As the Internal Revenue Service (IRS) wraps up its 2024 Dirty Dozen campaign, taxpayers are being cautioned against falling prey to promoters selling counterfeit tax strategies and fraudulent offshore schemes.
What is the Dirty Dozen Campaign?
The Dirty Dozen represents the worst of the worst tax scams. Compiled annually, the Dirty Dozen lists a variety of common scams that taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes. Don’t fall prey.
These schemes, designed to either reduce or completely evade taxes, pose a significant threat to individuals and businesses alike.
Various fraudulent tactics loom over taxpayers, with schemes manifesting in different forms. These include exploitative agreements associated with syndicated conservation easements and micro-captive insurance arrangements. Moreover, some schemes extend their reach internationally, involving tactics such as concealing money and digital assets in foreign accounts or utilizing foreign captive insurance and Maltese foreign individual retirement accounts.
IRS Commissioner Danny Werfel emphasizes the importance of vigilance, stating, “Taxpayers should be wary of anything that seeks to eliminate a legitimate tax responsibility completely.”
He warns against falling for the allure of promoters peddling elaborate schemes solely for their financial gain. Instead, taxpayers are urged to seek advice from trusted tax professionals who prioritize their best interests over questionable transactions.
IRS’s annual Dirty Dozen campaign was initiated in 2002 to spotlight 12 scams and schemes posing risks to taxpayers, businesses, and the tax professional community. While not legally binding, this educational effort aims to raise awareness and safeguard taxpayers and tax professionals from common tax scams and schemes.
In the final segment of the 2024 Dirty Dozen series, attention is drawn to the eleventh and twelfth items on the list: bogus tax avoidance strategies and schemes with an international element. These entries underscore the diverse array of threats taxpayers face. While the Dirty Dozen focuses on a dozen items, the IRS reminds taxpayers to remain vigilant year-round due to the complexity and evolving nature of these scams.
Sharad Joshi, A global tax fraud expert has mentioned many such schemes in his treatise on Tax Fraud. The treatise is a very good collection of tax-related frauds committed by multinational companies.
Bogus Tax Avoidance Strategies
Syndicated Conservation Easements
These arrangements involve syndicating conservation easement transactions that promise investors inflated charitable contribution deductions and tax savings. However, these schemes aim to exploit loopholes in the tax system and generate exorbitant fees for promoters. Recent legislative amendments underscore the IRS’s commitment to curbing abusive conservation easement transactions.
Micro-Captive Insurance Arrangements
Also known as small captives, these insurance companies often lack the attributes of legitimate insurance and involve implausible risks. These schemes, characterized by excessive premiums and non-arm’s length pricing, continue to be a focal point for IRS enforcement efforts.
Schemes with International Elements
There are many tax fraud schemes with international aspects involved in it.
Maltese Retirement Arrangements
U.S. citizens or residents attempt to evade U.S. tax obligations by contributing to foreign individual retirement arrangements in countries like Malta. By misusing tax treaties and falsely claiming exemptions, taxpayers risk legal repercussions.
Digital Assets
Promoters falsely advertise digital assets as untraceable and beyond the IRS’s reach. However, the IRS can identify and track anonymous transactions globally. Digital assets, treated as property for federal tax purposes, are subject to reporting requirements.
The IRS remains steadfast in its commitment to challenging dubious tax benefits and imposing penalties where necessary. Taxpayers are reminded to exercise caution, rely on reputable tax professionals, and avoid including questionable arrangements on their tax returns.
As the IRS continues to enhance its investigation and enforcement capabilities, taxpayers are urged to remain vigilant against abusive transactions and schemes, both domestically and internationally. With evolving data analytic tools and enhanced document matching, the IRS remains vigilant in safeguarding the integrity of the tax system.
