More tax scams to be aware of

Your Guide to State, Local, Federal, Estate + International Taxation

One thing’s for sure. Nothing is certain except death and taxes…and thieves trying to scam you out of your money. Another year, another IRS “Dirty Dozen” tax scam list. Adding to the annual list of popular scams, the IRS is warning Americans to be on the lookout for fraudsters masquerading as tax professionals peddling the following promises. Here are more tax scams to be aware of.

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Always be leery of any tax professional promising they can deliver large deductions and refunds. All too often those promises are untrue, unlawful and come with high fees. Here are some examples to be on the lookout for:

The syndicated conservation easements scheme inflates appraisals of undeveloped land to illegally claim additional tax deductions, often by using inflated appraisals of undeveloped land and partnerships devoid of a legitimate business purpose. Learn more about that at IRS increases enforcement action on Syndicated Conservation Easements.

Be aware of what the IRS is calling abusive “micro-captive” structures. Owners of closely held companies are being approached with offers of insurance coverage that doesn’t really cover anything, covers things that will likely never happen, doesn’t meet the businesses’ needs or duplicates the coverage the business already has, all at astronomically high premiums. You can read more about this scheme at IRS offers settlement for micro-captive insurance schemes; letters being mailed to groups under audit.

There’s been an uptick of claims using an interpretation of the U.S.-Malta Income Tax Treaty that says you can contribute appreciated property tax free to some Maltese pension plans with no tax consequences when the plan sells the assets and distributes proceeds to the U.S. taxpayer, thus circumventing any gains tax. The IRS is still considering the legitimacy of this claim and may challenge it on returns.

Be careful with anyone promising research and experimentation credits. To legally take these credits, your business must have qualifying research activities and costs that have been well documented to establish ongoing research. If you do take these credits, carefully review the description of your activity to ensure it accurately reflects your business.

If the idea of deferring gains on a sale of appreciated property sounds appealing, there are those who are promising they can shelter your gains in installment sales. Don’t get taken in by this. It works by a middleman appreciating property from a seller in exchange for an installment note (usually interest only) with the bulk of the principal paid at the end. The seller gets most of the proceeds and most of the liability for having improperly delayed gain recognition.

The IRS is keeping an eye on these shady dealings, and have recently created the Office of Promoter Investigations (OPI) to focus on abusive tax avoidance schemes. If you have any questions about your returns or worry you may have fallen victim to one of these schemes, contact your Henry+Horne advisor.

Beth Hawley