More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
As if it isn’t difficult enough making sure that you and your clients have all the necessary information and forms available to put together this year’s tax returns, the IRS warns that there are other concerns you should have in addition to missing data. Each year it puts together a list of the top tax scams that can bedevil taxpayers at any time of the year. Scammers, the IRS counsels, shift into high gear in tax season, when departures from the norm may be less likely to be noticed. Such scams can present themselves to your clients in person, via email or online, and lure people with promises of too-good-to-be-true tax refunds or free money. The IRS isn’t kidding about these, and will prosecute whoever they catch perpetrating them.
As part of AdvisorOne’s Special Report, 22 Days of Tax Planning Advice for 2012, throughout the month of March, we present for your consideration the IRS' “Dirty Dozen” for 2012.
1. Who Are You Again?—Identity Theft
If you get a notice from the IRS that you submitted more than one return, when you know perfectly well you had enough trouble filling out one, you may have been a victim of identity theft. Did the IRS ask you about an employer you never worked for? Ditto. Fraudsters who steal your identity may also have designs on a refund—any refund, and will file a false tax form to get it—or to create one that they can spend while you’re trying to explain yourself to the IRS.
If this sounds like what happened to you, the IRS recommends you immediately contact the IRS Identity Protection Specialized Unit. Check out www.IRS.gov/identitytheft for more information.
2. Gone Phishin’
Get an email from the IRS wanting more information about—well, about anything? Guess again. The IRS “does not initiate contact with taxpayers by email to request personal or financial information," its website says. "This includes any type of electronic communication, such as text messages and social media channels.”
It also warns that emails from other agencies, such as the Electronic Federal Tax Payment System, are bogus too, and an attempt to get you to disclose valuable personal and financial information.
Got one? Report it—send it to firstname.lastname@example.org.
3. But I Trusted You!—Return Preparer Fraud
Any barrel will have some bad apples, and that includes tax preparers. If you don’t want to end up in the sauce, watch out for a preparer who doesn’t sign your return, charges a percentage of your refund, doesn’t seem to have or use a Preparer Tax Identification Number, or encourages you to indulge in the IRS version of a liar loan by putting down false information.
For more warning signs and advice on how to find a good preparer, check out Tips for Choosing a Tax Preparer.
4. “Beyond the Sea …”—Hiding Income Offshore
While it may seem cool to have a Cayman Islands bank account where you can funnel income so it won’t be taxed, or a secret Swiss bank account to help pay for those skiing jaunts to St. Moritz, you may have noticed some headlines recently that imply otherwise. The IRS is onto the secret, and moving money to avoid taxes is not only illegal, it’s very traceable.
If you’ve already engaged in such activities, you might want to take advantage of the Offshore Voluntary Disclosure Program (OVDP) before you become a statistic—or a headline.
5. Boosting the Numbers—False/Inflated Income and Expenses
The IRS also warns against being encouraged to claim income and/or expenses that don’t exist so that refundable credits will be bigger. Not only could you be on the hook for penalties and interest, you could also be prosecuted.
The fuel tax credit is another potential problem. If you’re a farmer or someone else who really uses fuel for off-highway purposes, that’s fine—but the IRS warns that lots of other people whose professions have no relation to this use are trying to claim the credit as well.
6. Pay Might Be Low, but This Is Ridiculous—Zero Wages
If you falsely claim zero wages you could be in for big trouble. The IRS says some will resort to using a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 to improperly reduce taxable income to zero—and they may even include a statement rebutting wages and taxes reported by a payer to the IRS, or an “explanation.”
7. But I Saw It in Church!—Offers of Free Money
According to the IRS, flyers promising taxpayers the way to get free money from the agency are turning up all over the country—in churches, no less, and via word of mouth from otherwise trusted (but misguided) friends and even family. These dastardly documents also promise Social Security refunds that don’t exist.
The folks behind them charge a fee (of course) to put their schemes in place for you, then disappear and leave you to face the music. And it doesn’t sound pretty. Don’t fall for it. It can cost you—especially since the IRS charges a $5,000 penalty for taking part in these schemes knowingly.
8. Yeah, I Don't Need to Pay Taxes
Some scammers will encourage taxpayers to make frivolous arguments— some of which have already been tossed out of court, such as the notion that paying taxes is voluntary—in an effort to get out of paying taxes. Before you decide to try an argument that surely no one has considered before, check these out—or you could find yourself tossed out with it.
9. False Documents, Secret Accounts—Oh, Wait, This Isn’t Espionage
Some scammers advocate that people file returns based on false documents, such as a Form 1099 Original Issue Discount, so they can claim refunds they shouldn’t be getting. There’s also another urban myth-type belief that “the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.”
You didn’t really fall for that one, did you?
If several different charitable organizations claim the same non-cash assets as donations, or if a 501(c)(3) organization is intentionally abused via schemes to protect income or assets from taxation, the IRS is wise to that. These are just some of the ways in which charities can be manipulated for gain, and that’s not very generous.
11. Hiding Behind a Corporation—Disguised Corporate Ownership
Money laundering, underreported income and other devious strategies can accompany efforts to hide the true ownership of a corporation. Don’t be sucked in.
12. A Matter of Trust—Misuse, That Is
While there are plenty of legitimate purposes for trusts, there are also plenty of schemes involving them. Attempts to cut taxes in illegal ways, write off deductions via a trust that wouldn’t work for an individual and cut estate or gift taxes are just some of the ploys involving the use of a trust. But the IRS is watching.
See AdvisorOne’s Special Report, 22 Days of Tax Planning Advice for 2012, throughout the month of March.
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