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It is stressful enough to owe the IRS money, finding a good company to help you with your tax debts can be challenging in itself. Unfortunately, many people fall victim to so-called “tax debt settlement” companies. Not all of these companies are scams, but there are a few things to look out for when searching for a reputable agency to help you with your tax debt.

Be Careful!

There are plenty of non-reputable agencies that promise to provide tax debt solutions for “pennies on the dollar”. We have all heard of such outlandish claims and, if something seems too good to be true, it usually is!

Only the IRS can approve a settlement, reduction or modification to your tax debts. Any company that claims they can approve a change in your debts without the IRS’ approval should be a red flag.

It can be difficult to find quality help with your taxes and tax debts. Many under qualified individuals are providing inaccurate information to unsuspecting taxpayers, causing them to acquire fees, monetary penalties and even criminal charges.

Top Twelve Tax Scams

1. Telephone Excise Tax Refund:  The IRS allows for taxpayers to request a refund on 3% of the tax of their phone bills. Some companies will advise taxpayers to request a refund on the entire amount of their phone bill, rather than the approved 3%, in order to get a larger tax credit and reduced taxable income.

2. Roth IRAs: Non-reputable tax companies have been advising taxpayers to shift under-valued property to Roth Individual Retirement Arrangements (IRAs). This allows the taxpayer to circumventing the annual maximum contribution limit and allowing otherwise taxable income to go untaxed.

3. Phishing: Occurs when identity thieves acquire personal financial data. They gain access to the financial accounts and run up charges on their credit cards or apply for loans in their names. Typically, this occurs when the thieves send out fictitious e-mail correspondence in an attempt to trick consumers into disclosing private information. A common example is an e-mail that notifies a taxpayer of an outstanding refund and urges the taxpayer to click on a hyperlink and visit an official-looking Web site.

4. Disguised Corporate Ownership: Tax advisers may encourage taxpayers to set up domestic shell corporations states for the purpose of disguising the ownership of the business or financial activity. These entities are being used to facilitate engage in inappropriate behavior such as underreporting of income, non-filing of tax returns, listed transactions, money laundering, financial crimes and possibly terrorist financing.

5. Zero Wages: This scam involves 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 then includes a statement rebutting wages and taxes reported by the payer to the IRS.

6. Return Preparer Fraud: If a tax adviser prepares a dishonest return, the taxpayer often suffers financially and could face legal trouble. These dishonest tax preparers will skim a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds.

7. American Indian Employment Credit: Involves the intentional misuse of the Indian Employment Credit, whereby taxpayers submit returns and claims reducing taxable income by substantial amounts citing an American Indian employment or treaty credit. There is no provision for its use by employees.

8. Trust Misuse: Like the Roth IRA scam, this involves the taxpayer transferring assets into trusts at the promise of reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes.

9. Structured Entity Credits: This scam is similar to the Disguised Corporate Ownership in which individuals 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.

10. Abuse of Charitable Organizations and Deductions: 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.

11. Form 843 Tax Abatement: When a taxpayer requests abatement of previously assessed tax using Form 843, often citing “Failed to properly compute and/or calculate IRC Sec 83-Property Transferred in Connection with Performance of Service.”

12. Frivolous Arguments: Dishonest tax preparers 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.

The Lee Law Firm employs qualified attorneys to help you with your tax debts. Don’t become a victim of those predatory companies or fall victim to fraudulent behaviors. You are our priority, and we are here to represent you in a professional manner! You can get started protecting yourself from scams by filling out our risk free evaluation form today!