 internal revenue service IRS tax news IRS warns taxpayers of quote dirty dozen end quote tax games for 2022 honestly if you're gonna be a tax scammer at least take a shower once in a while but first an attempt at a joke have you heard no really have you been lying to us all this time heard is like you want answers the internet responding in cross-examination I want the truth heard response with indignation you can't handle the truth and wow after being bombarded with what seems like an eternity of unavoidable due to constant media coverage truth I have to say she has a point but honestly who can blame her if she's lying it's what all the cool kids are doing these days she should learn some math so she can lie with statistics you know the way the media does it did you know that the odds of getting your finger cut off by a flying vodka bottle is even less likely statistically speaking mind you than the odds of lightning striking you directly in the left testicle will end the process of performing a cartwheel I mean come on man it's just outrageous if you believe that you deserve somebody leaving a mean surprise for you in your bed what like a severed horse's head or something like that no that's not what I was thinking anyways the whole notion of a finger being cut off by a flying vodka bottle is statistically absurd I rest my case so I can get to the bar for a few martinis vodka martinis that is I are 2022-113 June 1st 2022 Washington the internal revenue service today begins its quote dirty dozen in quote list for 2022 which includes potentially abusive arrangements that taxpayers should avoid avoiding abusive arrangements is kind of a theme that we got going here the potentially abusive arrangements in this series focus on four transactions that are wrongfully prompted and will likely attract additional agency compliance efforts in the future meaning the agency's cracking down on these ones and you might have people that are kind of talking you into these types of transactions which the agency is going to focus more on two so you want to be aware of them those four abusive transactions involve charitable remainder annuity trusts multisindividual retirement arrangements foreign captive insurance and monetized installment sales so these are a bit more complex of the items in the dirty dozen we're not just talking about generally the spam email that's going that's going out trying to try to impersonate basically the IRS which usually kind of see through these might be people recommending these kind of tax strategies that the IRS are saying are not appropriate and they're going to be looking into with more scrutiny so quote taxpayers should stop and think twice before including these questionable arrangements and their tax returns in quote said IRS Commissioner Chuck Reddick kind of sounds like a threat right there so they're cracking down on it they're looking at these kind of items they're probably increasing of the scrutiny quote taxpayers are legally responsible for what's on their return not a promoter making promises and charging high fees so in other words you might have promoters basically saying you get a tax benefit from doing this incentivizing you to do it and oftentimes because the tax code is so complex and because we're reliant in part on on these other people we're going to say well the promoter did it right we're going to try to shift the blame from it's not it's not me as the taxpayer the promoter said this was a legitimate thing and or my tax preparer said it was a legitimate thing and even though the tax code is complex the ultimate responsibility still relies on and falls to the taxpayer to report their their taxes so they're going to be holding you responsible for these kind of things even if even if they sounded legit by a good salesperson so taxpayers can help stop these arrangements by relying on reputable tax professionals they know they can trust so obviously when you're talking to someone who's preparing your taxes you want someone that's in it for the long term it's not a short term scam they're not basically doing the tax return saying they're going to get you massive refunds and then you're going to skip town and when you get audited they're gone or something like that you want a long-term trustworthy tax professional that would be there hopefully ideally in the event that you got audited so that they can they can help you through that through that process would be nice so the four potentially abusive transactions on the list are the first four entries in this year's dirty dozen series in coming days the IRS will focus on eight additional scams with some focused on the the average taxpayer and other focused on more complex arrangements that promoters market to higher income individuals now clearly when you're thinking about tax scams there's the low end and the high end kind of of the tax scam if you're talking about basically phishing emails that are going out to everyone just trying to get people's information possibly so they could file tax return and try to get basically refundable credits and that kind of stuff which has been big in the prior years due to import all the money coming out from the IRS to try to help out and whatnot all that money is a huge incentive for that kind of scam and then of course there's scams that are geared towards higher income individuals where the scammers most likely are not using a shotgun type of method they're not just scattering the bullets everywhere trying to hit trying to knock a duck down or something like that but rather they're targeting a specific individual that's more high net worth possibly for example having these more complex scams and charging a larger fee for the implementation of them or something like that so quote a key job of the IRS is the identity is to identify emerging threats to compliance and inform public so taxpayers are not victimized and tax practitioners can provide their clients the best advice possible in quote reddit said quote the IRS views the four transactions listed here as potentially abusive and they are very much on our enforcement radar screen in quote the IRS reminds taxpayers to watch out for and avoid advertised schemes many of which are now promoted online that that promise tax savings that are too good to be true and will likely cause taxpayers to legally compromise themselves so if something sounds too good to be true it often is and at the very least you want to do your homework and have a few different recommendations about it before you before you dive into something that seems like a little unusual so taxpayers tax professionals and financial institutions must be especially vigilant and watch out for all sorts of scans from simple email emails and calls to highly questionable but enticing online advertisements the first four on the quote dirty dozen in quote list are described in more detail as follows use of charitable remainder annuity trust crat to eliminate taxable gain in this transaction appreciated property is transferred to a crat so if the property appreciated in value it's going up in value and the problem with it going up in value which that's good generally but if you sell it then you're going to have a gain which will typically be the sales price minus the adjusted basis or basically adjusted cost and so what you'd like to do from a tax standpoint is get a step up on the basis so that you don't have as much of a gain so taxpayers improperly claim the transfer of the appreciated assets to the crat in and of itself gives those assets a step up in basis to fair market values as if they had sold to the trust so in other words they're putting the asset into the trust and they're saying because i transferred it into