The IRS today announced the conclusion of its annual list of the “Dirty Dozen” tax scams.  The list is published each year by the IRS as a way to both inform and warn taxpayers about the most common tax schemes they may encounter especially during filing season.  

This year’s list remains unchanged from last year’s list with familiar tactics such as “Offshore Tax Avoidance,” “Falsely Padding Dedudutions,” and  “Abusive Tax Shelters,” appearing yet again.

With respect to Offshore Tax Avoidance, the IRS noted that numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts, nominee entities, foreign trusts, employee leasing schemes, private annuities, or insurance plans.  The IRS’s release concerning Offshore Tax Avoidance said:

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as bankers and others suspected of helping clients hide their assets overseas.

Commissioner John Koskinen mentioned that the IRS has collected $10 billion in back taxes in recent years. He cited the offshore voluntary disclosure programs and third-party reporting as reasons why it is less likely that offshore financial accounts will go unnoticed by the IRS. 

The IRS’s release on Falsely Padding Deductions focused on warning taxpayers against “the temptation to falsely inflate deductions or expenses. . .”  Some taxpayers are not able to avoid that temptation and they file tax returns with substantially inflated business expenses, costs of goods sold, and in some cases they simply make-up expenses or deductions in an effort to pay less tax or increase their tax refund.  

Finally, the IRS warned of Abusive Tax Shelters for the third year in a row.  More specifically, “micro-captive insurance tax shelters.”  Promoters, accountants, or wealth planners persuade owners of closely held entities to participate in schemes that lack attributes of genuine insurance.  According to the IRS release, “coverages may insure implausible risks, fail to match genuine business needs or duplicate the taxpayer’s commercial coverages.  Premium amounts may be unsupported by underwritring and actuarial analyiss, may be geared toward a desired deduction amount or may be significantly higher than premiums for comparable commercial coverage.” In November of 2016, the IRS released Notice 2016-66 which advised that micro-captive insurance transactions have the potential for tax avoidance or even evasion.

The unscrupulous promoters of these abusive transactions always find new products to promote as the IRS and the Courts crack down on the abuse.  Accordingly, we expect the IRS to continue to pursue the promotors of the latest trends in tax evasion and we expect Abusive Tax Shelters to continue to appear on the Dirty Dozen List.  

If you have knowledge of offshore tax avoidance, substantially infalted tax deductions, or abusive tax structures, contact the tax attorneys at The Ferraro Law Firm to discuss filing a claim for an award for providing the information to the IRS and doing your part to hold tax evaders accountable. 

 

 

Lynam Knott