tax_schemes_overview - 1 TAX 6845: Tax Planning and...

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1 TAX 6845: Tax Planning and Consulting Tax scams – How to recognize and avoid them To help the public recognize and avoid abusive tax schemes, the IRS offers an abundance of educational materials. Participating in an illegal scheme to avoid paying taxes can result in imprisonment and fines, as well as the repayment of taxes owed with penalties and interest. Education is the best way to avoid the pitfalls of these “too good to be true” tax scams. Some common schemes include: I. Anti-Tax Law Schemes Since shortly after the federal income tax was enacted in 1913, some individuals and groups have encouraged others not to comply with the law. There have been unsuccessful challenges about the applicability of tax laws using a variety of arguments. There have been assertions that the sixteenth Amendment was not properly ratified, the tax law was unconstitutional, the tax law did not apply to certain types of income, the tax law only applied to certain individuals, and the tax law violated one or more constitutional rights. Despite the courts having consistently rejected these arguments, their promoters continue to expound them, even incurring penalties for bringing frivolous cases into court or for filing frivolous tax returns. They often present their arguments in a pseudo-legal format, luring unsuspecting people into participating in their schemes to evade taxes. Arguments Related to the Internal Revenue Code – These false arguments claim that: There is no Internal Revenue Code that imposes taxes; Only "individuals" are required to pay taxes; Code Section 861 limits taxable income to certain sources which do not apply to most U.S. citizens; or The government can assess taxes only against people who file returns. The tax law is found in Title 26 of the United States Code. Section 6012 of the Code makes clear that only people whose income falls below a certain minimum level do not have to file returns. Sections 861 through 865 determine whether income is from a U.S. or foreign source - they do not in any way exclude income from taxation for a U.S. citizen or resident. Section 6201 of the Code states that the Secretary of the Treasury is required to make assessments "of all taxes imposed by this title". Constitution-Related Arguments First Amendment – These arguments focus on using the Freedom of Religion clause of the First Amendment to reduce income tax liability. A common scheme calls for individual taxpayers to obtain minister's credentials and a church or religious order charter by mail for a fee. The individuals set up a new organization that purports to be a church, religious order, or other religious organization. They then take a "vow of poverty" and assign their assets and income to the new organization. However, filtering money through a purported church to fraudulently claim charitable contribution deductions is illegal. The tax law affords benefits to churches and other religious organizations and to those who make gifts or contributions to these organizations. The
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tax_schemes_overview - 1 TAX 6845: Tax Planning and...

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