Here’s part two of the top twelve tax scams… Today’s installment includes four common ways that tax filers try to cheat. If you’re thinking of trying one or more of these, think again — the IRS is onto you!
Zero wages: One of the newest swindles on the IRS’ radar this year are individuals that claim zero wages on a Form 4852 or a “corrected” 1099. While the system is meant to protect the taxpayer, such as an independent contractor, from an employer, some tax cheats have tried to exploit the system by claiming that he or she did not receive as much as an employer originally reported.
Form 843 tax abatement: Tax abatement using form 843 is another new trick hucksters are trying out, according to the IRS, with individuals claiming they have never filed a tax return before or that a older return was sent but never received, hoping that the IRS will low-ball their estimated tax bill.
Frivolous arguments: As much as you might want to argue that filling out a Form 1040 goes against both the Fourth Amendment right to privacy and the Fifth Amendment right against self-incrimination — forget it. The IRS says these arguments have tried and failed in court. You may have the right to contest your liability later on, but that doesn’t mean you can break the law, according to the IRS.
Abuse of charitable organizations and deductions: While giving to charity is a great way to get a tax break, a growing number of individuals are taking advantage of the situation. Instead of making a simple donation, some cheats have moved income or assets into tax-free organization, but maintained control of the money, according to the IRS.
My thoughts: Filing a corrected 1099 to understate your wages? Sounds like that would be a HUGE red flag. Same goes for the Form 843… In fact, I’d think that any scam that requires filing extra, relatively uncommon forms would do little more than draw attention to what you’re doing. And arguing that filling out a tax form is against your constitutional rights? Come on, you can do better than that. Finally, it’ll be interesting to see how many people try to get away with bogus charitable deductions, especially in view of the number of natural disasters that occurred in 2005. Given that charitable deductions will likely be up this year, I’d think it would be tempting for people to claim a few ‘extra’ contributions on their tax forms.
See also: Top Tax Scams, Part 1 and Top Tax Scams, Part 3.