Taxes Archives

Dirty Dozen 11 – Abusive Tax Shelters

The Internal Revenue Service warned taxpayers to be wary of abusive tax shelters, which remain on the “Dirty Dozen” tax scams.

Tax law generally allows businesses to create “captive” insurance companies to protect against certain risks. Traditional captive insurance typically allows a taxpayer to reduce insurance costs. The insured business claims deductions for premiums paid for insurance policies. Those amounts are paid, either as insurance premiums or reinsurance premiums, to a “captive” insurance company owned by the insured or parties related to the insured.

Be sure to avoid participating in schemes that lack the attributes of genuine insurance, e.g., coverage may insure implausible risks, fail to match genuine business needs, or duplicate the taxpayer’s commercial coverage. Read more…

Dirty Dozen 10 – Frivolous Tax Arguments

Finances / By saraeknudsen

The Truth about Frivolous Tax Arguments

In “The Truth about Frivolous Tax Arguments,” the IRS outlines some of the more common frivolous arguments, explains why they’re wrong and cites relevant court decisions. Taxpayers have the right to contest their tax liabilities using IRS administrative appeals procedures or in court, but they are still obligated to follow the law. Read more…

Dirty Dozen 9 – Fake Forms

Finances / By saraeknudsen

Falsified income, fake Forms 1099 part of IRS ‘Dirty Dozen’

A common tax scam the IRS sees each year involves falsifying income. The agency warns taxpayers to avoid related schemes to erroneously claim tax credits as well as more elaborate schemes that scam artists peddle. These schemes include elaborate ruses involving bogus Forms 1099.

Much like falsely claiming an expense or deduction is improper, claiming income the taxpayer didn’t earn is also inappropriate. Scammers provide fraudulent Form(s) 1099-MISC that appear to be issued by a large bank, loan service and/or mortgage company with which the taxpayer may have had a prior relationship. Read more…

Dirty Dozen 8 – Padding Deductions

Finances / By saraeknudsen

Falsely padding deductions highlighted in IRS 2018 ‘Dirty Dozen’ tax scams

The Internal Revenue Service today warned taxpayers to avoid falsely inflating deductions or expenses on tax returns.

Common areas targeted by unscrupulous tax preparers involve overstating deductions such as charitable contributions, padding business expenses or including credits that they are not entitled to receive – like the Earned Income Tax Credit… Some taxpayers also may be tempted to take these steps in hopes of getting a larger refund or paying less than what is owed. Preparing an accurate tax return is a taxpayer’s best defense against scams.

Dirty Dozen 7 – Improper Claims for Business Credits

Finances / By saraeknudsen

IRS ‘Dirty Dozen’ list of tax scams for 2018 contains warning to avoid improper claims for business credits

Two common credits targeted for abuse by shady return preparers include the research credit and the fuel tax credit. Both credits have legitimate uses, but there are specific criteria that taxpayers need to qualify for these.

Congress enacted the research credit in 1981 to provide an incentive for American private industry to invest in research and experimentation. Such a claim must be substantiated and satisfy the requirements.

Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000. The fuel tax credit is generally limited to off-highway business use or use in farming. Consequently, the credit is not available to most taxpayers.

Learn more about the research and fuel tax credits — and abuses — here.