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Dirty dozen tax scams
Don't get scammed by someone who thinks you can dupe the tax man.
March 1, 2005: 5:25 PM EST
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NEW YORK (CNN/Money) - There are two things that you just can't avoid: death and taxes.

No one is clever enough to escape the former but many think they can avoid the latter. Catching the IRS off guard, however, is becoming harder.

The agency has lately dedicated more funds to enforcement, making it easier to find those who try to hide their money.

The IRS keeps tabs on different types of tax evasion schemes and recently released its annual list of top 12 scams. The so-called Dirty Dozen includes a few new tricks as well as some familiar faces.

"The Dirty Dozen is a reminder that tax scams can take many forms," IRS Commissioner Mark Everson said in a statement. "Don't be fooled by false promises peddled by scam artists. They'll take your money and leave you with a hefty tax bill."

With that in mind, here are 12 things that you don't want to do:

Abuse that trust. Setting up a trust for the sole purpose of reducing your tax bill may land you a date in tax court. Numerous con artists and their victims have been prosecuted and the IRS says it is actively examining these types of agreements.

Fall for frivolous, and fictitious, arguments for not paying taxes. There are no constitutional protections against taxes. Arguments citing the Fourth, Fifth, and Sixteenth Amendments have been thrown out of court. That's not to say you cannot contest your tax liabilities, but don't look for an excuse not to pay.

Believe in a sure thing. Even top number-crunching CPAs cannot guarantee their clients a refund. An absolute promise that you'll get one -- before a preparer evaluates your situation -- is often a ruse used by ethically challenged preparers trying to drum up business.

Accept bad counsel. A number of tax-exempt credit counseling agencies claim they can work out a debt repayment plan with your creditors or improve your score. Many of them charge exorbitant fees for very little service. The IRS is stepping up audits for such organizations.

Deduct it all. The so-called "claim of right" doctrine advises taxpayers to deduct their wages as "a necessary expense for the production of income" or as "compensation for personal services actually rendered." Either way, the IRS doesn't buy it.

Eliminate your gains. Some filers attempt to wipe out their entire adjusted gross income (AGI) by deducting it under "Other Miscellaneous Deductions" on form Schedule A, attaching a sheet saying "No Gain Realized."

Start your own "church." Legitimate religious leaders can legally separate their finances from that of their church. Establishing the Church of You doesn't meet this criteria nor does it let you escape from federal taxes, child support or other personal debts.

Share your identity with others. The IRS says there are several ID theft scams involving taxes, ranging from "phishy" e-mails to abusive tax preparers using their clients Social Security numbers to file false returns. The IRS says it does not contact taxpayers via e-mail about issues related to their accounts. If you are ever unsure whether a correspondence from the IRS is legit, you can call the agency at (800) 829-1040.

Be charitable with your deductions. Moving assets or income to a tax-exempt organization or donor-advised fund while maintaining full control over the money does not entitle you to a deduction.

Offshore your money. Stashing money in an offshore bank or brokerage account, using foreign trusts or credit cards to shield your income from Uncle Sam is illegal. The IRS has partnered with state tax agencies in and those of U.S. possessions to crack down on these types of transactions.

Have nothing to show. Some filers enter zero income, but report their withholding and then write "nunc pro tunc" -- Latin for "now for then" -- on their return. It may as well be Greek because the IRS will still come after you.

Shield your employees from taxes. Unless your employees are independent contractors, you need to withhold taxes and pay employment taxes. And employees who have nothing withheld from their wages are still responsible for paying income tax.  Top of page

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