April 13, 2006
Latest Tax Avoidance Schemes
With April 15 -- well, the 17th actually, but who's counting -- almost upon us, the IRS faces an array of tax avoidance schemes that seek to cloak the failure to pay taxes on income in the guise of ostensibly legitimate legal argument. The IRS identified its "Dirty Dozen" tax scams (press release here), and the top ones are variations on positions taken by the tax protester movement that assert no tax is owed.
1. Zero Wages. In this scam, new to the Dirty Dozen, a taxpayer attaches to his or her return either a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 that shows zero or little wages or other income. The taxpayer may include a statement indicating the taxpayer is rebutting information submitted to the IRS by the payer. An explanation on the Form 4852 may cite "statutory language behind IRC 3401 and 3121" or may include some reference to the paying company refusing to issue a corrected Form W-2 for fear of IRS retaliation. The Form 4852 or 1099 is usually attached to a “Zero Return.” (See number four below.)
2. Form 843 Tax Abatement. This scam, also new to the Dirty Dozen, rests on faulty interpretation of the Internal Revenue Code. It involves the filer requesting abatement of previously assessed tax using Form 843. Many using this scam have not previously filed tax returns and the tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses the Form 843 to list reasons for the request. Often, one of the reasons is: "Failed to properly compute and/or calculate IRC Sec 83––Property Transferred in Connection with Performance of Service."
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4. 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. They often also do this with amended returns in the hope the IRS will disregard the original return in which they reported wages and other income.
One would think a claim based on a Latin term would have to work. The Department of Justice filed suit against nine defendants in seven jurisdictions seeking to enjoin them from perpetrating this year's #1 scam, the "zero wages" traick, (press release here) that has resulted in almost $150,000 in improper tax refunds.. As one scam abates, a new one crops up, like dandelions on a lawn. (ph)
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