No one enjoys paying taxes, but the vast majority of individuals and businesses follow the rules, take their deductions, and write a check for what they own. Of course, there are those that try to find ways to avoid paying taxes, but too often, the IRS consider these loopholes tax fraud. Once you go down that road, you can expect to be audited and even sued by the IRS. Here are five of the top reasons the IRS will sue you.
NOT FILING FOR FRIVOLOUS REASONS
If someone has told you that filing your tax return is voluntary due to the lack of a tax collection provision in the United States Constitution, don’t listen to them. While it is true that the constitution doesn’t give the federal government the right to collect income tax, the 16th amendment does.
ABUSE OF TAX SHELTERS AND TRUSTS
While there are many legitimate reasons for and uses of tax shelters and trusts, if one is set up solely to hide income, this is seen as an abuse of the system. The IRS will not see a tax shelter but instead a tax dodge and consider this tax fraud.
OFF-SHORE TRUSTS
If you establish an off-shore trust without a legitimate business reason, plan on hearing from the IRS. If you have an off-shore trust, you will need to be able to prove to the IRS that there is a concrete, business purpose for the trust; otherwise, they will assume you are using it to avoid your tax liability.
STRUCTURED TRANSACTIONS
For those that have high incomes, the IRS consider these tax returns high risk as the individual filer has the ability to use corporations, partnerships, and trusts to move money or perform structured transactions. A structured transaction is one that has little to no monetary benefit with the actual purpose of reducing your tax liability.
OFF-SHORE CREDIT CARDS
While you are allowed to have an off-shore credit card, the IRS will take a close look as to exactly why you have one. They assume from the beginning that it is being used to evade taxes. If you have an off-shore credit card, you will be audited, so be prepared to have documentation as to why you have it.