Tax Audit Triggers To Avoid con't...

Questionable Trust

Here’s how they work: A snake oil salesman advises a taxpayer to start an asset management company, listing the taxpayer as the director of the trust. This makes it look like the taxpayer is not managing the business.

Then, the taxpayer creates a business trust with the asset management company as its trustee. All types of administrative expenses may then be deducted from the trust so as to reduce taxable income. This all looks like the taxpayer has given up control of their business to a trust, however, the taxpayer is still very much in control of the day-to-day activities of the business.

Next they add in an equipment trust or a service trust to hold equipment that’s rented or leased to the business trust. Of course that rent or lease is at an exorbitant rate.  The business trust has reduced income as does the asset management company and the service trust.  It’s a circle of deception that will be discovered in time.

A twist on this is where a taxpayer starts a charitable trust and funnels personal, educational or recreational expenses through it. These expenses are of course false deductions and then they are claimed as charitable deductions on the trust’s tax returns. The trust will then distribute any money that remains to the taxpayer.  Very slick.

The Old Unconstitutional Claim

Many people hold fast to the claim that the 16th Amendment was never ratified so the IRS Tax Code is therefore unconstitutional. This is a frivolous argument according to the IRS. It’s a guaranteed audit! Try telling a judge that the speeding law you broke is not a law at all. That just won't cut it!

Claim of Right

This is a real good one.  This scam known as "Claim of Right," is suppose to allow the taxpayer the right to deduct their entire wages as a necessary expense for the production of income. Does that make sense to you?  It took all your income to produce that income?  Huh?

Just Because You Want to Avoid an Audit, Don't Avoid Legitimate Deductions

Don’t let fear of an IRS Audit intimidate you and prevent you from taking legitimate deductions and credits. If you have items that will raise a flag on your return, consider sending an explanation or documentation in with your return. If the return is flagged, a real person will then be reviewing it and that documentation will help.

Innocent Spouse Tax Relief