Top 2008 Tax Scams

By | March 13, 2008

Phishing Scams, Frivolous Arguments
Top the 2008 ‘Dirty Dozen’ Tax Scams


WASHINGTON – The Internal Revenue Service today issued its
2008 list of the 12 most egregious tax schemes and scams, highlighted by
Internet phishing scams and several frivolous tax arguments.


Topping this year s list of scams is phishing, which
encompasses numerous Internet-based ploys to steal financial information
from taxpayers.   New to the Dirty Dozen this year is a
scheme, which IRS auditors discovered, that relates to unreasonable and/or
excessive fuel tax credit claims.

Top 2008 Tax Scams

Taxpayers should be wary of scams and promises to avoid paying taxes
that seem too good to be true, Acting IRS Commissioner Linda Stiff
said.  There is no secret formula that can eliminate a person s tax
obligations.   People should be wary of anyone peddling any of
these scams.


Tax schemes can lead to problems for both scam artists and
taxpayers.   Tax return preparers and promoters also risk
significant penalties, interest and possible criminal prosecution.


The IRS urges taxpayers to avoid these common schemes:


1.  Phishing


Phishing is a tactic used by Internet-based thieves to trick
unsuspecting victims into revealing personal information they can then use
to access the victims financial accounts.   These criminals use
the information obtained to empty the victims bank accounts, run up
credit card charges and apply for loans or credit in the victims names.
Phishing scams often take the form of an e-mail that appears to come from
a legitimate source. Some scam e-mails falsely claim to come from the
IRS.   To date, taxpayers have forwarded more than 33,000 of
these scam e-mails, reflecting more than 1,500 different schemes, to the
IRS.   The IRS never uses e-mail to contact taxpayers about
their tax issues.   Taxpayers who receive unsolicited e-mail
that claims to be from the IRS can forward the message to a special
electronic mailbox,, using instructions
contained in an article titled How to
Protect Yourself from Suspicious E-Mails or Phishing
Schemes. Remember: the only official IRS Web site is located at


2.  Scams Related to the Economic Stimulus


Some scam artists are trying to trick individuals into revealing
personal financial information that can be used to access their financial
accounts by making promises relating to the economic stimulus payment,
often called a rebate.   To obtain the payment, eligible individuals
in most cases will not have to do anything more than file a 2007 federal
tax return.   But some criminals posing as IRS representatives
are trying to trick taxpayers into revealing their personal financial
information by falsely telling them they must provide information to get a
payment.  For instance, a potential victim is told by phone or e-mail
that he or she is eligible for a rebate but must provide a bank account
number (or similar information) to get the payment.   If the
target is unwilling, the victim is then told that he cannot receive the
rebate unless the information is provided.   Individuals should
remember that the only way to get a stimulus payment is to file a 2007 tax
return.  The IRS urges taxpayers to be extra-vigilant.
The IRS will not contact taxpayers by phone or e-mail about their stimulus


3.  Frivolous Arguments


Promoters of frivolous schemes encourage people to make unreasonable
and unfounded claims to avoid paying the taxes they owe.   Most
recently, the IRS expanded its list of frivolous legal positions that
taxpayers should stay away from.   Taxpayers who file a tax
return or make a submission based on one of these positions on the list
are subject to a $5,000 penalty.   The most recent update of the
list of frivolous positions includes: misinterpretation of the 9th
Amendment to the U.S. Constitution regarding objections to military
spending, erroneous claims that taxes are owed only by persons with a
fiduciary relationship to the United States, a nonexistent Mariner s Tax
Deduction related to invalid deductions for meals and the misuse of the
fuel tax credit (see below).   The complete
list of frivolous arguments is on the IRS Web site at


4.  Fuel Tax Credit Scams


The IRS is receiving claims for the fuel tax credit that are
unreasonable.   Some taxpayers, such as farmers who use fuel for
off-highway business purposes, may be eligible for the fuel tax
credit.  But some individuals are claiming the tax credit for
nontaxable uses of fuel when their occupation or income level makes the
claim unreasonable.   Fraud involving the fuel tax credit was
recently added to the list of frivolous tax claims, potentially subjecting
those who improperly claim the credit to a $5,000 penalty.


