Many year-end tax schemes targeting doctors will make you a victim or perpetrator of tax fraud. Here are the basics every physician must be familiar with before implementing any plan.
My last column started our series and introduced three important basics every doctor must know about all tax planning, including the fact that you are always responsible and details on specific methods and arguments scammers use to target you. In our second look at abusive fourth quarter tax planning, we go right to the source: the IRS’s own “2018 Dirty Dozen” list of most prevalent tax scams.
Phishing: Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or tax refund. Don’t click on one claiming to be from the IRS. (IR-2018-39)
Phone scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as con artists (falsely) threaten taxpayers with police arrest, deportation, and license revocation, among other things. (IR-2018-40)
Identity theft: Taxpayers should be alert to tactics aimed at stealing their identities, not just during the tax filing season, but all year long. The IRS has made major improvements in detecting tax return related identity theft during the last two years. (IR-2018-42)
Return preparer fraud: Be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest, high-quality service. There are some dishonest preparers who operate each filing season to scam clients, perpetuating refund fraud, identity theft, and other scams that hurt taxpayers. (IR-2018-45)
Fake charities: Groups masquerading as charitable organizations solicit donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally-known organizations and take a few extra minutes to ensure your money is going to legitimate charities. The IRS has tools to check out the status of charitable organizations. (IR-2018-47)
Inflated refund claims: Taxpayers should take note of anyone promising inflated tax refunds. Those preparers who ask clients to sign a blank return, promise a big refund before looking at taxpayer records, or charge fees based on a percentage of the refund are probably up to no good. To find victims, fraudsters may use flyers, phony storefronts, or word of mouth via community groups where trust is high. (IR-2018-48)
Excessive claims for business credits: Avoid improperly claiming the fuel tax credit, a tax benefit not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers also should avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities or satisfy the requirements related to qualified research expenses. (IR-2018-49)
Falsely padding deductions on returns: Do not falsely inflate deductions or expenses on tax returns to pay less than what you owe or potentially receive larger refunds. Do not inflate (and always be able to prove) charitable contributions and business expenses or improperly claim credits, such as the Earned Income Tax Credit or Child Tax Credit. (IR-2018-54)
Falsifying income to claim credits: Con artists may convince unsuspecting taxpayers to invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. You are legally responsible for what is on your return, and you will incur large bills for back taxes, interest, and penalties. (IR-2018-55)
Frivolous tax arguments: Frivolous tax arguments may be used to avoid paying tax. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes despite being repeatedly thrown out in court. The penalty for filing a frivolous tax return is $5,000. (IR-2018-58)
Abusive tax shelters: Abusive tax structures (including captive insurance companies and conservation easements, among others) are sometimes used to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2018-62)
Offshore tax avoidance: Successful enforcement actions against offshore cheating show it’s a bad bet to hide money and income offshore. People involved in offshore tax avoidance are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. (IR-2018-64)
Attorney Ike Devji has practiced in the areas of asset protection, risk management, and wealth preservation law exclusively for the last 15 years. He helps protect a national client base with over $5 billion in personal assets that includes several thousand physicians and is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter.