109 US Tax Preparers convicted of tax crimes and sentenced to prison - Sent by International Tax Expert

During fiscal year 2006, 109 tax return preparers were convicted
of tax crimes and sentenced to an average of 18 months in prison.
(see #6 below)
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      Fraudulent Telephone Tax Refunds, Abusive Roth IRAs Top Off
2007 “Dirty Dozen” Tax Scams
            IR-2007-37, Feb. 20, 2007
            WASHINGTON –– The Internal Revenue Service today
identified 12 of the most blatant scams affecting American
taxpayers and warned people not to fall for schemes peddled by
            This year the “Dirty Dozen” highlights five new scams
that IRS auditors and criminal investigators have uncovered.
Topping off the list are fraudulent refunds being claimed in
connection with the special Telephone Excise Tax Refund available
to most taxpayers this filing season. The IRS is actively
investigating instances of this scam involving tax preparers who
are preparing inflated refund requests.
            Also new to the Dirty Dozen this year are abuses
pertaining to Roth IRAs, the American Indian Employment Credit,
domestic shell corporations and structured entities.
            “Taxpayers shouldn’t let their guard down,” IRS
Commissioner Mark W. Everson said. “Don’t get taken by scam
artists making outrageous promises. If you use a tax
professional, pick someone who is reputable. Taxpayers should
remember they are ultimately responsible for what is on their tax
return even if some unscrupulous preparers have steered them in
the wrong direction.”
            Involvement in tax schemes leads to problems for scam
artists and taxpayers. Tax return preparers and promoters risk
significant penalties, interest and possible criminal
            The IRS urges taxpayers to avoid these common
            1. Telephone Excise Tax Refund Abuses: Early filings
show some individual taxpayers have requested large and
apparently improper amounts for the special telephone tax refund.
In some cases, taxpayers appear to be requesting a refund of the
entire amount of their phone bills, rather than just the
three-percent tax on long-distance and bundled service to which
they are entitled. Some tax preparers are helping their clients
file apparently improper requests. The IRS is investigating
potential abuses in this area and will take prompt action against
taxpayers who claim improper refund amounts and against the
return preparers who help them.
            2. Abusive Roth IRAs: Taxpayers should be wary of
advisers who encourage them to shift under-valued property to
Roth Individual Retirement Arrangements (IRAs). In one variation,
a promoter has the taxpayer move under-valued common stock into a
Roth IRA, circumventing the annual maximum contribution limit and
allowing otherwise taxable income to go untaxed.
            3. Phishing is a technique used by identity thieves
to acquire personal financial data in order to gain access to the
financial accounts of unsuspecting consumers, run up charges on
their credit cards or apply for loans in their names. These
Internet-based criminals pose as representatives of a financial
institution –– or sometimes the IRS itself –– and send out
fictitious e-mail correspondence in an attempt to trick consumers
into disclosing private information. A typical e-mail notifies a
taxpayer of an outstanding refund and urges the taxpayer to click
on a hyperlink and visit an official-looking Web site. The Web
site then solicits a social security and credit card number. It
is important to note the IRS does not use e-mail to initiate
contact with taxpayers about issues related to their accounts. If
a taxpayer has any doubt whether a contact from the IRS is
authentic, the taxpayer should call 1-800-829-1040 to confirm it.
            4. Disguised Corporate Ownership: Domestic shell
corporations and other entities are being formed and operated in
certain states for the purpose of disguising the ownership of the
business or financial activity. Once formed, these anonymous
entities can be, and are being, used to facilitate underreporting
of income, non-filing of tax returns, listed transactions, money
laundering, financial crimes and possibly terrorist financing.
The IRS is working with state authorities to identify these
entities and to bring their owners into compliance.
            5. Zero Wages: In this scam, which first appeared in
the Dirty Dozen in 2006, a Form 4852 (Substitute Form W-2) or a
“corrected” Form 1099 showing zero or little income is submitted
with a federal tax return. The taxpayer may include a statement
rebutting wages and taxes reported by the payer to the IRS. An
explanation on the Form 4852 may cite statutory language behind
Internal Revenue Code sections 3401 and 3121 or may include some
reference to the paying company refusing to issue a corrected
Form W-2 for fear of IRS retaliation.
            6. Return Preparer Fraud: Dishonest return preparers
can cause many headaches for taxpayers who fall victim to their
schemes. Such preparers make their money by skimming a portion of
their clients’ refunds and charging inflated fees for return
preparation services. They attract new clients by promising large
refunds. Some preparers promote filing fraudulent claims for
refunds on items such as fuel tax credits to recover taxes paid
in prior years. Taxpayers should choose carefully when hiring a
tax preparer. As the old saying goes, “If it sounds too good to
be true, it probably is.” Remember that no matter who prepares
the return, the taxpayer is ultimately responsible for its
accuracy. Since 2002, the courts have issued injunctions ordering
dozens of individuals to cease preparing returns, and the
Department of Justice has filed complaints against dozens of
others. During fiscal year 2006, 109 tax return preparers were
convicted of tax crimes and sentenced to an average of 18 months
in prison.
