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The IRS released its annual list of the most egregious tax schemes and scams it is targeting this year, known as the “Dirty Dozen”. Not surprising that again included in the list are the illegal misuse of trusts, hiding income offshore, identity theft, and a list of numerous other taxpayer schemes.

Going offshore is perfectly legal, but illegal scams – whether at home or offshore - can lead to significant penalties and interest, and in some situations criminal prosecution. There are certainly far greater opportunities offshore than at home, but yes, tax schemes can lead to problems for the uninformed.

Being forewarned is being forearmed. For this reason we particularly stress the importance of understanding the offshore world, and why I authored Offshore Living & Investing, 2nd edition, to help simplify offshore requirements - and to help you get started safely offshore.

Our newsletter today is the IRS Dirty Dozen tax scams for 2014:

1) Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information, such as your name, social security, or other identifying information, to commit fraud or other crimes. From an IRS perspective, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

If you believe you are at risk of identity theft, then contact the IRS so they can take action to secure your tax account. Call the IRS Identity Protection Specialized Unit at 800-908-4490.

2) Misuse of Trusts

Trusts sometimes show up as abusive tax structures. The IRS recognizes that there are legitimate uses for trusts in tax, estate planning, asset protection, and offshore investment diversification, but the IRS becomes suspect where highly questionable transactions are involved.

Trust planning that promises reduced taxable income, inflated deductions for personal expenses, the reduction or elimination of self-employment taxes and reduced estate or gift transfer taxes, is on the IRS radar. Questionable trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from the IRS.

The IRS continues to see an increase in the improper use of private annuity trusts and foreign trusts to improperly shift income and deduct personal expenses, as well as to avoid estate transfer taxes. As with other arrangements, you should seek the advice of a trusted professional before implementing a trust.

3) Abusive Tax Structures

Some tax schemes have evolved from simple structuring of abusive domestic or foreign trust arrangements into sophisticated strategies that take advantage of the privacy laws of some offshore jurisdictions combined with the availability of credit/debit cards issued from offshore financial institutions.

The IRS has developed a nationally coordinated program to combat these abusive tax schemes. The focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive planning. Sometimes these tax schemes are promoted by accountants or lawyers, and the IRS also focuses on clients who knowingly participate in the abusive tax schemes.

What is an abusive scheme?

The Abusive Tax Schemes program encompasses violations of the Internal Revenue Code where multiple flow-through entities are used as an integral part of a taxpayer's scheme to evade taxes. These schemes are characterized by the use of Limited Liability Companies (LLCs), Limited Liability Partnerships (LLPs), International Business Companies (IBCs), foreign financial accounts, offshore credit/debit cards and other similar instruments. The schemes are usually complex involving multi-layer transactions for the purpose of concealing the true nature and ownership of the taxable income and/or assets.

“Form over substance” are the most important words to remember. Before buying into any arrangements that promise to eliminate or substantially reduce your tax liability, buyer beware. The promoters of these abusive tax schemes often employ financial instruments in their schemes, which are often used for the facilitation of tax evasion.

4) Hiding Income Offshore

Over the years, individuals have been identified as evading 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 wrongfully used foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue individuals with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas.

While the IRS also recognizes that there are legitimate reasons for maintaining financial accounts offshore, there are also reporting requirements that need to be fulfilled. If you maintain offshore accounts and comply with reporting requirements, then you should be fine. But if you are not compliant, then you may be breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution. It is not difficult to remain compliant, but it is important that you do so.

During the past several years, some individuals have come forward voluntarily to disclose their non-compliant foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.

FATCA is one example of enhanced reporting requirements you’ve probably read about in our past newsletters, and elsewhere. Visit our complimentary Past Articles page to view more on this and other topics.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS indicates this program will be remain open for an indefinite period. The IRS indicates that they have collected billions of dollars in back taxes, interest and penalties from individuals who participated in OVDP programs since 2009.

5) Pervasive Telephone Scams

The IRS notes that they have seen a recent increase in local phone scams across the country, with callers pretending to be from the IRS in hopes of stealing money or identities from victims.

These phone scams include many variations, ranging from instances from where callers say the victims owe money or are entitled to a huge refund. Some callers threaten arrest or a driver’s license revocation.

Sometimes these calls are paired with follow-up calls from people saying they are from the local police department or the state motor vehicle department. Scammers use fake names and IRS badge numbers. Other scammers “spoof” or imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling. And other scammers sometimes send bogus IRS emails to some victims to support their bogus calls.

