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Tax scams flourishing this summer, but help is here
The Internal Revenue Service releases a yearly list of the top 12 tax scams and schemes-- known as the "dirty dozen"--all illegal and presenting taxpayers the opportunity for significant penalties, interest and criminal prosecution. Here are five circulating this summer.
Phishing scams--"phishing" being cyberspeak for "password harvesting or fishing"-- is an attempt by criminals to obtain your credit card numbers or your bank account and routing numbers so they can empty your accounts. Such e-mails appearing to come from legitimate sources, such as the IRS, contain enticements for recipients to answer the questions they contain. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Internet-based scam artists use the personal information obtained through phishing to steal identities, access their bank accounts, run up credit card charges and apply for loans posing as their victims.
Abuse of charitable groups: The IRS sees a growing abuse of tax-exempt organizations, including arrangements to shield income or assets from taxation and attempts by donors to maintain control over donated assets. The agency investigates schemes in which donations are highly overvalued or the organization receiving the donation promises the donor can purchase the items back at a later date at a price the donor sets.
Abusive retirement plans: The IRS uncovered abuses in retirement plan arrangements, including Roth IRAs. Be wary of advisers encouraging you to shift appreciated assets into IRAs or companies owned by IRAs at less than fair market value to circumvent annual contribution limits.
Hiding income offshore: Tax dodgers try to avoid or evade U.S. income tax by hiding income in offshore banks and brokerage accounts. The IRS provides guidance to its auditors for dealing with those hiding income offshore in undisclosed accounts. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities and life insurance plans.
Misuse of trusts: While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are used to avoid income tax liability and hide assets from creditors, including the IRS. Be aware that YOU are the one who faces penalties, interest on unpaid taxes and prosecution after the scammers are long gone.
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