For the last three years or so, the IRS has given a name to the most common and dirty schemes to cheat either taxpayers or the nation’s treasury. They are called the “The Dirty Dozen.” This year, half the dozen are scams by third parties that attempt to rip off taxpayers. The other half are taxpayer attempts to rip off their government. Clients who know about the Dirty Half-Dozen will be disinclined to try a trick the IRS is expecting. Sharing the list will go far to ward off potential problems for both the client and the income tax preparation professional.
So here are the Sleazy Six of the Dirty Dozen:
1. Excess Claims for Business Credits: The IRS watches for false claims for the fuel tax credit, which is limited to off-road business use, such as farming. Another: misuse of the research credit, which needs to meet certain requirements.
2. Padding Deductions: We all know this one—inflated business expenses, false charitable contributions, child tax credits, etc. Bad new is the IRS knows it, too.
3. Falsifying Income to Claim Credits: Con-artist “tax preparers” often suggest inflating income to qualify for Earned Income Tax Credits. Sometimes taxpayers themselves think this one up.
4. Abusive Tax Shelters: The IRS knows a shady shelter when it sees one. Ethical practitioners neither offer such shelters nor get talked into them.
5. Frivolous Tax Arguments: Frivolous tax arguments don’t hold up in court, and the penalties usually exceed attempted savings.
6. Offshore Tax Avoidance: The IRS has gotten good at enforcing actions against offshore tax cheats. Clients may want to know about the Offshore Voluntary Disclosure Program for catching up on filing and tax obligations.