After threatening victims with jail time or a driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

In another variation, victims are told they owe money to the IRS and that it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

If you get a phone call from someone claiming to be from the IRS and if you know you don’t owe taxes or have no reason to believe that you owe any taxes, then call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484.

6) Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it to the IRS at 800-908-4490.

7) False Promises of “Free Money” from Inflated Refunds

Scam artists sometimes 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.

The scam artists use flyers, advertisements, phony store fronts and even word of mouth to throw out a wide net for victims.

Scammers build false hope by duping people into making claims for fictitious rebates, benefits or tax credits. They charge good money for very bad advice. Or worse, they file a false return in a person's name and that person never knows that a refund was paid.

Remember that you are legally responsible for what’s on your tax return, even if it was prepared by someone else. Individuals who buy into such schemes can end up being penalized for filing false claims or receiving fraudulent refunds. And beware: Intentional mistakes of this kind can result in a $5,000 penalty.

8) Return Preparer Fraud

About 60 percent of taxpayers use tax professionals to prepare their tax returns. Most return preparers provide honest service to their clients. But related to the above schemes, some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

It is important to choose carefully when hiring an individual or firm to prepare your return. And again, remember, you are legally responsible for what’s on your tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

9) Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud are scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned individuals. Scam artists use a variety of tactics. Some scammers operating bogus charities may contact you by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or taxpayer identification numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. Be cautions and donate to recognized charities.

Never give out personal financial information, such as taxpayer identification numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.

And don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

10) 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 in order to secure larger refundable credits could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

11) Frivolous Arguments

Promoters of frivolous schemes encourage individuals to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are clearly superfluous and have repeatedly been thrown out of court.

Individuals who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax. Similarly, those individuals could be charged with a felony for willfully making and signing under penalties of perjury any return, statement, or other document that the person does not believe to be true and correct as to every material matter. Persons who promote frivolous arguments, and those who assist taxpayers in claiming tax benefits based on frivolous arguments, may be prosecuted for a criminal felony.

12) Falsely Claiming Zero Wages or Using False Form 1099

And rounding up the IRS Dirty Dozen is the filing of a phony information return as 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.

Sometimes, individuals include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Other individuals attempt using false Form 1099 refund claims.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

So there you have it: the IRS “Dirty Dozen” for 2014.

There are many legal, legitimate domestic and offshore planning opportunities. And there any many legal, legitimate planning purposes for international trusts and offshore planning. But above all, do it right.

Numerous complimentary past newsletters and past articles are located on our website at, which is a good place to begin learning about asset protection and offshore investing and living.

To learn more about the legal, legitimate use of international trusts for integrated estate planning and asset protection, start with How to Legally Protect Your Assets, 2nd edition. And to learn more about going offshore, then read Offshore Living & Investing, 2nd edition.

If you wish to inquire about how to proceed with a confidential consultation to review your personal situation and accomplish your objectives, then contact me here now.

Until next time……



David A Tanzer, Esq.
JD, BSc, Ph.D (Hon)


For more information visit or email to David is the author of “How to Legally Protect Your Assets” and “Offshore Living and Investing.”


David A Tanzer & Assoc., PC.


Vail, CO USA:
Tel. (970) 476-6100
Fax (720) 293-2272

Auckland, New Zealand:
Tel. (64) 9 353-1328
Fax (64) 9 353-1328

Brisbane, Australia:
Tel. (61) 7 3319 6999
Fax (61) 7 3319 6999

(Licensed to Practice Law in U.S. States & Federal Courts; Assoc. Member Auckland, N.Z. District Law Society - Foreign Lawyer; & Assoc. Member Queensland Law Society, AU - Foreign Lawyer)


The comments herein are not intended to constitute a legal or tax opinion regarding any specific legal or tax issue as additional issues may exist; does not reach a conclusion with respect to any specific legal or tax issue addressed herein or any additional issues not included; and cannot be used for the purpose of avoiding legal or tax obligations or penalties with respect to issues in or outside the scope of matters discussed herein.

(c) Copyright by David A. Tanzer & Associates, P.C. All rights reserved. Except as permitted under the United States Copyright Act of 1976, as amended, and pursuant to the laws of all countries, no part hereof may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, electronic or otherwise, without the prior written permission of David A. Tanzer & Associates, P.C. Reprint in whole or part strictly prohibited unless prior written permission is granted. International Copyright protected under the Berne Convention, Universal Copyright Convention  and laws of all other Copyright protected countries, and consistent with the World Trade Organization TRIPS.


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