in the spring, boasting that they don't file or pay taxes. Or, that the Rockefellers and the ultra-rich don't pay taxes either. They will share their "secrets" in a book or seminar or internet course. The truth, the IRS has found, is that many of these scammers actually do file and pay taxes. Since their tax return information is not public, they can openly lie about it without fear. What's more is that these folks can be forced to turn over their client and customer lists to the IRS! Falling for this con could cost you dearly, in civil or even criminal tax penalties.
8. False Tax Refund Claims
Beware of those who ask for your Social Security number to use on a tax refund claim form that makes it look like you qualify for a tax refund. Typically these smooth talking thieves offer to split the refund with you. When the illegal refund is discovered, you end up paying back the money along with stiff penalties and interest. Your "partner" has usually skipped town. If you're tempted to try this, first ask movie star Wesley Snipes how it turned out for him.
9. Earned Income Credit For Dependents
The Earned Income tax credit offers folks with dependent children a tax refund, even if they didn't pay any taxes. Crooked tax preparers file returns claiming phantom minor kids, and even file multiple phony tax returns for the same taxpayer. The usual deal is that they will split the tax refunds-and then they will split, leaving you holding the bag. Go for this one and you could face fines and even jail.
10. IRS Impostors
Posing as IRS agents, the really bold scam operators try to collect what they say is additional tax you owe. Never let any unknown person come into your home claiming to be from the IRS. Collectors will always try to contact you in writing or by phone first. To check on anyone who might be an impostors, call the IRS at (800) 366-4484.
Frederick W Daily is a tax attorney, author and former tax law professor. He has over 35 years experience in helping folks and businesses deal with the IRS disputes. He has appeared on hundreds of radio and TV programs including Good Morning America. He is regularly quoted as a tax expert in the publications such as New York Times, Wall Street Journal and Money magazine. He is the author of best selling books such as "Tax Savvy for Small Business" and "Stand Up to the IRS." For more information see http://www.taxattorneydaily.com
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