 Internal Deputy Service IRS tax news. IRS wraps up the 2022 dirty dozen scams list. Agency urges taxpayers to watch out for tax avoidance strategies. In other words, the dirty dozen scams have been cooked up, wrapped up, and are now ready for delivery. So be on the lookout. But first an attempt at a joke. You see that? That's what Thomas Jefferson is doing right now. Except in his grave. And his face isn't so happy, his skeleton mouse scowling in disdain. Why? Because rolling over, that's what dead dudes do when they're pissed off. Everybody knows it. Apparently it takes a lot of effort to roll over. When you're dead. When I get pissed off on the other hand, I like to piss off something else. Usually the bathroom rug into the can. But dead dudes, they can't do that. So Thomas Jefferson, he's rolling over in his grave. And Jefferson has good reason to be pissed off. It's not like he's some Hollywood actor, attention grabber dead dude, rolling over in their grave for no good reason, other than a bit of spotlight on their decayed corpse, where you would just be like, okay, whatever Hollywood dead dude, just calm down with your rolling over. You're gonna give yourself a rat attack, making all that disturbance. And if there's anything left of it, the rat will most likely attack your heart, resulting in a heart attack. Literally. And after attacking you, resulting in your death, I don't think your heart has enough fight left in it to fend off the rat. Cyber currency, non-filing, abusive syndicate conservation, easement, abusive micro captive deals make list. IR 2022-125 June 10th, 2022 Washington, the internal revenue service today, wrapped up its annual dirty dozen scams list for 2022 filing season, with a warning to taxpayers to avoid being misled into using bogus tax avoidance strategies. The IRS warned taxpayers to watch out for promoters peddling these schemes. So these schemes are gonna be most likely more complex types of items that are gonna be targeting more high income individuals. And therefore, you would think that the target would not be as widespread, it wouldn't be like a shotgun approach. It would be targeting higher income individuals where they're gonna get more money, possibly per scam, for targeting the higher income individuals, as opposed to the shotgun approach, trying to steal as many people's identities as they can possibly for the lower income levels, and then trying to file fraudulent tax returns possibly or something like that in order to get the refundable credits and that kind of thing. So as part of its mission, the IRS is focused on high income taxpayers to engage in various types of tax violations, ranging from the most basic failing to file returns up to sophisticated transactions and vaulting abusive syndicated conservation easement deals and abusive domestic micro captive insurance arrangements. Quote, these tax avoiding strategies are promoted to unsuspecting folks with too good to be true promises of reducing taxes or avoiding taxes altogether. In quotes, I said IRS commissioner Chuck Reddick. So obviously the idea here might be, well, we're gonna target these higher income individuals. We're gonna say that these are legitimate tax strategies to reduce your taxes, legal strategies and the IRS of course arguing that they are not legitimate strategies. So quote, taxpayers should not kid themselves into believing they can hide income from the IRS. So don't kid yourself, we know where your lunch money is. Don't try to hide it under this, I see that. So the agency continues to focus on these deals and people who engage in them face steep civil penalties or criminal charges, end quote. The IRS publishes the dirty dozen as part of a broad ranging effort to inform taxpayers. People should be careful not to get conned into using well-worn abusive arrangements with high fees as well as the other dirty dozen schemes. So obviously if someone was to convince someone to engage in one of these schemes in order to lower their taxes, they might charge a high fee in order to set up these more complicated schemes and that's part of the whole problem here because they're not legitimate schemes says the IRS. So the IRS has stepped up efforts to abusive schemes in recent years as part of this wider effort, the IRS Office of Chief Counsel announced earlier this year it would hire up to 200 additional attorneys to help the agency combat abusive syndicated conservation easement and micro captive transactions as well as other abusive schemes. So some of these schemes, some of the things about them they might be set up in such a complicated way and somewhat of a sophisticated way that it might take a little bit more digging for the IRS to pick up on them. And so, but now of course they're focusing in on these particular items. So if you were someone that was setting up something like this, you might say, well, it seems legitimate to me because I set it up and IRS hasn't said anything about it and whatnot for quite some time. And that could well be the case because the fact that you get audited, you might not get audited every year. So, but they're basically saying if you do get audited, we're telling you right now that these are not legitimate practices or procedures for taxation a legal way to lower taxes. So IRS Chief Counsel looking for 200 experienced attorneys to focus on abusive tax deals, job openings posted. There's a link to that here. So last week, the IRS kicked off the 2022 dirty dozen list covering four healthy promoted abusive deals. There's a link to that here. These are heavily promoted abusive deals. There's a link to that here. The taxpayers need to avoid. So the IRS followed this up with a number of common scams that can target average taxpayers. These consumer focused scams can prey on individual or organization, steal sensitive financial information or money. And in some cases leave the taxpayer to clean up the legal mess. So obviously if it's a scamming situation and you're dealing with someone that's a scammer, they're not a long-term business. That's the difference between a business and a scammer. The business is gonna be there when the problem hits the fan possibly where the scammer's probably gonna be out of town by that point, right? They're onto the next town. It's a temporary thing because deception is involved where a business is trying not to deceive. They're trying to give value. So for today's conclusion of the Dirty Dozen, the IRS highlights four other schemes that typically target high net worth individuals who are looking for