Each year, the Internal Revenue Service compiles a list of the 12 most common, dangerous or costly tax scams. They call this list their “dirty dozen” and recommend that taxpayers stay vigilant during tax season. We will summarize these twelve scams for you, and highlight the steps you should take to protect yourself.
Criminals hiding their assets in an overseas tax shelter might be a cliched trope in books and films, but the IRS warns that offshore tax schemes are still prevalent, and will be prosecuted. The idea is simple: put your income in international banks or brokerage accounts, and do not pay American taxes on those assets. Some shady tax preparers might recommend using trusts, annuities, or insurance plans. However, the IRS has increased its focus on the issue with the help of Congress, who passed the Foreign Account Tax Compliance Act (FATCA) in 2010. FATCA required foreign banks and financial institutions to deliver the financial records of American-owned accounts. Between this and other partnerships, the IRS and the Department of Justice are actively cracking down on illegal international tax shelters.
However, there is some measure of amnesty allowed in the Offshore Voluntary Disclosure Program (OVDP). The OVDP is a voluntary program through which taxpayers can disclose their foreign accounts and work with the IRS to settle their tax burden. To date, the IRS has received more than 56,000 disclosures totaling over $11 billion. However, this number has slowed down, and the OVDP will end on September 28, 2018. Take advantage of this while you still can, as the IRS warns that penalties will increase if taxpayers wait until the program is gone to resolve their tax liabilities.