The Dirty Dozen – according to the IRS

February 17, 2012

The IRS has released its list of the Dirty Dozen Tax Scams to watch for when preparing and filing returns for 2011. “Illegal scams can lead to significant penalties and interest and possible criminal prosecution,” according to the IRS website. The list is published as a way of increasing public awareness and cautioning people to be on the look-out.

While identity theft and phishing top the listing, of particular interest are these two items:

  • Abuse of Charitable Organizations and Deductions, and
  • Misuse of Trusts

Intentional abuse of 501(c)(3) organizations includes: arrangements that improperly shield income or assets; attempts to maintain control over donated assets or the income from donated assets; over-valuing non-cash assets; arrangements to buy back the donated asset at a time and price set by the donor; and inaccurate appraisals.

Misuse of trusts include: questionable deductions of personal expenses, and promises of reduced income, estate, and/or gift tax.

IRS personnel have witnessed an increase in the abuse and misuse of these entities. Organizations should be aware of the possible motives behind some donor objectives and strive to not be complicit in such activities. Penalties and the damage to the organization’s reputation might not be worth whatever temporary benefit received.

See the full listing here.