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The Online Advisor

June 2007

What's New in Taxes

Five new tax scams included in 2007 "dirty dozen"


Each year, the IRS publishes its list of top tax scams known as the "dirty dozen." The 2007 list includes five new scams uncovered by IRS auditors and criminal investigators.

New to the list this year are the following scams:

* Telephone excise tax refund abuses. Taxpayers request large, obviously improper amounts for the telephone tax refund.

* Abusive Roth IRAs. This scam involves shifting under-valued property to a Roth IRA. In one variation of the scam, promoters suggest moving under-valued common stock into a Roth IRA, circumventing the annual contribution limit and allowing otherwise taxable income to go untaxed.

* American Indian employment credit. Taxpayers claim an American Indian employment or treaty credit which is not allowed.

* Domestic shell corporations. These entities are formed for the purpose of underreporting income, nonfiling of returns, money laundering, financial crimes, and possibly even terrorist financing.

* Structured entity credits. Promoters of this scheme set up partnerships to own and sell state conservation easement credits, federal rehabilitation credits, and other tax credits. Once the credits are used, investors in the partnerships get a K-1 claiming a loss to be deducted on their tax returns. The investment in the partnerships are not valid, and the losses are not deductible.

The IRS reminds taxpayers that falling for any illegal tax scheme promoted by con artists can result in penalties and even criminal prosecution.

For details or for assistance with your tax planning, give our office a call.

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