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Top Tax Scams, Part 3

Written by Nickel - 2 Comments

Here’s the third (and final) part of the top twelve tax scams… Today’s installment covers four more common ways that tax filers try to cheat.

Offshore transactions: It may be an ongoing battle for the IRS, but tax cheats are still prone to hiding income in offshore bank and brokerage accounts. In the fiscal year 2005, the IRS reported 68 individuals were convicted for promoting or using different schemes to avoid paying taxes.

Trust misuse: As much as you would like to believe that putting your assets into a trust will result in lower income taxes, deductions or reduced estate or gift taxes, think again. Many trusts do not deliver such tax benefits. Speaking with a professional first is the best move before transferring any funds, the IRS advises.

Employment tax evasion: Employers aren’t innocent either. Based on some shabby advice, some business owners have not collected federal income or other employment taxes from workers. But the IRS warns that those employers would face payment of those back taxes as well as penalties and interest.

‘No Gain’ deduction: And rounding out the list of tax con artists maneuvers is to claim deductions that equal their adjusted gross income, propped up by phony court documents.

My thoughts: Am I the only one that thinks 68 is an awfully small number of people when it comes to convictions for the use of offshore accounts to avoid taxes? As far as employers not withholding taxes from their employees, I can’t believe this would be all that common — there’s a tremendous amount to be lost here, and very little to be gained. Finally, am I getting this right? People are claiming deductions that offset their entire AGI? Wow. That’s gutsy (and more than a little stupid).

See also: Top Tax Scams, Part 1 and Top Tax Scams, Part 2

[Source: CNN/Money]

Published on February 10th, 2006
Modified on February 12th, 2006 - 2 Comments
Filed under: Taxes

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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2 Responses to “Top Tax Scams, Part 3”

  1. 1
    jim Says:

    I suppose some people think they can slip through the cracks…

  2. 2
    Matt Says:

    My guess would be that most of the “employers not withholding” issues are about 1099 contractors being forcibly reclassified as W2 employees.

    As for the offshore thing…well, except in the most doubly-egregious cases (that is, egregious sums coupled with egregious stupidity by the tax nonpayer) it’s hard to prove in court that a particular action was tax fraud.

    Note that the article says “convicted”. Assuming it’s using terminology correctly, that means a criminal conviction for tax fraud, which requires proof of _specific intent to commit a federal crime_ to the same standards as any other criminal conviction. Merely disallowing a practice and assessing back taxes and penalties is both far easier and far more common. 68 criminal convictions per year for specifically offshore-related fraud is easy to believe, because the majority of problems with questionable offshore transactions will never result in a criminal prosecution, let alone a conviction. (The IRS wants your _money_. And they can take it much easier by administrative means than they can by trying to send you to prison. They generally only go to criminal court with people whose behavior is so flagrant and fraudulent that the government feels a need to make public examples of them. But only those “public examples” would be included in the statistics for convictions.)

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