Loopholes Archives - Page 3 of 4 - Think Outside the Tax Box

Loopholes

By Annette Nellen, CPA, CGMA, Esq.

Warning! Avoid the Latest “Dirty Dozen” Scams Identified By the IRS

Since at least 2001, the IRS has issued annual news releases warning taxpayers of scams they should be aware of and stay clear of. The release in 2001 included just eight scams but starting in 2002, the IRS expanded the list and dubbed these scams with the catchy moniker: the “Dirty Dozen.” In describing these lists, the IRS often warns taxpayers to “remain vigilant” against the scams, to not “fall prey” to them, and to “be on the lookout for” these dangerous activities.

While the warnings seem to be directed to individual taxpayers, the lists sometimes include warnings of scams directed at return preparers and employers. Tax practitioners certainly need to be aware of these scams to exercise appropriate due diligence to know if any client is involved in a scam such as an abusive tax shelter, and to help educate clients about the numerous and growing number of scams many of which are designed to steal their personal and financial data and resources.

This article covers the 2022 “Dirty Dozen” list. It also includes suggestions on how practitioners might use this information in tax compliance and planning and to help clients protect their identities and assets and avoid tax problems. Additional resources for dealing with the items on the list are provided.

A chart listing the “Dirty Dozen” items from the start in 2001 through 2022 is included to show trends and the reality that some scams such as identity theft, phishing, return preparer fraud and frivolous tax arguments have made the list almost every year.

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The “Hey, Hey Just Don’t Pay” Tax Strategy

One of the favorite sayings of my first managing partner, the late Herb Cohan, was “I’d rather owe it to you than cheat you out of it.” To be honest, like some of the other sayings, I was never clear exactly what it meant. Nonetheless, I think it sums up pretty well a tax strategy that is becoming more viable every year. File a timely accurate return and just don’t pay. Wait 10years and celebrate when the statute of limitation on collections runs out. Did you know that not paying can be a strategy to get out of your tax bill? It can be, depending on the qualifications and your specific circumstances. Keep reading to see how to qualify.

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Tax Court Allows Defense Contractor to Claim Afghanistan as Tax Home

Question: We have a client who is moving out of the country, can they qualify for the foreign earned income exclusion? Answer: Deborah C Wood owned a house in Texas but was able to convince Judge Lauber of the United States Tax Court to rule that her true home was Kandahar Airfield in Afghanistan. This saved her most of the $95,301 in additional tax that the IRS was seeking for the years 2012-2016, not to mention penalties and interest. The narrative that allowed her to win the case is worthy of study by those who represent expatriates who may qualify for the foreign earned income exclusion. There is another lesson in the case, though and that is to seek good tax advice sooner rather than later.

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Your Questions Answered: The Dubious Anonymity of Virtual Currency Transactions

Question: Bitcoin being treated as property by the IRS was partially related to not being “legal tender in any nation.” Does the fact that El Salvador is now using cryptocurrency have any cascading ramifications for tax/currency treatment of bitcoin in the U.S.? Answer: The Department of Justice recently issued a news release to strike terror in the hearts of anyone attempting to execute cryptocurrency tax shenanigans. Similarly, the federal court for the Northern District of California entered an order authorizing a John Doe’s summons on Payward Venture Inc. and subsidiaries d/b/a Kraken. The IRS wants to look at the records of U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020. What’s with all the sudden interest in crypto, and why are the feds looking to snoop around retroactively? If you’re curious to find out why and how to stay off its radar, keep reading.

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How to Qualify for More Interest Deductions You Didn’t Pay

Question: Can I increase my business tax deductions with interest the Small Business Administration (SBA) paid during the COVID-19 pandemic? Answer: In short, yes. But it depends on the type of loan, forgiveness options, and loan status. We here at Think Outside the Tax Box sure like the way you’re thinking! One of the benefits created through the CARES Act included payments on existing SBA loans. In addition, new SBA loans created through the PPP and EIDL programs included deferred payments for the first six months of the loan. Depending on your current situation, you may actually qualify for the interest deduction, even if the SBA paid it on your behalf! To learn how to qualify, continue reading.

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Trump Corporation Charged in Fringe Benefits Tax Fraud Scheme – How to Do It the Legal Way

Prosecutors in New York have charged the Trump Corporation with tax fraud related to deductions of more than $1 million in fringe benefits over 15 years. The Manhattan DA indicted longtime CFO Allen Weisselberg for tax evasion on $1.7 million in business deductions, which paid for an apartment, private school tuition for family members, two Mercedes Benz vehicles, and other perks in exchange for his employment at the Trump Organization. The former President and company spokespeople responded that every company deducts fringe benefits, describing the charges as a witch hunt or political gamesmanship by opponents. If this leaves you a tad confused about whether or not you can deduct fringe benefits for yourself or employees in your small business, rest assured, there is a legal way to do it. Keep reading to discover the right way to deduct non cash or other indirect fringe benefits.

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All About the Augusta Rule – One of the Tax Code’s Best and Easiest Income “Loopholes”

Do you have homes in destination spots? Places where people flock during specific times of the year? Mardi Gras? Spring break? Sports championships or events? Maybe you own a home in places commonly used as film locations? For example, Albuquerque, New Mexico, is often the site for movie and television productions, and it hosts the Albuquerque International Balloon Fiesta every year (excluding global pandemics, obviously). The 10-day long event hosts well over 100,000 visitors to the city each year. But this article isn’t about Albuquerque tourism, it’s about the easiest tax-free money you will ever make.

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Does the Cohan Rule Still Matter?

Looking to write off your favorite wine? Better yet, how about deducting it while lacking the receipts? For nearly a century, freewheeling salespeople, hobnobbers, and schmoozers alike have treated potential customers and employees to fine dining and entertaining all while seeking the maximum tax break in the process with minimal substantiation. While proving these expenses has certainly gotten easier with technology, smart planners have made use of the so-called Cohan rule to enjoy the deductions without the paperwork nightmare. Want to make use of it yourself? Read on to learn more.

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How to Get More Tax Write-offs for Your Rental Property

Question: Do I need to have my LLC hold the title to my rental property to get the tax benefits? Answer: If you’re like most investors, you probably purchased your rental property in your own name. While this doesn’t keep you from accessing all the special tax breaks available with owning real estate, it does expose you to some risky liabilities. Insurance can cover a lot of predictable liabilities like slip and falls, theft, and vandalism, but there are many other things that can happen putting not only the property at risk but also your personal assets. One way to protect against this risk is by using an LLC to hold your property. Most LLCs act like a corporation in providing limited liability protection against creditors for your personal assets and your other non-real estate business activities. Like most things in law, changing the deed can lead to a whole set of problems. So be sure to think twice before changing your deed. There are two key problems this action can cause you as the property’s owner. Keep reading to learn how to overcome them.

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