It's that time of year again--yes, the April 15 deadline for most calendar year taxpayers to file their return, but also the mid-April deadline for the IRS to release its latest version of the "dirty dozen" tax scams and warn taxpayers not to use them. If you're doing one of these, hold that return--don't mail it; fix it first.
What's on the list--I.R. 2009-41 (Apr. 13, 2009)-- this year?
1) Phishing. We all get a few of these emails daily, telling us of these great rewards if we will just respond verifying our email and providing our bank accounts and passwords and other information. Don't be fooled. Delete it, or forward it to the IRS at email@example.com.
2) Hiding Income Offshore. This one has been in the news lately, as the IRS pursues those 52,000 Swiss bank accounts to find out the names and possibly assess lots of back taxes and interest and penalties, under tax and other laws. Hide and seek may be fine when you are a five-year-old with no assets, but putting your millions under an offshore island "pillow" to hide them and all their earnings from Uncle Sam is a big no-no. Better come forward soon--much better to 'fess up and tell all than be caught red-handed with your kitty on an offshore island.
3) Filing false forms. Claiming refunds you aren't due, or claiming deductions for nonexistent (or personal) expenditures isn't okay. If you just happened to take some work home once in a while, you cannot claim part of your bedroom as a home office. In fact, if your employer provides you an office, you ordinarily can't claim a home office even if you bring work home every single night and work at the same desk and don't do anything but work there. It's pretty clear that some tax return preparers make up the numbers and tell people they are entitled to a home office deduction when they are not. Don't do it.
4) Claiming inappropriate charitable deductions. There are lots of charitable deduction scams, especially ones that overvalue the item contributed and undervalue the consideration received for the contribution. If you bought a ticket for a concert, got it, and then decided not to go so you didn't use the ticket, you can't take that ticket price as a charitable contribution. Nah, don't go there.
5) Preparing someone else's returns with a skim and a whiff of criminal fraud. Watch for the bad guys posing in sheep's clothing--tax return preparers who take huge bites of your refund for a "refund advance loan" or charge inflated fees for putting your numbers in easily available software, and then still don't get it right. Know your serviceprovider.
6) Making frivolous arguments. Don't be like Wesley Snipes and all those tax protesters who buy and read a book that made its author millions but doesn't accurately reflect the tax laws. it may sound good, but it isn't. There is a law that imposes the income tax, and the same law makes it more onerous to those who frivolously flip their noses to the law. Tax is still due, and penalties add up.
7) Filing false refund or abatement claims (not unlike 2, above). The IRS has apparently seen a number of false claims for abatement using Form 843, by people who've never even filed a return. An obvious no-no.
8) Disguising entity ownership. Pretending that someone else owns entities you form to hide income, get made-up deductions, launder money, or otherwise lower your taxes does not make Uncle Sam happy. Me, either. This is something that the uber-wealthy and just wealthy tend to do. Don't. 'Tain't fair.
9) Filing zero wage returns. Some taxpayers file "corrected" 1099s to claim that they shouldn't have paid any withholding tax on their wages.
10) Misusing trusts (not unlike 8 above). Trusts have been used, like corporations and "private foundations" in the Phillipines, to hide assets and reduce income and estate taxes. Watch out. The IRS is watching.