According to the IRS, the Dirty Dozen represents the worst of the worst tax scams. The Dirty Dozen is a list that is compiled annually by the IRS in order to alert taxpayers, tax professionals and financial institutions of tax scams that occur at any time during the year. This list has been published by the IRS for over 20 years. The point of the Dirty Dozen is to alert all that Illegal scams will lead to significant penalties, including interest and possible criminal prosecution. IRS Criminal Investigation works closely with the U.S. Department of Justice to prosecute the criminals that continue to originate these scams and shut them down.
The Dirty Dozen for 2022 is broken down into three Categories:
- Abusive arrangements that taxpayers should avoid
- Scams geared towards the average taxpayer
- Complex arrangements that promoters market to higher-income individuals
Dirty Dozen Abusive Arrangements that Taxpayers should avoid
- Use of Charitable Remainder Annuity Trust (CRAT) to Eliminate Taxable Gain. In this transaction, appreciated property is transferred to a CRAT. Taxpayers improperly claim that the transfer of the appreciated assets to the CRAT in and of itself gives those assets a step-up in basis to fair market value as if they had been sold to the trust. The CRAT then sells the property. However, it does not recognize a gain due to the claimed step-up in basis. The CRAT then uses the proceeds to purchase a single premium immediate annuity (SPIA). The…
