Florida Tax Planning: IRS Alert - Top Tax Scams

Tax schemes are illegal, and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution. (For these reasons, and many others, it's always important to consult with a qualified Florida Tax Planning Attorney for advice on tax plannig strategies.)

The IRS urged taxpayers to avoid twelve common schemes:

Phishing

Phishing is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information.

The criminals use the information to steal the victim's identity, access bank accounts, run up credit card charges or apply for loans in the victim's name.

Phishing scams often take the form of an e-mail that appears to come from a legitimate source.

Supposed "refunds" from the IRS are among common phishing tricks.

Note: The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Warn clients who receive unsolicited e-mails that purport to be from the IRS about this scam and tell them to forward the message to phishing@irs.gov.

Hiding Income Offshore

Offshore transactions are now being tracked and aggressively pursued. The Service will target both taxpayers and any promoters involved.

Specifically, the IRS is looking for and prosecuting taxpayers who try to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. The IRS is training its auditors to seek out and deal with those hiding income offshore in undisclosed accounts.

NOTE: A major distinction in treatment is drawn between taxpayers with offshore accounts who voluntarily come forward and those who fail to report offshore accounts.

Other tax evasion tricks the IRS is focusing on include abusive use of offshore:

· debit cards,

· credit cards,

· wire transfers,

· foreign trusts,

· employee-leasing schemes,

· private annuities,

· life insurance plans.

· electronic funds transfer and payment systems,

· offshore business merchant accounts, and

· private banking relationships.

Filing False or Misleading Forms

Scam artists file false or misleading returns to claim refunds that they are not entitled to.

Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits, are used to legitimize erroneous refund claims. The new scam has evolved from an earlier phony argument that a "straw man" bank account has been created for each citizen.

Under this scheme, taxpayers fabricate an information return, arguing they used their "straw man" account to pay for goods and services and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

Abuse of Charitable Organizations and Deductions

Tax-exempt organizations are playgrounds for scam artists. The Service is targeting:

· arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property,

· schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property,

· highly overvalued donations,

· arrangements in which the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets.

NOTE: Increased penalties for inaccurate appraisals and new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions are now in effect.

Return Preparer Fraud

Dishonest return preparers attract new clients by promising large refunds and then charge inflated fees for return preparation services and skim a portion of their clients' refunds.

NOTE: No matter who prepares the return, the taxpayer is ultimately responsible for its accuracy.

Frivolous Arguments

Over the years, dozens of arguments have been made by promoters of "kits" "books" and "plans" involving frivolous schemes to encourage individuals to make unreasonable and unfounded claims to avoid paying taxes.

NOTE: Taxpayers who file a tax return or make a submission based on one of the positions on the government's list of frivolous arguments (See IRS.gov) are subject to a $5,000 penalty.

False Claims for Refund and Requests for Abatement

This scam involves a request for abatement of previously assessed tax using Form 843, Claim for Refund and Request for Abatement.

Many individuals who try this have not previously filed tax returns. The tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program.

The filer uses Form 843 to list reasons for the request. Often, one of the reasons given is "Failed to properly compute and/or calculate Section 83-Property Transferred in Connection with Performance of Service."

Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements (see for instance Dave Hildebrandt v. Indianapolis Life), including Roth Individual Retirement Arrangements (IRAs).

The Service is also looking for:

· transactions that taxpayers are using to avoid the limitations on contributions to IRAs,

· transactions that are not properly reported as early distributions,

· advisers who encourage taxpayers to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits,

· the use of limited liability companies to engage in activity which is considered prohibited.

Disguised Corporate Ownership

Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. This is done to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing.

NOTE: The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

Zero Wages

As an illegal method to lower the amount of taxes owed, some individuals have been:

· filing a phony wage/income-related information return to replace a legitimate information return has been used. Typically, a Form 4852 (Substitute Form W-2) or a "corrected" Form 1099 is used as a way to improperly reduce taxable income to zero.

· submitting a statement rebutting wages and taxes reported by a payer to the IRS.

· Giving an explanation on Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation.

Misuse of Trusts

The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to divert income and deduct personal expenses. The use of domestic trusts to accomplish similar tax trickery is also common.

Fuel Tax Credit Scams

Although some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit, others are making unreasonable claims for the fuel tax credit. For instance, some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable.

NOTE: Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

HOW TO REPORT SUSPICIOUS ACTIVITY

To report suspected tax Fraud Activity, use IRS Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS Web site at IRS.gov. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888.

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.

Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

Florida Estate Planning: Reviewing Wills and Trusts for Compliance with Florida Law

While Florida generally recognizes wills created in another state that were valid at the time they were created, it is often a good idea to have your will reviewed by a Florida Estate Planning Attorney when you move to Florida.

One problem one often runs into is that guardians for minor children who reside in Florida must be a close relative or a resident of the state of Florida. Often people designate non-relatives that do not reside in Florida and these are not effective.

While it is possible to create a trust or other legal instrument to allow a non-resident to manage the property of a minor, this should not be done in a will as it may be ineffective.

There are many other issues that arise with a move across state lines. Some states are community property and Florida is not. It is best to have your documents reviewed to make sure that your desires are carried out. There are some wills like holographic wills (a will that is handwritten by the testator) that may be valid in states like California that Florida will not recognize unless they comply with the Florida Statute of Wills.

Contact a Florida Estate Planning Attorney for more information and a review of your documents.

Florida Estate Planning: Fraudulent Seminars

It seems like ever few months we hear about another company who provides living trust seminars to the public and scares them into purchasing unnecessary trusts.

Another "Trust Mill" has been found guilty of practicing law without a license by masquerading as qualified financial advisers, estate planners, lawyers, and paralegals to exploit and prey upon senior citizens with the creation and selling of unnecessary and often useless living trusts.

In this case The Estate Plan, a company operating in Texas and Arkansas, was hit with a $16 Million default judgment for fraud, unauthorized practice of law, negligence, breach of fiduciary duty and conspiracy.

As always, when searching for a Florida Estate Planning attorney, choose one with a credible reputation and one with lots of experience in Florida Trusts.