IRS targets Offshore Credit Cards and Bank Accounts

The IRS has released it's so called 'dirty dozen' list, the top tax scams that it is targetting this return period. Of note is the continued emphasis on structures involving offshore credit cards and offshore bank accounts.

YVETTE ARMENDARIZ
The Arizona Republic

It's that time of year when businesses and individuals trudge through the chore of filing an annual tax return.

And every year, thousands seeking to save a few bucks get duped into believing in deductions and other claims that really are too good to be true.

So, again, the Internal Revenue Service is warning about these notorious scams. Its annual "dirty dozen" list focuses on scams targeting individual and business returns.

"The overall thrust (of the listing) is be careful," spokesman Bill Brunson said. "There are people out there who want to defraud the federal government, as well as take your money and leave you with a tax bill."

Plain old greed and lack of expertise in the tax code tend to be the common thread in falling into believing the schemes. "If it sounds too good ... it probably is," IRS Special Agent James McCormick said.

A look at some popular scams:

• Trust misuse: Some preparers will urge transferring assets into trusts promising a reduction in taxes and deductions for personal expenses. Trusts are a legitimate way to reduce taxes, but some of these deals go too far, McCormick said. Since 2001, the IRS has obtained more than two dozen injunctions against promoters pushing illegitimate trust packages.
• Frivolous arguments: Some say you're not required to file taxes. They incorrectly argue that the 16th Amendment, which gives Congress the power to lay and collect income taxes, was never ratified, that wages are not income and that filing a Form 1040 violates your Fifth Amendment right against self-incrimination. This scheme has been around for years, but don't believe it.
• Tax-return preparer fraud: Dishonest preparers will skim a portion of a client's refund and/or charge inflated fees. They may use promises of huge refunds to lure in clients. This sometimes also leads to other scams because the preparer has access to personal information. In some cases, preparers will fraudulently file a return without the client's knowledge and keep the refund.
• Identity theft: Thieves will use personal data to access financial accounts and apply for new loans. In some cases, the scam involves posing as the IRS. Sometimes, the schemers use IRS forms to trick individuals into revealing personal financials or use an e-mail to alert taxpayers to an audit and direct them to an official-looking site to file information. McCormick notes the IRS does not use e-mail to contact taxpayers.
• Offshore transactions: Some claim taxes aren't due if money is kept in foreign accounts and will use offshore banks, foreign trusts, employee leasing schemes and other schemes to keep money offshore. Like trusts, there are legitimate uses of offshore accounts, but the IRS says it is cracking down on improper use. "These are deliberate to evade or hide income," McCormick said.
• Employment-tax evasion: In some cases, employers are not withholding federal income tax and employment taxes paid to employees based on the incorrect interpretation of Section 861 and other areas of tax law. Employers are responsible for back payments, penalties and interest.
• "Claim of Right" doctrine: Here the taxpayer is advised to take a deduction equal to his or her wages. The scam has no basis in law, McCormick said. But the preparer will incorrectly state that the deducted expenses are necessary to making the income.
• Corporation sole: The scam involves a legitimate statute that allows religious leaders to separate themselves from ownership of church assets. Schemers fraudulently promote this statute as a way to legally escape income taxes and other debts. The scam has gotten increased notice. Since September, the Department of Justice has obtained six injunctions against promoters of this scheme and filed 11 complaints against others.