Beware the Tax Boogeymen: The Dirty Dozen Abusive Tax Schemes

Beware the Tax Boogeymen: The Dirty Dozen Abusive Tax Schemes

Taxes can be as mystifying as the Bermuda Triangle, and just like that infamous region, there are some shady characters lurking in the tax world. The IRS has wrapped up its 2023 Dirty Dozen campaign, warning taxpayers about the dark side of tax avoidance schemes. So, gather around the campfire, and let’s explore these tax horror stories.

The Not-So-Fantastic Four

1. Syndicated Conservation Easements: The Robin Hoods Gone Wrong

Picture this: a group of promoters selling a deal where you can donate land for conservation and get a huge tax break. Sounds great, right? Well, not when the deductions are grossly inflated, leaving you with more tax savings than your actual investment. Congress tightened the rules in the Consolidated Appropriations Act of 2023, so don’t fall for this “too good to be true” scheme.

2. Micro-Captive Insurance Arrangements: The Tiny Insurance Scam

Meet the “micro-captive” – a small insurance company that’s supposed to be taxed only on its investment income. However, some of these arrangements are more like a wolf in sheep’s clothing, featuring implausible risks, excessive premiums, and duplicating your existing commercial coverage. The IRS has been cracking down on these scams, and they’ve got a winning streak in court since 2017.

3. Schemes with International Elements: The Worldwide Web of Deceit

Offshore accounts and digital assets might sound like great ways to hide your income from the IRS, but don’t be fooled. Uncle Sam has a global reach and can track foreign accounts and cryptocurrency transactions. Remember, worldwide income is taxable as a U.S Person, and hiding it can lead to stiff penalties. So, don’t get caught in this web of deceit.

4. Maltese Individual Retirement Arrangements Misusing Treaty: The Great Retirement Heist

Some taxpayers try to dodge U.S. taxes by stashing cash in foreign retirement accounts like Maltese IRAs. They claim these accounts as “pension funds” under tax treaties, but the IRS sees right through this ploy. If you don’t have a legit connection to the host country, you could find yourself in hot water with the taxman.

The Tax Avengers Assemble

The IRS is stepping up its game, hiring more attorneys and creating special teams like the Office of Fraud Enforcement (OFE) and Office of Promoter Investigations (OPI) to combat tax fraud and abusive schemes.

How to Report the Tax Villains

If you encounter promoters of abusive tax schemes or tax preparers filing improper returns, you can report them using Form 14242. Mail it to the IRS Lead Development Center in California or fax it to 877-477-9135. You can also contact the IRS Whistleblower Office for a possible reward.

Taxes can be scary, but with the right knowledge and trustworthy professionals, you can navigate the dark alleys of the tax world and avoid these Dirty Dozen nightmares. Stay vigilant, taxpayers!

***Disclaimer: This communication is not intended as tax advice, and no tax accountant -client relationship results**

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