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For week of March 14,
2005, Issue #203
Featured Articles:
1. IRS Announces the
2005 Dirty Dozen
2. How Do I Recognize
Fraudulent E-Mail?
3. Tech Tip Weekly: 10
Tips for Effective Software Asset Management
4. Compliance Calendar
1. IRS Announces the
2005 Dirty Dozen
The Internal Revenue Service today unveiled its annual listing of
notorious tax scams, the "Dirty Dozen," reminding taxpayers to be
wary of schemes that promise to eliminate taxes or otherwise sound
too good to be true.
"The Dirty Dozen is a reminder that tax scams can take many forms,"
IRS Commissioner Mark W. Everson said. "Don't be fooled by false
promises peddled by scam artists. They'll take your money and leave
you with a hefty tax bill."
Involvement with tax schemes can lead to imprisonment and fines.
The IRS routinely pursues and shuts down promoters of these scams.
But taxpayers should also remember that anyone pulled into these
schemes can face repayment of taxes plus interest and penalties.
The Dirty Dozen
The IRS urges people to avoid these common schemes:
1. Trust Misuse. Unscrupulous promoters for years
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. This is not to be confused with
proper use of trusts for legitimate tax and estate planning
purposes.
2. Frivolous Arguments. Promoters have been known
to make the following outlandish claims: that the Sixteenth
Amendment concerning congressional power to lay and collect income
taxes was never ratified; that wages are not income; that filing a
return and paying taxes are merely voluntary; and that 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.
3. Return Preparer Fraud. Dishonest return
preparers can cause many headaches for taxpayers who fall victim to
their ploys. Such preparers derive financial gain by skimming a
portion of their clients' refunds and charging inflated fees for
return preparation services. They attract new clients by promising
large refunds. Taxpayers should choose carefully when hiring a tax
preparer. As the saying goes, if it sounds too good to be true, it
probably is.
4. Credit Counseling Agencies. Taxpayers should
be careful with credit counseling organizations that claim they can
fix credit ratings, push debt payment agreements or charge high
fees, monthly service charges or mandatory "contributions" that may
add to debt.
5. "Claim of Right" Doctrine. In this scheme, a
taxpayer files a return and attempts to take a deduction equal to
the entire amount of his or her wages. This so-called deduction is
based on a misinterpretation of the Internal Revenue Code and has no
basis in law.
6. "No Gain" Deduction. Similar to "Claim of
Right," filers attempt to eliminate their entire adjusted gross
income (AGI) by deducting it on Schedule A. The filer lists his or
her AGI under the Schedule A section labeled "Other Miscellaneous
Deductions" and attaches a statement to the return, referring to
court documents and including the words "No Gain Realized."
7. Corporation Sole. Since September 2004, the
Department of Justice has obtained six injunctions against promoters
of this scheme and filed complaints against 11 others. Participants
apply for incorporation under the pretext of being a "bishop" or
"overseer" of a one-person, phony religious organization or society
with the idea that this entitles the individual to exemption from
federal income taxes as a nonprofit, religious organization.
8. Identity Theft. The IRS is aware of several
identity theft scams involving taxes. In one case, fraudsters sent
bank customers fictitious correspondence and IRS forms in an attempt
to trick them into disclosing their personal financial data.
Sometimes scammers pose as the IRS itself. Last year the IRS shut
down a scheme in which perpetrators used e-mail to announce to
unsuspecting taxpayers that they were "under audit" and could set
matters right by divulging sensitive financial information on an
official-looking Website. Taxpayers should note the IRS does not
use e-mail to contact them about issues related to their accounts.
9. Abuse of Charitable Organizations and Deductions.
The IRS has observed an increase in the use of tax-exempt
organizations to improperly shield income or assets from taxation.
This can occur, for example, 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, thereby obtaining a tax
deduction without transferring a commensurate benefit to charity. A
"contribution" of a historic facade easement to a tax-exempt
conservation organization is another example.
10. Offshore Transactions. Despite a crackdown on
the practice by the IRS and state tax agencies, individuals continue
to try to avoid U.S. taxes by illegally hiding income in offshore
bank and brokerage accounts or using offshore credit cards, wire
transfers, foreign trusts, employee leasing schemes, private
annuities or life insurance to do so.
11. Zero Return. Promoters instruct taxpayers to
enter all zeros on their federal income tax filings. In a twist on
this scheme, filers enter zero income, report their withholding and
then write "nunc pro tunc" -- Latin for "now for then" -- on the
return.
12. Employment Tax Evasion. The IRS has seen a
number of illegal schemes that instruct employers not to withhold
federal income tax or other employment taxes from wages paid to
their employees. Such advice is based on an incorrect
interpretation of Section 861 and other parts of the tax law and has
been refuted in court. Recent cases have resulted in criminal
convictions, and the courts have issued injunctions against more
than a dozen persons ordering them to stop promoting the scheme.
2. How Do I Recognize
Fraudulent E-Mail?
It can be very difficult. Many of these e-mails use logos, formats
and phrases that are identical to legitimate e-mails sent by
legitimate businesses such as banks, credit card companies and the
like. Some frauds are easy to spot because they contain
misspellings, misused words, or even copy a web page within the body
of the e-mail. Others may provoke more subtle clues, such as
unfamiliar return e-mail addresses or links to websites that don't
include the supposedly requesting business (bank, credit card
company, etc.).
Typically, no matter how convincing an e-mail might look, or how
compelling its message, you can be sure of one thing. If it asks
you to enter personal information such as your User ID, password,
account numbers or Social Security Number do not enter it.
Instead, if you feel that the e-mail is truly legitimate, perhaps
telephone the customer service phone number (use the phone number on
something like a monthly statement, etc. not from the e-mail if
there is one there) of the requesting business and confirm their
need for your personal information first before you provide it.
3. Tech Tip Weekly: 10
Tips for Effective Software Asset Management
Numbers 1. through 5. as suggested by BSA Business Software Alliance
Group:
1. Be a responsible software user. Develop a company policy on
software usage and have employees sign it annually.
2. Compare the number of software installations to the number of
licenses. Obtain any licenses needed for compliance.
3. Centralize software purchases. Funnel purchases through a
designated internal authority such as a purchasing department.
4. Ask that employees submit written requests for new software and
see that the software manager signs and authorizes these requests.
5. Buy from authorized dealers, or through reputable application
service providers (ASPs).
Numbers 6. through 10. next week.
4. Compliance Calendar
March 16
-Employers deposit Social Security, Medicare and withheld income tax
for payments on March 9, 10, and 11.
March 18
-Employers deposit Social Security, Medicare, and withheld income
tax for payments on March 12, 13, 14, and 15.
Prangley Marks, LLP
Accountants and Consultants
"The Way
We Figure, We Are The Only CPA Firm You Will Ever Need"
333 Bridge
Street, NW, 11th Floor Bridgewater Place, Grand Rapids, MI
49504-5356
Phone#:
616-774-9004, Fax#: 616-774-9081