March 2007
by Ben Lawler
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Be Aware, Avoid These Common Scams

The Internal Revenue Service has identified scams that IRS auditors and criminal investigators have uncovered.  Four of the most common scams are listed below: 

1. Abusive Roth IRAs: Taxpayers should be wary of advisers who encourage them to shift under-valued property to Roth Individual Retirement Arrangements (IRAs). In one variation, a promoter has the taxpayer move under-valued common stock into a Roth IRA, circumventing the annual maximum contribution limit.

2. Return Preparer Fraud: Dishonest return preparers can cause problems for taxpayers who fall victim to their schemes. They attract new clients by promising large refunds.  Ultimately, the taxpayer can be held civilly and criminally responsible.

3. Trust Misuse: For years unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits. There are currently more than 150 active abusive trust investigations underway.

4. Disguised Corporate Ownership: Domestic shell corporations and other entities are being formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity.

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Written by Ben Lawler, CPA

CEO & President of ProActive Advisors, Inc.