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For week of February 19, 2007, Issue #296
Featured Articles:
1. Fraudulent Telephone Tax Refunds, Abusive Roth IRAs Top Off 2007 "Dirty Dozen" Tax Scams
2. Tech Tip Weekly: Setting a New Standard Column Width in MS Excel 2002
3. Focus on Fraud: Domain Name Registration Scam - Part 1
3. Compliance Calendar
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1. Fraudulent Telephone Tax Refunds, Abusive Roth IRAs Top Off 2007 "Dirty Dozen" Tax Scams
The Internal Revenue Service today identified 12 of the most blatant scams affecting American taxpayers and warned people not to fall for schemes peddled by scamsters.
This year the "Dirty Dozen" highlights five new scams that IRS auditors and criminal investigators have uncovered. Topping off the list are fraudulent refunds being claimed in connection wit the special Telephone Excise Tax Refund available to most taxpayers this filing season.
Also new to the Dirty Dozen this year are abuses pertaining to Roth IRAs, the American Indian Employment Credit, domestic shell corporations and structured entities.
"Taxpayers shouldn't let their guard down," IRS Commissioner Mark W. Everson said. "Don't get taken by scam artists making outrageous promises. If you use a tax professional, pick someone who is reputable. Taxpayers should remember they are ultimately responsible for what is on their tax return even if some unscrupulous preparers have steered them in the wrong direction.
The IRS urges taxpayers to avoid these common schemes:
1. Telephone Excise Tax Refund abuses: Early filings show some individual taxpayers have requested large and apparently improper amounts for the special telephone tax refund. In some cases, taxpayers appear to be requesting a refund on the entire amount of their phone bills, rather than just the three-percent tax on long-distance and bundled service to which they are entitled.
2. Abusive Roth IRAs: Taxpayers should be wary of advisers who encourage them to shift under-valued property to Roth Individual Retirement Arrangements (IRAs).
3. Phishing is a technique used by identity thieves to acquire personal financial data in order to gain access to the financial accounts of unsuspecting consumers, run up charges on their credit cards or apply for loans in their names. These Internet-based criminals pose as representatives of a financial institution - or sometimes the IRS itself - and send out fictitious email correspondence in an attempt to trick consumers into disclosing private information. It is important to note the IRS does not use email to initiate contact with taxpayers about issues related to their accounts.
4. Disguised Corporate Ownership: Domestic shell corporations and other entities are being formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity. Once formed, these anonymous entities can be, and are being, used to facilitate underreporting of income, non-filing of tax returns, listed transactions, money laundering, financial crimes and possibly terrorist financing.
5. Zero Wages: In this scam, which first appeared in the Dirty Dozen in 2006, a Form 4852 (Substitute Form W-2) or a "corrected" Form 1099 showing zero or little income is submitted with a federal tax return. The taxpayer may include a statement rebutting wages and taxes reported by the payer to the IRS. An explanation on the Form 4852 may cite statutory language behind Internal Revenue Code sections 3401 and 3121 or may include some reference to the paying company refusing to issue a corrected Form W-2 for fear of IRS retaliation.
6. Return Preparer Fraud: Dishonest return preparers can cause many headaches for taxpayers who fall victim to their schemes. Such preparers make their money by skimming a portion of their clients' refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds.
7. American Indian Employment Credit: Taxpayers submit returns and claims reducing taxable income by substantial amounts citing an American Indian employment or treaty credit. Although there is an Indian Employment Credit available for businesses that employ Native Americans or their spouses, there is no provision for its use by employees.
8. Trust Misuse: For years unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits.
9. Structured Entity Credits: Promoters of this newly identified scheme are setting up partnerships to own and sell state conservation easement credits, federal rehabilitation credits and other credits. Forming such an entity is not a viable business purpose. In other words, the investments are not valid and the losses are not deductible.
10. Abuse of Charitable Organizations and Deductions: The IRS continues to observe the use of tax-exempt organizations to improperly shield income or assets from taxation. This can occur when a taxpayer moves assets or income to a tax-exempt supporting organization or donor-advised fund but maintains control over the assets or income.
11. Form 843 Tax Abatement: This scam rests on faulty interpretation of the Internal Revenue Code. It involves the filer requesting abatement of previously assessed tax using Form 843.
12. Frivolous Arguments: Promoters have been known to make the following outlandish claims: the Sixteenth Amendment concerning congressional power to lay and collect income taxes was never ratified; wages are not income; filing a return and paying taxes are merely voluntary; and being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth amendment right to privacy. Don't believe these or other similar claims. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.
2. Focus on Fraud: Domain Name Registration Scams - Part 1
Internet domain name scams have enjoyed renewed success among scam artists recently. Fraudsters use legitimate, publicly accessible databases to compile lists of businesses whose domain names are coming up for renewal. Then, in a scheme borrowed from the books of telephone “slammers” of the 1990s, the scammers send official-looking domain expiration notices that solicit payment to ensure the companies retain their Web addresses.
The problem isn’t just that the requested payments are significantly higher than the nominal fee required for legitimate domain name renewal, but that businesses also unwittingly give authorization to transfer their domain name to a different registration company. You may not pay the legitimate renewal fee, and your domain name becomes available to someone else.
3. Tech Tip Weekly:
Setting a New Standard Column Width in MS Excel
2002
In MS Excel, you can use the Standard Width command to set all the columns in a worksheet to a new uniform width. To do so, simply click the Format pull-down menu; click Column and then Standard Width… Doing this opens the Standard Width dialog box. Here, you can replace the default 8.43 characters in the Standard Column Width text box with your new width (in characters), and then click OK or press Enter.
Note that when you set a new standard width for the columns of your worksheet, this new width doesn't affect any columns whose width you've previously adjusted either with AutoFit or in the Column Width dialog box.
4. Compliance Calendar
February 23
-Employers deposit Social Security, Medicare,
and withheld income tax for February 17, 18, 19,
and 20.
February 28
-Employers deposit Social Security, Medicare,
and withheld income tax for February 21, 22, and
23.
-Employers file Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W-2 issued for 2006. Employers that file Forms W-2 electronically (but not by magnetic media) have an extended due date with the SSA of April 2.
Businesses file information returns (Form 1099) for certain payments made during 2006, including dividends and other corporate distributions, royalties, retirement plan distributions, and other payments and distributions. Electronic filers ( but not by magnetic media) have an extended due date of April 2.