ways to avoid paying taxes. Solicitations for investment and these schemes are generally more targeted than solicitations for widespread scams such as email scams that they can hit anyone. So in other words, if you're looking at the scammer's perspective, they're basically targeting individuals looking to basically try to make more money per scam as opposed to the shotgun kind of approach that you might see with an email or text message type of thing where they're trying to basically hit everyone with a scatter shot and then they might not make as much per scam but they're gonna have more people that they're gonna try to scam kind of thing. So hiding assets in what the taxpayer hopes is an anonymous account or simply not filing return in the hopes of staying off the grid are tax avoidance scams that have been around for decades. The IRS remains committed to stopping these methods of cheating that short change taxpayers who reliably pay their fair share of taxes every year. The IRS warns anyone thinking about using one of these schemes or similar ones that the agency continues to improve work in these areas thanks to new and evolving data analytic tools and enhanced document matching these dirty dozen schemes cover. Canceling assets in offshore accounts and improper reporting of digital assets. So the IRS remains focused on stopping tax avoidance by those who hide assets in offshore accounts and in accounts holding cryptocurrency or other digital assets. So obviously they're kind of looking into how much money people have in the bank accounts. Now this is something that's a little bit confusing because obviously we generally have an income tax in the United States. We're usually talking about the income tax that you would think that you would be taxed when you earn the money at that point in time. So when they start looking at how much money you actually have like in the bank account and saying that you have to report all your money or they need to track every dollar that you actually have in the bank account which is a balance sheet type of thing. That's a little bit kind of sketchy in terms of privacy and that kind of stuff. But in any case, you can see the pros and cons here. We've got the international tax compliance is a top priority to the IRS. New patterns and trends emerging in complex international tax avoidance schemes in cross-border transactions have heightened concerns regarding the lack of tax compliance by individuals and entities with an international footprint. So obviously the fact that we're more globalized in this case makes the whole taxation system a little bit more confusing because now you've got business that can be done across borders and whatnot. And then of course where people are storing their assets and making transactions can be in different formats now. So as international tax and money laundering crimes have increased, the IRS continues to protect the integrity of the US tax system by helping American taxpayers to understand and meet their tax responsibilities and by enforcing the law with integrity and fairness worldwide. Over the years, numerous individuals have been identified as evading US taxes by attempting to hide income in offshore banks, brokerage accounts or nominee entities. They then access the funds using debit cards, credit cards, wire transfers or other arrangements. Some individuals have used foreign trusts, employee leasing schemes, private annuities and structured transactions attempting to conceal the true owner of accounts or insurance plans. US persons are taxed on worldwide income. The mere fact that money is placed in an offshore account does not put it out of reach of the US tax system. US persons are required under penalty of perjury to report income from offshore funds and other foreign holdings. The IRS uses a variety of sources to identify promoters who encourage others to hide their assets overseas. Digital assets are being adopted by mainstream financial organizations along with many other parts of the economy. The proliferation of digital assets across the world in the last decade or so has created tax administration challenges regarding digital assets, in part because there is an incorrect perception that digital asset accounts are undetectable by tax authorities. So that's another area, obviously the digital assets where they're trying to get the strangle, trying to get the chokehold on that one. So they're working on it. So unscrupulous promoters continue to perpetuate that the myth that make assertions that taxpayers can easily conceal their digital asset holdings. And that does seem kind of weird because a lot of times you would think that one of the points of the digital assets is that you can see the transactions. There's a more transparent transaction stream on I would think on the blockchain is one of the theories of why it could be one of the good things about it. But in any case, the IRS urges taxpayers not to be misled into believing this storyline about digital assets and possibly exposing themselves to civil fraud penalties and criminal charges that could result from failure to report transactions involving digital assets. Quote, the IRS is able to identify and track otherwise anonymous transactions of international accounts as well as digital assets during the enforcement of our nation's tax laws. In quote, Reddick said, quote, we urge everyone to come into compliance with their filing and reporting responsibilities and avoid compromising themselves in schemes that will ultimately go badly for them, end quote. So that sounds intimidating. I'm intimidated, I'll report my taxes. High-income individuals who don't file the tax returns, the IRS continues to focus on people who choose to ignore the law and not file a tax return, especially those individuals earning more than 100,000 a year. Taxpayers who exercise their best efforts to file their tax returns and pay their taxes or enter into agreements to pay their taxes deserve to know that the IRS is pursuing others who have failed to satisfy their filing and payment obligation. The good news is most people file on time and pay their fair share of tax. So those who choose not to file a return, even when they have a legal filing requirement, especially those earning more than $100,000 per year who don't file represent compliance problem that continues to be a top priority of the IRS. So here's a key reminder for taxpayers who may be wrongly persuaded not to file return and is a smart move. And notice only certain kind of taxpayers can really kind