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Don’t Fall for the Dirty Dozen Tax Scams

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Every year, people fall prey to tax scams. That’s why the IRS sends a list of its annual “Dirty Dozen”. We want you to be safe and informed – and not become a victim.

Taxpayers who get involved in illegal tax scams can lose their money, or face stiff penalties, interest and even criminal prosecution. Remember, if it sounds too good to be true, it probably is. Be on the lookout for these scams.

Identity theft. Tax fraud using identity theft tops this year’s Dirty Dozen list. In many cases, an identity thief uses a taxpayer’s identity to illegally file a tax return and claim a refund. For the 2014 filing season, the IRS has expanded efforts to better protect taxpayers and help victims. Find more information on the identity protection page on IRS.gov.

Pervasive telephone scams.  The IRS has seen an increase in local phone scams across the country. Callers pretend to be from the IRS in hopes of stealing money or identities from victims. If you get a call from someone claiming to be from the IRS – and you know you owe taxes or think you might owe taxes, call the IRS at 1-800-829-1040. If you get a call from someone claiming to be from the IRS and know you don’t owe taxes or have no reason to think that you owe taxes, then call and report the incident to the Treasury Inspector General for Tax Administration at 1-800-366-4484.

Phishing.  Phishing scams typically use unsolicited emails or fake websites that appear legitimate. Scammers lure in victims and prompt them to provide their personal and financial information. The fact is that the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

False promises of “free money” from inflated refunds.  The bottom line is that you are legally responsible for what’s on your tax return, even if someone else prepares it. Scam artists often pose as tax preparers during tax time, luring victims in by promising large tax refunds. Taxpayers who buy into such schemes can end up penalized for filing false claims or receiving fraudulent refunds. Take care when choosing someone to do your taxes.

Return preparer fraud.  About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But some dishonest preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.  Choose carefully when hiring an individual or a company to do your return. Only use a tax preparer that will sign your return and enter their IRS Preparer Tax Identification Number (PTIN). For tips about choosing a preparer, visit www.irs.gov/chooseataxpro.

Hiding income offshore.  While there are valid reasons for maintaining financial accounts abroad, there are reporting requirements. U.S. taxpayers who maintain such accounts and do not comply with these requirements are breaking the law. They risk large penalties and fines, as well as the possibility of criminal prosecution.      The IRS has collected billions of dollars in back taxes, interest and penalties from people who participated in offshore voluntary disclosure programs since 2009. It is in the best interest of taxpayers to come forward and pay their fair share of taxes.

Impersonation of charitable organizations. Taxpayers need to be sure they donate to recognized charities. Following major disasters, it’s common for scam artists to impersonate charities to get money or personal information from well-intentioned people. They may even directly contact disaster victims and claim to be working with the IRS to help the victims file casualty loss claims and get tax refunds.

False income, expenses or exemptions.  Falsely claiming income you did not earn or expenses you did not pay in order to get larger refundable tax credits is tax fraud. This includes false claims for the Earned Income Tax Credit. These taxpayes often end up repaying the refund, including penalties and interest or faces criminal prosecution.

Frivolous arguments.  Frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or ignore their responsibility to pay taxes.

Falsely claiming zero wages or using false Form 1099.  Filing false information with the IRS is an illegal way to try to lower the amount of taxes owed. Typically, fraudsters use a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 as a way to improperly reduce taxable income to zero. The fraudster may also submit a false statement denying wages and taxes reported by a payer to the IRS.

Abusive tax structures. These abusive tax schemes often involve sham business entities and dishonest financial arrangements for the purpose of evading taxes. The schemes are usually complex and involve multi-layer transactions to conceal the true nature and ownership of the taxable income and assets. The schemes often use Limited Liability Companies, Limited Liability Partnerships, International Business Companies, foreign financial accounts and offshore credit/debit cards.

Misuse of trusts. There are reasonable uses of trusts in tax and estate planning. However, questionable transactions also exist. They may promise reduced taxable income, inflated deductions for personal expenses, the reduction or elimination of self-employment taxes and reduced estate or gift transfer taxes.  These trusts rarely deliver promised tax benefits. They primarily avoid taxes and hide assets from creditors, including the IRS.

Tax scams can take many forms beyond the “Dirty Dozen”. The best defense is to remain vigilant. Get more information on tax scams at IRS.gov.

Source IRS Special Edition Tax Tip 2014-08, February 21, 2014

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What the New Tax Bill Deal Means for You

by: DAVID SCHEPP

Despite objections raised by Democrats, and a lengthy delay of the final vote until late Thursday, the House of Representatives has passed an extension of the Bush-era tax cuts, keeping payroll tax rates for all wage earners at current levels.

The $858 billion bill, a product of negotiations between President Obama and Republican lawmakers in the Senate, also continues a cut in Social Security taxes. That means you’ll continue to bring home more in your paycheck.

The tax-cut plan extends through 2012 the Bush-era reductions on income, capital gains and dividends taxes. The bill also extends unemployment insurance benefits through 2011, providing relief to thousands of jobless Americans who stopped receiving unemployment checks as of Dec. 1.

Among other ways the extension of the Bush tax cuts affects you:

  • Your tax rates will remain at their current levels — 10%; 15%; 25%; 28%; 33%; and 35%, based on your income. It also maintains lower tax rates on your investments for the next two years.
  • If you make less than $90,000 a year, the bill provides an extension of the $2,500 credit you’ve been receiving to help pay for college tuition, which was begun under last year’s economic stimulus bill.
  • It will be easier for you to provide for your children. Under the Bush bill, you got a child tax credit of $500. That has now increased to $1,000.

The legislation also allows businesses to completely write off any capital investment made from Sept. 9 through the end of 2011.

House Democrats bristled at the agreement Obama reached with Republicans on Dec. 6, saying it gave too much to the rich. In addition to eliminating a tax break for households making $250,000 a year or more, Democrats wanted to raise the top rate on estate taxes to 45% on inheritances of more than $3.5 million.

The Senate bill contains a provision that would exempt as much as $5 million from the inheritance tax and subject estates in excess of that amount to a 35% tax.

Procedural Objections

Whether the bill would be considered for a vote in the House on Thursday was in doubt for a while after the measure was abruptly pulled from the chamber’s schedule. But a quickly implemented rules change allowed the measure to be debated and voted upon, with the final tally coming at nearly midnight.

See full article from DailyFinance: http://srph.it/fyw1HX

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