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Beware of IRS’ 2010 “Dirty Dozen” Tax Scams

IR-2010-32, March 16, 2010

The Internal Revenue Service today issued its 2010 “dirty dozen” list of tax scams, including schemes involving return preparer fraud, hiding income offshore and phishing.  “Taxpayers should be wary of anyone peddling scams that seem too good to be true,” IRS Commissioner Doug Shulman said. “The IRS fights fraud by pursuing taxpayers who hide income abroad and by ensuring taxpayers get competent, ethical service from qualified professionals at home in the U.S.”

Tax schemes are illegal and can lead to imprisonment and fines for both scam artists and taxpayers. Taxpayers pulled into these schemes must repay unpaid taxes plus interest and penalties. The IRS pursues and shuts down promoters of these and numerous other scams.  The IRS urges taxpayers to avoid these common schemes:

  1. Return Preparer Fraud
  2. Hiding Income Offshore
  3. Phishing
  4. Filing False or Misleading Forms
  5. Nontaxable Social Security Benefits with Exaggerated Withholding Credit
  6. Abuse of Charitable Organizations and Deductions
  7. Frivolous Arguments
  8. Abusive Retirement Plans
  9. Disguised Corporate Ownership
  10. Zero Wages
  11. Misuse of Trusts
  12. Fuel Tax Credit Scams

IRS Wants Online Merchants to Report Online Revenue Beginning 2011

Tax Girl:  “tucked in the middle

[of the Housing Assistance Tax Act of 2008] is a new requirement that banks and credit card merchants to report payments to the IRS. . . . . What this means is that taxpayers who have a credit card merchant account, Paypal account or similar account and otherwise meet the criteria will receive form 1099-K from their service provider at the end of the year.  The form 1099-K will report the gross amount paid out to the taxpayer with no adjustments for fees or chargebacks (an issue that is, admittedly problematic).”  Here’s the 1099-K form:

20 Ways Your Independent Contractor Might Be An Employee

The law firm of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. has an informative article that all employers should read.  It is called “20 Ways Your Independent Contractor Might Be An Employee.”  The IRS is conducting audits to find employers that have improperly characterized employees of independent contractors to avoid paying payroll taxes.  The article says, “any worker classification analysis should begin with these two threshold questions:

  • Does the hiring company pay its regular employees to perform essentially the same duties as the subject worker who is treated as an independent contractor?
  • Has that worker previously been paid by the company as an employee to perform essentially the same task?”

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.

Amazon Tax Signals Business Unfriendliness & Will Worsen Short-Term Budget Problems

In their never-ending thirst to raise tax money to pay for their unlimited spending habits, some states have adopted what is called the “Amazon” tax and others are considering it.  This is a tax on online companies that have no connection with a state, but are required to collect and pay sales taxes on sales within the state if the online company has affiliates within the state who earn commissions on in state sales.  It’s called the “Amazon” tax because Amazon is the most well known online business that makes sales using affiliates.

Currently New York, Rhode Island, North Carolina, and Colorado have adopted Amazon taxes.  These laws are unconstitutional and violate the law of the United States expressed in the famous Supreme Court case called International Shoe Co. vs Washington, 326 U.S. 310 (1945) learned by every first year law student since 1945.  This case held that a state cannot tax an out of state business unless the out of state business has sufficient minimum contacts within the taxing state.  International Shoe established the concept of ‘nexus,” which means that an out of state business cannot be taxed within a state unless the out of state business has  minimum contacts within the state such as an office or a single employee that resides in the state or that goes into the state regularly on business.

The Tax Foundation published a detailed article on this topic called “Amazon Tax Signals Business Unfriendliness & Will Worsen Short-Term Budget Problems.”  This article begins:

Contrary to the claims of supporters, Amazon taxes do not provide easy revenue.  In fact, the nation’s first few Amazon taxes have not produced any revenue at all, and there is some evidence of lost revenue.  For instance, Rhode Island has seen no additional sales tax revenue from its Amazon tax, and because Amazon reacted by discontinuing its affiliate program, Rhode Islanders are earning less income and paying less income tax.

When I first heard about this type of tax I predicted that the result would be less tax revenue for the states that adopt it because the online businesses would terminate their affiliate programs with affiliates who reside in the taxing states with the result that the affiliate would no longer earn revenue and the taxing state would lose the income tax revenue on the lost income of the affiliate.  The Tax Foundation reports supports my earlier prediction.  It’s the law of unintended consequences that results from all legislation.  Frequently laws have an affect that is the opposite of the legislative intent.

Update:  See the interesting post made by the Tax Foundation on March 10, 2010, about the reaction to its Amazon tax paper and on these significant developments:

Trying to Get Foxx’s Estate Out of the Redd

The following story is proof that we cannot escape paying taxes by dying.  AolNews:  “It could easily have been the plot for a ‘Sanford and Son’ episode: a bizarre money-making scheme cooked up by a well-meaning but possibly misguided man that seems destined to go comically awry.   But in this real-life case, it’s a county official in Las Vegas who is trying to put the life story of late ‘Sanford’ star Redd Foxx on the block to resolve mammoth debt the actor left behind.  Foxx owed more the $3.6 million in taxes to the IRS when he died 19 years ago.”

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