of get away with that because a lot of times when people get into their own business, like you go from a W-2 employee to working on your own business and a lot more people are doing that these days, you might think, well, now I don't have anybody kind of withholding my taxes and then you don't file your taxes. But if you work for another business, you might get like 1099s. You won't get a W-2, but you might get a 1099. And in that case, the IRS is still gonna come after you if you don't file your taxes because the income has been reported to them. So it would be kind of a somewhat of an unusual situation where you can just not file your taxes and the IRS gets no documentation that you've earned any money. Obviously some businesses have that because you might be, for example, and this is kind of why I feel like they kind of crack down on these people during the COVID, right? Anybody that deals with the public as the end result, possibly receiving cash, like hair salons, nail salons, restaurants, all the ones that somehow got cracked down during COVID. The ones the IRS doesn't generally like those cash-based kind of businesses, those are the ones were, in any case. So that is that. So here's a key reminder for taxpayers who may wrongly be persuaded that not filing their return is a smart move. The failure to fire penalty is initially much higher than the failure to pay penalty. It is more advantageous to file an accurate return on time and set up a payment plan if needed than not file. So obviously the payment and penalty and interest structures set up to keep you in compliance. If you're not in compliance, they hit you harder with the stick. So the failure to file penalty is generally 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty generally will not exceed 25% of unpaid taxes. The failure to pay penalty is generally 0.5% of the unpaid taxes for each month or part of a month, the tax remains unpaid. The penalty will not exceed 25% of unpaid taxes. If a person's failure to file is deemed fraudulent, so now you didn't file on purpose because you're trying not to pay taxes that you know you pay, meaning there's deception involved in here, you're willfully knowing that you're not paying your taxes and possibly lying about it, right, that's fraud. The penalty generally increases from 5% per month to 15% for each month or part of a month. The return is late with the maximum penalty generally increasing from 25% to 75%. 75%, that's ridiculous. Abusive syndicated conservation easements. So incindicated conservation easements promoters take a provision of the tax law allowing for conservation easements and twist it by using inflated appraisals of undeveloped land. So there's somewhat of a complex strategy where it looks like they're basically abusing or mistreating the value of the land as part of the process or strategy. So, or for a few specialized ones, the facades of historic buildings and by using partnership arrangements devoid of a legitimate business purpose. So in other words, if you're setting up a business that has no business purpose other than to try to lower the taxes, that's not a business purpose or legitimate business purpose according to the IRS, which kind of makes sense. So these abusive arrangements do nothing more than game that the tax system with grossly inflated tax deductions and generate high fees for promoters. The IRS urges taxpayers to avoid becoming ensnared in these deals sold by unscrupulous promoters. If something sounds too good to be true, then it probably is. People can risk severe monetary penalties for engaging in questionable deals such as abusive syndicated conservation easements. And the last five years, the IRS has examined many hundreds of syndicated conservation easement deals where tens of billions of dollars of deductions were improperly claimed. So it is an agency-wide effort using a significant number of resources and thousands of staff hours. So they're cracking down on this stuff and it looks like they kind of, there's a lot going on, so it looks like so it might be a good use of their time. The IRS examines 100% of these deals and plans to continue doing so for the foreseeable future. Hundreds of these deals have gone to court and hundreds more will likely end up in court in the future. We are developing a lot of resources to combating abusive conservation easement because it is important for fairness in tax administration, end quote, Commissioner Reddick stated, quote, it is not fair that wage earners pay their fair share year after year, but high net worth individuals can under the guise of real estate investment avoid millions of dollars in tax through overvalued conservation easement contributions, end quote. Then we have the abusive micro captive insurance arrangements in abusive micro captive structures, promoters, accountants and wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes of insurance. So for example, coverage may ensure implausible risks. So now you've got something once again, it's set up saying it's kind of like one thing but it doesn't look like it's doing the thing that you would think it would be set up to do. It looks like it's set up to kind of avoid taxes. So you've got the insurance against implausible risks, fail to match genuine business needs or duplicate the taxpayers commercial coverage. So the premiums paid under these arrangements are often excessive and are used to skirt tax law. Recently the IRS has stepped up enforcement against variation using potentially abusive offshore captive insurance companies, abusive micro captive transactions continue to be a high priority area of focus. The IRS has conducted thousands of participant examination and promoter investigations assessed hundreds of millions of dollars in additional taxes and penalties owed and launched a successful settlement initiative. Additional information regarding settlement initiative can be found in IRS takes next step on abusive micro captive transactions, nearly 80% accept settlement, 12 new audit teams estimate established. That's a long title. So you could check that out. So they're cracking down on these things. They're building up a track record on saying that they're right on their position. And so that means that they've got the momentum at this point. The main is going down the track. You don't wanna be in front of it. So the IRS activities have been sustained by the independent office of appeals and the IRS has won all micro captive tax court and appellate court cases decided on their merits since 2017.