Closing out the Dirty Dozen list this year the IRS is highlighting bogus tax avoidance strategies, also known as small or micro-captive insurance arrangements. These schemes are based on insurance companies whose owners elect to be taxes on the captive’s investment income only. Abusive micro-captives involve scams that lack many of the attributes of a legitimate insurance.
The “premiums” paid under these arrangements often tend to be excessive, as well as include implausible risks, failure to match genuine business needs and unnecessary duplication of the taxpayer’s commercial coverages.
Another bogus tax avoidance strategy to look out for is syndicated conservation easements. A conservation easement can also be known as a restriction on the use of real property. Generally, a taxpayer may claim a charitable contribution deduction for the fair market value of a conservation easement transferred to a charity if the transfer meets the requirements of Internal Revenue Code 170. In scam arrangements, participants attempt to game the tax system with grossly inflated tax deductions and these schemes tend to generate high fees for the false promoters.
All in all, it is always recommended that honest taxpayers think twice before filing their tax returns, always use a trusted tax professional and be wary of anything that seems too good to be true.
Visit our Tax Fraud Prevention web page for helpful information to report any tax fraud, scams or schemes and any identity theft.
The Dirty Dozen list from the IRS for 2023 proceeds as follows:
- Employee Retention Credit Claims
- Phishing and Smishing
- Online Account Help from Third-Party Scammers
- False Fuel Tax Credit Claims
- Fake Charities
- Unscrupulous Tax Return Preparers
- Social media: Fraudulent Form Filing and Bad Advice
- Spearphishing and Cybersecurity for Tax Professionals
- Offer in Compromise (OIC)
- Schemes Aimed at High-Income Filers
- Bogus Tax Avoidance Strategies
- Schemes with International Elements