The IRS has identified abusive tax avoidance schemes as one of the “Dirty Dozen” scams and schemes that taxpayers and tax professionals should watch out for. These schemes are primarily aimed at high-income individuals who want to reduce or eliminate their tax obligations. To avoid falling prey to these schemes, the IRS advises taxpayers to seek services from independent, trustworthy tax professionals (like Bailey Scarano!) and to avoid promoters who aggressively market and push questionable transactions.
The IRS has compiled a list of 12 scams and schemes that put taxpayers and tax professionals at risk. Some of them are:
- Micro-captive insurance arrangements: where an insurance company’s owners elect to be taxed on the captive’s investment income only
- Syndicated conservation easements: arrangements where perpetrators attempt to game the system with grossly inflated tax deductions
- Offshore accounts & digital assets: unscrupulous promoters lure taxpayers into placing their assets in offshore accounts under the pretense of being untraceable
- Maltese individual retirement arrangements misusing treaty: Arrangements wherein taxpayers attempt to avoid paying taxes by contributing to foreign individual retirement arrangements in Malta
- Puerto Rican and other foreign captive insurance: transactions where owners of closely held businesses participate in a purported insurance arrangement with a Puerto Rican or other foreign corporation in which they have a financial interest
To combat tax fraud and those marketing and selling abusive tax avoidance transactions and schemes to effectuate tax evasion, the IRS has established the Office of Fraud Enforcement and Office of Promoter Investigations to coordinate service-wide enforcement activities. As part of the Dirty Dozen awareness effort, the IRS encourages people to report taxpayers who promote improper and abusive tax schemes, as well as tax return preparers who deliberately prepare improper returns. To report an abusive tax scheme or a tax return preparer, taxpayers should mail or fax a completed and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations. The postal address is: Internal Revenue Service Lead Development Center Stop MS5040 24000 Avila Road Laguna Niguel, California 92677-3405 Fax: 877-477-9135.