the trust i should have this step up in basis which i'm not being taxed at nobody's being taxed for that step up in basis so now you've got the asset that's in the charitable remainder annuity trust at the higher step up in basis and if you were to you know to sell it or something like that you would think that there might you kind of eliminated the gain basically if you were able to do that step up the cost or basis because the gain would be calculated by the sales price minus the cost or basis so the crat then sells the property but does not recognize gain due to the claimed step up and basis so you basically kind of eliminated or the attempt is to eliminate the gain there improperly by the asserted by the irs here so the crat then uses the proceeds to purchase a single premium immediate annuity an spia the beneficiary reports as income only a small portion of the annuity received from the spia so now you've got the annuity an annuity pays over out over a long period of time so when you so you're only gonna gonna be reporting a small amount of the income that's coming out of the annuity as opposed to if you sold the property at one time you might have this big gain that happened at one time if you didn't have the step up and basis so through a miss a misapplication of the law relating to the crat the beneficiary treats the remaining payment as an excluded portion representing a return of investment for which no tax is due so now they're saying they got the annuity basically the income from the sale of the property which is not there isn't taxable with no tax due except possibly a small portion so taxpayers seek to achieve this inaccurate result by misapplying the rules under section 72 and 664 so obviously there's you know they think they got a loophole or something like there to to do that and the iris is clearly taking a strong position against that so and they're probably going to scrutinize that more so if you're doing that kind of thing you probably want to beware is what they're saying maltese or other foreign pension arrangements misusing treaty and these transactions the u.s citizens or u.s residents attempt to avoid u.s tax by making contributions to certain foreign individual retirement arrangements in multa or or possibly other foreign countries so and these transactions the individual typically lacks a local connection and local law allows contributions in a form other than cash or does not limit the amount of contributions by reference to income earned from employment or self-employment activities by improperly asserting the foreign arrangement is a quote pension fund in quote the u.s tax treaty proposes the irs taxpayers misconstrues the the relevant treaty to improperly claim an exemption from u.s income tax on earnings and a in and distributions from the foreign arrangement and then we've got the Puerto Rico and other form captive insurance and these transactions u.s owners of closely held entities participate in a perpetrator then we got the monetized installment sales these transactions involve the inappropriate use of the installment sale rules under section 453 by a seller who in the year of sale of property effectively receives the sales proceeds through purported loans so in other words the installment sale is usually when you're going to be selling something possibly something of a significant price but you didn't get all the money upfront then you might be able to be on an installment kind of system in other words when you usually sell the property under an accrual basis you would recognize the revenue at the point in time you sold the property but under more of a cash basis system and when you're thinking from the tax code you might be saying well if i sold the property and i didn't get the actual proceeds yet then i i might not even be able to pay the taxes on it until i actually get the money so that's the idea of you got this installment sale that would happen over into the future now it looks like this transaction is trying to be set up in such a way that through a series of loans the person actually gets the money at the point in time that they sell you know the property and therefore should report the income at that time instead of having like an installment set up which would report the income over a time frame into the future because they actually have access to the money at that point but let's take a look at it in a typical transaction the seller enters into a contract to sell appreciated property to a buyer for cash and then purports to sell the same property to an intermediary in return for an installment note the intermediary then purports to sell the property to the buyer and receives the cash purchase price through a series of related steps the seller receives an amount equal to the sales price less various transactional fees and the form of a purported loan that is non-recourse and unsecured so you know the so the idea looks to me like they're basically getting the money and and therefore they have access to it and so that's what the iris is arguing and therefore you should be reporting the income at the point in time you sold it for crying out loud any case taxpayers who have engaged in any of these transactions or who are contemplating engaging in them should carefully review the underlying legal requirements and consult independent competent advisors before claiming any purported tax benefits that sounds kind of I'm kind of scared you might want it you might they're they're going after these things so you might want to consider that so taxpayers who have already claimed the purported tax benefits of one of these four transactions on a tax return should consider taking corrective steps such as filing an amended return and seeking independent advice so they're basically saying hey you better act if you act first we might go easy on you that's what we're talking but in any case we're appropriate the irs will challenge the purported tax benefits from the transactions on this list and the irs may assert accuracy related penalties ranging from 20% to 40% or a civil fraud penalty of 75% of any underpayment of tax while this list is not an exclusive list of transactions the irs is scrutinizing it represents some of the more common trans and transactions that may peak during filing season as returns are purported are prepared and filed tax payers and practitioners should always be wary of participating in transactions that seem quote too good to be true end quote the irs remains committed to having strong visible robust tax enforcement presence to support voluntary compliance to combat the in the evolving variety of these potentially abusive transactions the irs created the office of promoter investigations otherwise known as the OPI to coordinate service wide enforcement activities and focus on participants and the promoters of abusive tax avoidance transactions obviously that's who they should be focusing in on and finding other people that are convincing people you know to do these kind of things if they're no longer if they're not legal transactions and they seem awfully strange you know if you're if you're going if you're jumping through that many hoops to set something up for no good reason like it seems like something so the irs has a variety of means to find potentially abusive transactions including examinations promoter investigations whistleblower claims data and now analytics and reviewing marketing materials so there i think i'm not sure there were a couple links in here there might be some links to some of this good stuff on the dirty dozen stuff so we get to hear more of the dirt from the dozen and the irs in future presentations i'm sure and there'll be a link to this in the description