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by Stephen Parezo

Andy Martin

February 26, 2007—Unsuspecting taxpayers are victimized each year by notorious tax scams that wind up on the “Dirty Dozen” list compiled by the Internal Revenue Service. Fiducial tax experts advise small business owners and individuals that they should see a specialist before getting involved in any of these schemes that don’t deliver what they promise.

“Too many times, people are gullible because they are looking for a way not to pay taxes,” said Andy Martin, Fiducial’s Tax Processing Center (TPC) manager. “Scammers prey on those that don’t have the ability to get additional resources such as a tax professional.”

IRS spokesman John Lipold noted that everybody wants to get a leg up when it comes to finding a way to pay fewer taxes but taxpayers should watch their backs.

“They should pick a reputable tax preparer and just keep in mind the old rule: if it sounds too good to be true, it probably is,” said Lipold who’s based at IRS headquarters in Washington, D.C.

Bob Sperling, a veteran tax attorney who helps man Fiducial’s Tax Hotline, says that behind every tax scam listed on the IRS site is a method to separate an individual from their money playing mostly on greed and naivety.

“The scam artists are also armed with the knowledge that IRS is hard-pressed to enforce a very complex set of rules with relatively few people and resources that are outdated,” said Sperling.

Beware of trust misuse

Dale Ellery

Among the scams on the “Dirty Dozen” is trust misuse which has been ensnaring taxpayers who think by transferring assets into trusts that they will be able to greatly improve their tax liability.

Under this scam, taxpayers are urged to transfer assets into trusts with the promise of reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. But some trusts do not generate the tax benefits as promised.

“People think that if they go this route they can reduce their taxes,” said Martin. “They are playing the game.”

Dale Ellery, district manager for Fiducial’s Detroit, MI, region knows it’s human nature for taxpayers to try and beat the government out of taxes.

“We like to pay the least amount of taxes we possibly can,” said Ellery. “They’re always looking for loopholes and breaks because they think the other guy is getting them.”

That’s why tax experts maintain that taxpayers need to align themselves with a tax pro who knows the complicated tax code.

Bob Sperling

“The tax pro is able to advise them on something that sounds too good to be true,” he said. “This should be something you can count on them for, interpreting the tax laws.”

Keeping up with the changes

Ellery, who has a master’s degree in taxation, is well-grounded on what makes sense and what doesn’t when it comes to helping clients save on their taxes. He also finds the trust misuse scam one of the most difficult to understand since there’s so much misinformation out there on it.

“People use trusts for real estate thinking that they can hide behind who owns the real estate and use it like a corporation,” he said.

The seller, for example, wants to sell the stock of the company so they can realize long-term capital gains. The purchaser, meanwhile, has just the opposite goal, wanting to buy depreciable assets so it can be written off such as goodwill after 15 years and inventory in one year.

The IRS urges taxpayers to find a reputable firm to do their taxes and to remember that whoever prepares their return, it’s the taxpayer who’s ultimately held responsible.

“The IRS Code is very complex in general and can be mind-boggling in many areas that are important to small business owners,” Sperling said. “Changes will generally be made on at least an annual basis, if not more frequently depending on the whims of Congress, and keeping up with the changes takes time away from running a business.”

But Sperling reminds taxpayers that failing to keep up with these changes could mean paying significantly more in taxes.

“Using a tax professional allows the business owner to rely on someone else to keep track of the changes,” he said.

Stephen Parezo is the Media Manager for Fiducial.

Whatever your small business needs, your Fiducial tax and financial professional can analyze your situation and recommend an appropriate action plan. To locate a Fiducial office nearest you on fiducial.com, see the Zip Code Locator located in the upper right hand corner of the page. Do you have a particular topic that we should be writing about that can help your business? Please send your suggestions to: stephen.parezo@fiducial.com.

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