Wednesday, April 9, 2008

Urban Legends: Ridiculous Reasons That Will Not Get You Out of Paying Your Taxes

As absurd as they sound, these age-old pitches still dupe many people:

Frivolous arguments. In this rip-off, taxpayers are told that there are constitutional grounds for claiming that paying taxes is voluntary. You might be led to believe that the Sixteenth Amendment -- the one that gives Congress the right to collect income taxes -- was never ratified. This position is called the "861 argument" and it has been most recently associated with Wesley Snipes' tax debacle.

Sorry to break it to yah Snipes, but there is no validity to such contentions. The IRS has been collecting income tax for nearly a century and will continue to do so.

Zero wages. Here, you're provided with a fake IRS Form 1099-MISC (Miscellaneous Income) that replaces the real form you received. You're told to attach the substitute form, which shows little or no income, to your tax return.

On the substitute form is a supposed "correction" of information already reported to the IRS. Not only will the IRS not accept corrections showing zero wages, but such a submission is likely to generate an audit.

The scammer may charge an enormous amount for the fake form. One story said someone paid more than $12,000.

Zero returns/zero gains. In this type of fraud, a promoter advises you to enter nothing but zeros on your federal tax return. Then, of course, you'll owe no tax. In a variation on this scam, you fill out page one of Form 1040, computing your adjusted gross income (AGI). Then you deduct your entire AGI amount on Schedule A by writing, "No gain realized."

Employment tax. If you are a business owner, it's your responsibility to see that income tax, Social Security taxes and Medicare taxes are withheld from employees' paychecks and paid to the proper taxing authorities.

Don't be fooled by promoters hawking an incorrect interpretation of the tax code, which states that withholding is not required. If you attempt to evade your withholding obligations, the IRS may be able to seize your assets and put your company out of business, most notably done through a Civil Trust Fund Penalty, but in other ways too.

If you DO fall victim to any of these scams, seek honest tax representation... the operative word being "honest." Because there are scammers everywhere...

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