Tax Planning . . . ALERT

Every year, The Internal Revenue Service likes to compile what it considers to be the leading tax scams being foisted upon the public. These scams are all illegal and can lead to problems for taxpayers. And, these scams do not just happen during the tax filing season -- they can happen anytime during the year. I have a link at the bottom of this ALERT to the entire IRS list, but here are my “top five scams” of which I think every taxpayer should be aware:

Phishing. Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information in an electronic communication. Scams can take the form of e-mails, tweets or phony websites, and in the tax area, the scammers mislead consumers by telling them they are entitled to a tax refund from the IRS, BUT they must reveal personal information to claim it. Regardless of how official an e-mail like this may look, the IRS has repeatedly stated that it NEVER initiates unsolicited e-mail contact with taxpayers about their tax issues. So, be on your guard right from the instant such an e-mail hits your in-box: If it seeks personal and/or business information and purports to be from the IRS, it’s a fraudulent communication. Phishers will use the personal information obtained to steal the victim’s identity, access bank accounts, run up credit card charges, or apply for loans in the victim’s name. The IRS is trying mightily to stamp out this activity, so if you receive an e-mail that you suspect is a phishing attempt, forward it to the IRS at phishing@irs.gov.

Return Preparer Fraud. Dishonest tax return preparers are a huge problem for the IRS, and dealing with one can cause trouble for taxpayers. Dishonest preparers have been known to skim a portion of their clients’ refunds, charge inflated fees for tax preparation, or promise refunds that are too good to be true. To increase confidence in the tax system, the IRS is requiring all paid return preparers to register with the IRS, pass competency tests and attend continuing education. Be aware: if you hire someone to prepare your taxes, ask if they are registered with the IRS to prepare and file tax returns, because it is YOUR tax return and you are ultimately responsible for the information it contains. It is never a defense in an audit, administrative proceeding, tax court case, or criminal prosecution, to maintain that someone else prepared the return and you do not know what information is on it! Attorneys, Certified Public Accountants, and Enrolled Agents are all proper tax return preparers. If you are dealing with anyone else . . . ASK if they are registered with the IRS!

Hiding Income Offshore. The IRS and the United States Treasury Department have become very aggressive in this area over the last two years. Historically, taxpayers have tried to avoid or evade U.S. income taxes by hiding assets in banks and brokerage accounts outside of the United States. IRS has reported that it received more than 14,700 voluntary disclosures last year. IRS agents continue to develop investigations of these offshore tax avoidance transactions. It is not illegal to do business in other countries, or to have bank accounts, or other investments in foreign lands. What IS illegal is not disclosing these holdings and/or not reporting the income the assets generate on your United States income tax form.

Abuse of Charitable Organizations and Deductions. The IRS continues to observe the misuse of tax-exempt organizations. This includes arrangements which improperly shield income or assets from taxation, as well as attempts by donors to maintain control over donated assets. The IRS also continues to investigate various schemes where donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets.

Frivolous Arguments. Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. It is an age-old observation, but as true today as it was the first time it was uttered: If an activity seems too good to be true, it probably is. I would add to that: It’s probably a scheme, too!

For the full list of what the IRS considers the leading tax scams, or to find out how to report suspected tax fraud, visit www.irs.gov/newsroom/article/0,,id=220238,00.html