Top 12 Tax Cheat Schemes for 2010 Tax Year

June 27, 2011 by  Filed under: Taxes 

Every year, the IRS releases top tax scams that they identify on its website. The list is used to make taxpayers aware of rogue tax schemes that are being promoted by some dubious preparers, the internet, and other sources. In the 2010 tax year, the IRS published the leading 12 tax scams. These scams list is detailed below:

  1. Unreported Offshore Incomes – The leading source of tax cheats was in unreported offshore incomes. Every year, taxpayers hide incomes from the IRS by keeping funds in overseas banks that provide strict privacy. However, the IRS has gained significant headway in getting account information for U.S. citizens from many overseas banks. The IRS has busied itself with tracking down foreign incomes as of late.
  2. Identity Theft – The 2010 tax year witnessed a five-fold increase in identity theft cases in just 3 years. Identity thieves file a return with stolen names and Social Security numbers and receive refunds that are actually due to the victims. When the actual people/the victims of identity theft file their returns, they get shocking news from the IRS, who informs them that their taxes have been already filed and a refund check had already been distributed. The IRS advises taxpayers to carefully guard their personal information to avoid these types of situations.
  3. Tax Preparer Fraud – There have been several cases of tax-preparer-fraud, including refund checks being cashed by preparers, excessive charges for services, preparers who file wrong returns, and preparers who promise large refund checks. The IRS has introduced new rules for tax preparers to strictly adhere to in order to protect taxpayers from such schemes. Tax preparers will now require a Preparer Tax Identification Number (PTIN) to operate their businesses/provide their services.
  4. Providing False Information on Tax Returns – The IRS also identified many tax returns that had deliberate false information that seek to claim fictitious credits for refund checks. The schemes use different ways of claiming refunds. In one scheme, a tax cheat used the names and Social Security numbers of dead people to file fictitious returns and claim refunds.
  5. Frivolous Rumors – The IRS has also identified many frivolous arguments being posed on the internet and in other forums that discourage individuals from filing tax returns. Some arguments claim that tax payment is voluntary or optional while others claim that the Federal Government does not have the authority to legitimately tax anyone. The IRS has provided a page on its website that addresses and debunks many (if not all) of these frivolous arguments.
  6. Social Security Fraud – The IRS has also identified a scheme where taxpayers inflate withholdings on non-taxable Social Security benefits. This way, the taxpayers end up with little to no income to report.
  7. Using Non-Profit Organizations to Avoid Taxes – There have also been a rise in the number of charity organizations that are being used as channels to hide taxes. Some of these charities are controlled by the donors. Others receive non-cash assets that are highly inflated for tax purposes. Others receive non-cash items from donors with a promise to resell the items back to the donor at a favorable price.
  8. Misuse of IRAs – There have been an increase in fraud through IRAs. Some taxpayers shift gained assets to IRAs at a lower than market value rate, thus paying a low tax on the asset so that they can receive them back at retirement with no tax so as to avoid capital gain taxes.
  9. Disguised Corporations – There are taxpayers who are using corporations to claim fictitious deductions or to hide incomes for tax purposes.
  10. Filing Replacement Wage Returns – The IRS has also noted a scheme in the 2010 tax season where some taxpayers file a Form 4852 (Substitute Form W-2) to introduce fictitious changes to the correct income report filed to reduce the amount of income to be taxed.
  11. Hiding Assets in Trusts – Though Trusts can be correctly used for tax planning, there have been cases where foreign trusts have been set up to fraudulently reduce gift taxes or estate taxes. Others use such trusts to shift incomes or to have personal expenses deducted under the trust.
  12. Exaggerated Fuel and Mileage Claims – The IRS has also noted a high rate of exaggerations in the fuel and mileage tax deduction in the year 2010. Some taxpayers have claimed the deduction for mileage used for personal use of their cars rather than for strictly business use.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. / Tel:888.321.6188

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