IRS Urges Taxpayers to Watch Out for Tax Avoidance Strategies

In its annual Dirty Dozen list of tax scams, the IRS warns against four schemes targeting individuals and businesses seeking to avoid paying taxes by hiding assets or not filing returns. These schemes can result in theft of sensitive financial information or money and result in substantial penalties and legal issues.

Concealing Assets in Offshore Accounts and Improper Reporting of Digital Assets: 
The IRS is determined to stop tax avoidance related to hiding assets in offshore accounts, cryptocurrency, digital assets, foreign trusts, employee-leasing schemes, private annuities, and other attempts to conceal account owners. U.S. citizens are taxed on worldwide income and are required, under penalty of perjury, to report income from offshore funds and other foreign holdings. Failure to report transactions involving digital assets can result in civil fraud penalties and criminal charges.

Abusive Syndicated Conservation Easements:
Severe monetary penalties can result for engaging in abusive syndicated conservation easements. A syndicated conservation easement involves the sale of overpriced undeveloped land or the facades of historic buildings to generate grossly inflated tax deductions. Every deal is examined by the IRS.

Abusive Micro-Captive Insurance Arrangements:
Abusive micro-captive insurance arrangements can occur when business owners are encouraged to purchase “insurance” as a scheme with unwarranted or redundant coverages. “Premiums” are usually excessive to avoid taxes. Recent IRS enforcement on this issue resulted in thousands of participant examination and promoter investigations, hundreds of millions of dollars in additional taxes and penalties owed, and successful settlement initiative.

High-Income Individuals Who Don’t File Tax Returns:
The IRS continues to focus on people who have failed to meet their filing and payment obligations, especially individuals earning more than $100,000 a year. Note that it is better to file a return (even if payment arrangements are necessary) as the penalties for failure to file (5% of unpaid taxes per month late) are much steeper than failure to pay (0.5% of unpaid taxes per month late).