[StBernard] Fraudulent tax returns

[Westley Annis]

Fraudulent Telephone Tax Refunds, Abusive Roth IRAs
Top Off 2007 "Dirty Dozen" Tax Scams

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 scamsters.

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 prosecution.

The IRS urges taxpayers to avoid these common schemes:

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
contribut ion 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 Service."

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.

Dan Johnson
Certified Public Accountant
257 W Causeway Approach
Mandeville, LA  70448
985-626-1102  Voice
985-727-0834  Fax