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How to avoid tax-related scams and identity theft

This tax season is the first to fully implement the largest tax code reform of the last 30 years. Questions and concerns exist in tax circles about the details and gray areas.

It is a good year to seek professional tax advice even if you have completed returns yourself in the past. In doing so it is important to ask some questions to avoid scams and identity theft.

Those owing the IRS shouldn't book their vacations just yet

Spring is nearly here, and summer will be nipping at its heels. During this time, many Massachusetts residents begin planning vacations outside the country -- often to warmer climates. For those who owe the IRS back taxes, it may be better to hold off on making those plans since the agency could prevent them from obtaining or using their passports.

If the IRS claims that a Massachusetts taxpayer owes a minimum of $52,000 in taxes, penalties and interest, the agency can submit a request to the U.S. Department of State to revoke or deny him or her a passport. Before it may do so, however, the agency must issue a levy, file a lien and exhaust all administrative remedies available to collect the past due amount. This step may also apply to unpaid child support and the FBAR Penalty.

The IRS wants to set the record straight for taxpayers

During tax season, Massachusetts residents often hear rumors regarding how to save money on taxes, whether they will end up paying more for one reason or another, and more. Now, with the changes in the tax laws and the questions regarding the government shutdown, people have even more questions and need direct answers instead of rumors. Even though the shutdown ended, at least temporarily, people may still wonder whether IRS operations will proceed as normal.

The first rumor the IRS wanted to address was the question regarding whether those due a refund would receive them. Massachusetts residents owed a refund will receive it. Even with the changes in the law and the shutdown, those payments will go out.

Innocent people pay for taxes filed incorrectly due to scams

It is tax time again. Numerous Massachusetts residents may anticipate refunds while others expect to pay. In either case, filings need to be made, and many people turn to others for help in maximizing refunds and minimizing payments. The problem is innocent people could end up paying for taxes filed incorrectly because they unknowingly became the victims of scammers.

Going to tax preparers for assistance may sound like a good idea, but Massachusetts residents may want to verify the qualifications and reputation of such individuals before doing so. If this cannot be done in advance, some clues could reveal a potential problem in the future. For instance, if a tax preparer claims that a higher refund could be obtained through "bending the truth" on a return, the individual taxpayer should get up and walk out.

Avoiding state tax audits when using the earned income tax credit

For some Massachusetts residents, earning enough money to live on can present a challenge. For this reason, the state, like the federal government, provides eligible taxpayers with the opportunity to take advantage of certain tax breaks, including the earned income tax credit. However, if filers are not careful, they could risk tax audits through misuse or mistaken use of this option.

Most of the people who qualify to use the EITC have children, if that helps allude to the requirements to use this credit. To simplify the process, the state of Massachusetts uses the same criteria as the IRS does for federal income tax returns. The state also matches the percentage allowed by the federal government as well.

Man pleads guilty to tax evasion after IRS investigation

The IRS wants the money it believes people here in Massachusetts and elsewhere owe. The agency will conduct investigations when its agents suspect that an individual or business failed to pay any amounts owed. Depending on the results of the investigation, agents will make accusations of tax evasion and other crimes against taxpayers.

For example, an independent contractor worked installing ATM machines in casinos in another state between 2000 and 2012. He received commissions based on ATM transactions at the facilities where he installed the machines. In 2012, the man filed his tax return for the year 2005. In that return, he claimed an income of $394,317.

What tax forms does the IRS require for foreign assets?

The Internal Revenue Service (IRS) requires taxpayers to report certain foreign assets. In most cases, the first required step involves checking a box to acknowledge the ownership of such assets on the Form 1040 tax return — but this is only the beginning. In some cases, the agency requires taxpayers file additional forms.

These forms can include:

Taxes and statute of limitations: How long to keep tax records

With the technology available today, keeping records may not seem as difficult as it did in the past when most things were on paper. However, that does not always resolve the issue of how long Massachusetts taxpayers should retain their tax records. When it comes to taxes and statute of limitations, how long the paperwork should be kept largely depends on the information, but a good rule of thumb would be to keep relevant tax paperwork, including prior returns, as long as possible.

Having said that, most people need to make sure they keep their prior returns for at least three years. This time begins running either from the date the taxes are filed or the date they are due. Any documentation regarding property you own, such as automobiles, real estate and more, also needs to be kept at least three years.

You may need to file an audit reconsideration request

Have you moved to Boston or to another location here in the city recently? Did that move prevent you from knowing that the IRS send you communications regarding an audit, so you failed to appear for it? Perhaps you did attend, but now have new information to provide the agency that could potentially change the outcome. You may be able to file for an audit reconsideration request.

Several different scenarios could provide you with an affirmative response to your request. For instance, the agency may re-evaluate its decision if the new information you provide changes the outcome. It may also do so if an assessment resulted from the IRS filing a tax return on your account, but you later filed your return, and the tax is correct on your return.

Reality TV star convicted of tax evasion goes to prison

Many celebrities use creative accounting techniques in order to avoid paying too much to the IRS, but most of them are legal. On occasion, one of them gets into trouble because they "colored outside the lines" and end up facing charges for tax evasion. One such celebrity, reality TV star Mike Sorrentino, recently began an eight-month prison sentence arising out of such a charge. Massachusetts residents may avoid the same fate by understanding what he did.

What did Sorrentino do wrong? In 2011, he owed a certain amount of taxes, and the government alleged that he failed to pay the full amount due, but that alone does not necessarily sound like tax evasion. Right? Many people, even some here in Massachusetts cannot pay what they owe the IRS. Well, it is not that simple.

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