5.  Hiding Income Offshore


Individuals continue to try to avoid paying U.S.taxes by illegally
hiding income in offshore bank and brokerage accounts or using offshore
debit cards, credit cards, wire transfers, foreign trusts, employee
leasing schemes, private annuities or life insurance plans.
The IRS and the tax agencies of U.S. states and possessions continue to
aggressively pursue taxpayers and promoters involved in such abusive


6.  Abusive Retirement Plans


The IRS continues to uncover abuses in retirement plan arrangements,
including Roth Individual Retirement Arrangements (IRAs).  The IRS is
looking for transactions that taxpayers are using to avoid the limitations
on contributions to Roth IRAs.   Taxpayers should be wary of
advisers who encourage them to shift appreciated assets into Roth IRAs or
companies owned by their Roth IRAs at less than fair market
value.   In one variation of the scheme, a promoter has the
taxpayer move a highly appreciated asset into a Roth IRA at cost value,
which is below annual contribution limits even though the fair market
value far exceeds the amount allowed.


7.  Zero Wages


Filing a phony wage- or income-related information return to replace a
legitimate information return has been used as an illegal method to lower
the amount of taxes owed.   Typically, a Form 4852 (Substitute
Form W-2) or a corrected Form 1099 is used as a way to improperly reduce
taxable income to zero.   The taxpayer also may submit a
statement rebutting wages and taxes reported by a payer to the IRS.
Sometimes fraudsters even include an explanation on their Form 4852 that
cites statutory language on the definition of wages or may include some
reference to a paying company that refuses to issue a corrected Form W-2
for fear of IRS retaliation. Taxpayers should resist any temptation to
participate in any of the variations of this scheme.


8.  False Claims for Refund and Requests for

This scam involves a request for abatement of previously assessed
tax using Form 843, Claim for Refund and Request for Abatement.
Many individuals who try this have not previously filed tax
returns.   The tax they are trying to have abated has been
assessed by the IRS through the Substitute for Return Program.
The filer uses Form 843 to list reasons for the request. Often, one of the
reasons given is “Failed to properly compute and/or calculate Section
83-Property Transferred in Connection with Performance of Service.”


9.  Return Preparer Fraud


Dishonest tax return preparers can cause many problems for taxpayers
who fall victim to their schemes.   These scam artists 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.   Some preparers promote the filing of
fraudulent claims for refunds on items such as fuel tax credits to recover
taxes paid in prior years. Taxpayers should choose carefully when hiring a
tax preparer, especially one who promises something that seems too good to
be true.


10.  Diguised Corporate Ownership


Some people are going as far as forming domestic shell corporations in
certain states for the purpose of disguising the ownership of a business
or financial activity.   Once formed, these anonymous entities
can be used to facilitate underreporting of income, non-filing of tax
returns, engaging in listed transactions, money laundering, financial
crimes and even terrorist financing.   The IRS is working with
state authorities to identify these entities and to bring the owners of
these entities into compliance.


11.  Misuse of Trusts


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.   As with other arrangements, taxpayers should seek
the advice of a trusted professional before entering into a trust.


12.  Abuse of Charitable Organizations and


The IRS continues to observe the misuse of tax-exempt organizations.
Misuse includes arrangements to improperly shield income or assets from
taxation, attempts by donors to maintain control over donated assets or
income from donated property and overvaluation of contributed
property.   In addition, IRS examiners are seeing an upturn in
instances where taxpayers try to disguise private tuition payments as
contributions to charitable or religious organizations.


IRS Watches Scams That Fall Off the List


While the IRS has seen a decline in the occurrence of some of these
scams, other problems, such as abuse of the American Indian Employment
Credit and misuse of structured entity credits, continue to be areas of
concern.   The absence of a particular scheme from the Dirty
Dozen should not be taken as an indication that the IRS is unaware of it
or not taking steps to counter it.


How to Report Suspected Tax Fraud Activity


Suspected tax fraud can be reported to the IRS using IRS Form 3949-A,
Information Referral. Form 3949-A is available for download from the IRS
Web site at   The completed form or a letter detailing
the alleged fraudulent activity should be addressed to the Internal
Revenue Service, Fresno, CA 93888.  The mailing should include
specific information about who is being reported, the activity being
reported, how the activity became known, when the alleged violation took
place, the amount of money involved and any other information that might
be helpful in an investigation.   The person filing the report
is not required to self-identify, although it is helpful to do so. The
identity of the person filing the report can be kept confidential.


Whistleblowers also could provide allegations of fraud to the IRS and
may be eligible for a reward by filing Form 211, Application
for Award for Original Information, and following the procedures outlined
in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section