            7. American Indian Employment Credit: Taxpayers
submit returns and claims reducing taxable income by substantial
amounts citing an American Indian employment or treaty credit.
Although there is an Indian Employment Credit available for
businesses that employ Native Americans or their spouses, there
is no provision for its use by employees. In a somewhat similar
scam, unscrupulous promoters have informed Native Americans that
they are not subject to federal income taxation. The promoters
solicit individual Indians to file Form W-8 BEN seeking relief
from all withholding of federal taxation. A recent “phishing”
variation has promoters using false IRS letterheads to solicit
personal financial information that they claim the IRS needs in
order to process their "non-tax" status.
            8. Trust Misuse: For years unscrupulous promoters
have urged taxpayers to transfer assets into trusts. They promise
reduction of income subject to tax, deductions for personal
expenses and reduced estate or gift taxes. However, some trusts
do not deliver the promised tax benefits. There are currently
more than 150 active abusive trust investigations underway and 49
injunctions have been obtained against promoters since 2001. As
with other arrangements, taxpayers should seek the advice of a
trusted professional before entering into a trust.
            9. Structured Entity Credits: Promoters of this newly
identified scheme are setting up partnerships to own and sell
state conservation easement credits, federal rehabilitation
credits and other credits. The purported credits are the only
assets owned by the partnership and once the credits are fully
used, an investor receives a K-1 indicating the initial
investment is a total loss, which is then deducted on the
investor’s individual tax return. Forming such an entity is not a
viable business purpose. In other words, the investments are not
valid, and the losses are not deductible.
            10. Abuse of Charitable Organizations and Deductions:
The IRS continues to observe the use of tax-exempt organizations
to improperly shield income or assets from taxation. This can
occur when a taxpayer moves assets or income to a tax-exempt
supporting organization or donor-advised fund but maintains
control over the assets or income. Contributions of non-cash
assets continue to be an area of abuse, especially with regard to
overvaluation of contributed property. In addition, the IRS is
noticing the return of private tuition payments being disguised
as charitable contributions to religious organizations.
            11. Form 843 Tax Abatement: This scam rests on faulty
interpretation of the Internal Revenue Code. It involves the
filer requesting abatement of previously assessed tax using Form
843. Many using this scam have not previously filed tax returns
and the tax they are trying to have abated has been assessed by
the IRS through the Substitute for Return Program. The filer uses
the Form 843 to list reasons for the request. Often, one of the
reasons is: "Failed to properly compute and/or calculate IRC Sec
83-Property Transferred in Connection with Performance of
            12. Frivolous Arguments: Promoters have been known to
make the following outlandish claims: the Sixteenth Amendment
concerning congressional power to lay and collect income taxes
was never ratified; wages are not income; filing a return and
paying taxes are merely voluntary; and being required to file
Form 1040 violates the Fifth Amendment right against
self-incrimination or the Fourth Amendment right to privacy. Don’
t believe these or other similar claims. These arguments are
false and have been thrown out of court. While taxpayers have the
right to contest their tax liabilities in court, no one has the
right to disobey the law.
            IRS Still Watches Scams That Fall Off the List
            Five of last year’s Dirty Dozen tax scams rotated off
the list for 2007. While the IRS has seen a decline in the
occurrence of some of these scams –– abusive credit counseling
agencies, for example –– other problems, such as offshore abusive
transactions continue to be an area of particular concern for the
agency. The absence of a particular scheme from the Dirty Dozen
should not be taken as an indication that the IRS is unaware of
it or not taking steps to counter it.
            How to Report Suspected Tax Fraud Activity
            Suspected tax fraud can be reported to the IRS using
IRS Form 3949-A, Information Referral. Form 3949-A is available
for download from the IRS Web site at IRS.gov, or by mail by
calling 1-800-829-3676. The completed form or a letter detailing
the alleged fraudulent activity should be addressed to the
Internal Revenue Service, Fresno, CA 93888. The mailing should
include specific information about who is being reported, the
activity being reported, how the activity became known, when the
alleged violation took place, the amount of money involved and
any other information that might be helpful in an investigation.
The person filing the report is not required to self-identify,
although it is helpful to do so. The identity of the person
filing the report can be kept confidential. The person may also
be entitled to a reward.
              a.. Tax Scams Page on IRS.gov
              b.. Telephone Excise Tax Refund
              c.. Identity Theft and Your Tax Records
              d.. Abusive Return Preparer Enforcement
              e.. How to Report Suspected Tax Fraud Activity
              f.. Form 3949-A, Information Referral
              g.. Whistleblower Office News
            Subscribe to IRS Newswire
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