By William B. Acker
True to its word, the Internal Revenue Service (IRS) has switched its enforcement emphasis from criminals trying to launder their ill-gotten money to general taxpayers. Prosecutions of tax fraud involving “legal” income were up 20 percent in 2003 and the IRS reports substantial increases in the number of indictments and rate of acceptance of criminal case referrals to the U.S. Justice Department.
Comply Now!
Our experience indicates that failure to file tax returns, omission of income on filed tax returns, and utilization of schemes designed to intentionally avoid tax on filed tax returns are the types of cases that lead to criminal enforcement. It is important to identify these exposures and to respond to all IRS notices promptly. It is critical to obtain legal advice to avoid the substantial potential risks and penalties.
IRS Attacks “Tax Shelters”
To strengthen its efforts to find and prosecute tax evaders, the IRS is demanding that private sources disclose the names of people involved in sophisticated tax shelters. Also, Congress has passed laws requiring more complete reporting by corporate officers and directors.
The IRS is also warning people about a proliferation of promoters who charge large fees to develop “positions” designed to avoid or evade income taxes. In an effort to help people identify these schemes, the IRS has put out a list of a few of the less sophisticated positions the promoters are offering. Among them are the following:
- Transferring assets to an “abusive” trust to escape income tax while retaining control. Abusive trusts can take many forms, but in general they misuse the concepts of trusts;
- Transferring assets to an offshore bank account;
- “Incorporating” your activities as a religious organization in order to claim a tax exemption;
- Claiming a deduction equal to all wages as an expense for the production of income or compensation for personal services rendered;
- Overstating home-based business deductions for bogus businesses;
- Claiming slavery and other reparation credits that do not exist;
- Filing tax returns showing zero income and zero tax liability; and
- Deducting social security taxes or seeking a refund of such taxes.
You can find more details about these schemes and others online at www.irs.gov. “Remember that if it sounds too good to be true, it probably is,” the IRS warns on its web site. A number of more sophisticated financial transactions have been promoted and are ripe for IRS attack.
It is important to remember that tax fraud may lead to criminal prosecution, imprisonment for up to five years and for substantial civil fines. Fines can range from 20 to 75 percent of the amount of unpaid taxes. There is a $25,000 penalty for making frivolous arguments before the U.S. Tax Court.
We urge you to take well-considered and decisive action before the IRS contacts you. As always, we are ready to help you deal with these and all of your business and tax matters.
For further information regarding these matters, please contact Mr. Acker at 248.740.5665 or click here to send an email.
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