Dirty Dozen Tax Schemes Often Target Doctors

April 8, 2014

Doctors can be easy prey for tax fraud schemes. Be smart and arm yourself with information from legitimate sources.

Doctors are often easy prey for abusive tax plans because of their high income and growing financial pressures. Below is a summary of the 2014 "Dirty Dozen" list of abusive tax plans put out by the IRS with some of my comments.

Identity Theft

Identity theft occurs when someone uses your personal information, such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer's identity to fraudulently file a tax return and claim a refund.

Telephone Scams

The IRS has seen a spike in phone scams across the country. Callers pretend to be from the IRS in hopes of stealing money or identities from victims. If you get a phone call from someone claiming to be from the IRS, call the IRS directly at 800-829-1040. The IRS employees at that line can help you verify if there really is such an issue.

Phishing

Phishing is a scam typically carried out with e-mail or a fake website that poses as a legitimate site to lure in potential victims. If you receive an unsolicited e-mail that appears to be from either the IRS or an affiliated organization, report it by sending it to phishing@irs.gov. The IRS does not contact taxpayers by e-mail to request personal or financial information.

False Promises of 'Free Money' from Inflated Refunds

Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place. You are legally responsible for what's on your returns even if someone else prepared it. You can be penalized with a $5,000 penalty for filing false claims or receiving fraudulent refunds.

Return Preparer Fraud

Most return preparers provide honest service to their clients. But, some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft. Choose carefully when hiring an individual or firm to prepare your return. Use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

Hiding Income Offshore

Numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts, or nominee entities, and then using debit cards, credit cards, or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities, or insurance plans for the same purpose. While you do have a right to use offshore trusts and tools in many legal ways, the income is fully reportable to you as U.S. resident in nearly every case.

Impersonation of Charitable Organizations

Following major disasters, it's common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Call the IRS toll-free disaster assistance telephone number (866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

False Income, Expenses, or Exemptions

Another scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income in order to maximize refundable credits. Claiming income you did not earn or expenses you did not pay could result in repaying the erroneous refunds, including interest and penalties, as well as prosecution.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. Those who assist taxpayers in using frivolous arguments may be prosecuted for a criminal felony.

Falsely Claiming Zero Wages or Using False Form 1099

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a "corrected" Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Abusive Tax Structures

Includes abusive domestic and foreign trust and other strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions.

Misuse of Trusts

IRS personnel continue to see an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses, as well as to avoid estate transfer taxes. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement. Nothing is secret, report the accounts and pay your taxes.