Annual Top Twelve Tax Scams part 4

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Now let’s take a look at the final three of the IRS’ Dirty Dozen of tax scams to avoid in 2012.

10. Abuse involving charitable donations
This scheme may involve the misrepresenting the donation of non-cash assets, for example more than one charitable organization claim the full value of the same non-cash contribution, which is often valued at higher than market value. Another form of abuse is where the charitable organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. These actions are in contravention of the Pension Protection Act 2006 that imposes increased penalties for inaccurate valuations and sets new standards for qualified appraisals.  Click here to read or watch more IRS Help resources.

11. Misusing trusts
One form of savings is to start a trust, especially for estate planning purposes. Trusts can be kept in view of the needs of future generations such as for children’s education etc. But some scammers promise you a substantial reduction in taxable income, personal expense deductions and reductions in estate tax and gift taxes. Many scammers try to game the system by setting up private annuity trusts and foreign trusts to shift income and deduct personal expenses. Trusts that are not set up correctly rarely deliver the tax benefits promised and are used as a way to avoid paying income tax or hide assets from creditors, including the IRS.

If you intend to set up a trust, you should never rely on the word of a non-professional in the area of trust law; instead you should take the advice of a qualified attorney or CPA.

12. Company Ownership by proxy
Third party proxies are used to set up companies and obtain employer identification numbers so that the true owners’ identities are concealed. The unscrupulous parties that carry out these schemes then use the companies to under-report income, claim fictitious deductions, launder illegal money, participate in listed transactions and commit other white collar crimes. The IRS is actively working with the relevant authorities to bring these culprits to justice.

In conclusion, allow me to list down the 12 top tax scams revealed by the IRS again:

1. Identity theft
2. Phishing
3. Tax preparer fraud
4. Avoiding tax using offshore accounts
5. “Free money” from the IRS tax scam
6. Higher income or expenses
7. Claiming zero wages
8. Frivolous arguments
9. False Form 1099 refund claims
10. Abuse involving charitable donations
11. Misusing trusts
12. Company ownership by proxy

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