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  • Dr. Mark Lee Levine, Professor

NEW TAX SCAMS—MORE ON THE IRS “DIRTY DOZEN”


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Quick History on Tax Scams


For many years the IRS has issued its News Releases on Tax Scams.[1] A discussion of tax scams usually relates to the Internal Revenue Service (IRS) position as to general requirements under the Code,[2] which addresses the broad positions under Code Section 6011[3]; this Section prescribes the general requirements for filing returns with the IRS.[4]

For many years I have written about Tax Scams and related issues, such as what are often called “Tax Loopholes.” For more on these issues, see the authorities cited in the footnote.[5]


Recently, the IRS issued Release, 2022-125,[6] which addressed four particular tax scams that should alert taxpayers in general-- and specifically those dealing with tax returns. This Tip covers these points.


Recent IRS Release 2022-125: Four Scams of Particular Interest


Under Release 2022-125 (Release), the IRS made what it labelled as its “final installment of its 2022 Dirty Dozen” target list of scams that taxpayers should be aware of and warned to lookout for when dealing with tax returns. These four big scams include those in the following discussion. The IRS is looking for those who undertake the following schemes as well as other approaches that violate the tax law with a goal of avoiding the payment of taxes. In the Release noted, the IRS Commission, Chuck Rettig, stated:

“Taxpayers should not kid themselves into believing they can hide income from the IRS. The agency continues to focus on these deals, and people who engage in them face steep civil penalties or criminal charges.”


These four Schemes include:

  1. Concealing Assets in Offshore Accounts and Improper Reporting of Digital Assets;

  2. High-income individuals who don't file tax returns;

  3. Abusive Syndicated Conservation Easements; and

  4. Abusive Micro-Captive Insurance Arrangements.

The above are somewhat self-explanatory. The IRS in the Release noted above reminded taxpayers that there are criminal and civil fines and penalties when violating the Federal tax laws. The IRS stated:


“The Failure to File Penalty is initially much higher than the Failure to Pay Penalty. It is more advantageous to file an accurate return on time and set up a payment plan if needed than to not file. The Failure to File Penalty is generally 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty generally will not exceed 25% of unpaid taxes. The Failure to Pay Penalty is generally 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The penalty will not exceed 25% of unpaid taxes. If a person's failure to file is deemed fraudulent, the penalty generally increases from 5 percent per month to 15 percent for each month or part of a month the return is late, with the maximum penalty generally increasing from 25 percent to 75 percent.[7]


What Next, from the IRS?


The IRS is concerned with the continued presence of tax scams and the many taxpayers, especially the “wealthy” taxpayers, that are employing such scams to avoid taxes. The IRS is pushing its efforts to stop such schemes and those people involved in the same.

Commissioner Rettig stated:


“The IRS is able to identify and track otherwise anonymous transactions of international accounts as well as digital assets during the enforcement of our nation's tax laws,” … We urge everyone to come into compliance with their filing and reporting responsibilities and avoid compromising themselves in schemes that will ultimately go badly for them.[8]


Conclusion


Look for more IRS efforts in this area to inhibit the schemes noted above and many more such actions that seek to avoid the Federal tax laws. Recently, the IRS has conducted thousands of examinations and investigations, assessing hundreds of millions of dollars in taxes and penalties. The IRS has also hired hundreds of new agents to help in this task to inhibit illegal tax schemes.[9]


_______________________________________________ [1] See some of my prior Tips and articles that have discussed other Tax Scams identified by the IRS. See, for examples of these articles and Tips: Levine, Mark Lee, “The IRS’s Dirty Dozen Tax Scams:A Guide for Professionals and Taxpayers,” 83 The CPA Journal 40 (June 2013) Levine, Mark Lee, “The IRS Dirty Dozen for 2016,” The CPA Journal (2016) Levine, Mark Lee, “Tax Scams Against Professionals, Journal for Financial Professionals (2022) Levine, Mark Lee, “Tax Scams ImpactingReal Estate,” 44 Real EstateReview 37 (Fall, 2015) [2] This reference is to 26 USCA of 1986, as amended, herein referred to as the “Code.” [3] Code Section 6011 states the general requirements for returns, statements or lists filed with the IRS. [4] See Code Section 6011 (a). [5] See Levine, Mark Lee and Segev, Libbi Levine, Real Estate Transactions, Tax Planning, Chapter 40, Thomson Reuters West (2022). See also the articles cited supra, Footnote 1. [6] See News Release 2022-125, 6/10/2022 on the topic of Tax Scams. [7] See Release 2022-125, cited earlier in this Tip. [8] Id. [9] Id.

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