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IRS 'Dirty Dozen' Tax Scams Includes Charitable Fraud

(March 7, 2005) The Internal Revenue Service's (IRS) annual list of the most notorious tax scams - its 'Dirty Dozen' - includes charitable abuse and fraud this year.

In its comments, the IRS notes that it has observed an increase in the use of tax-exempt organizations to improperly shield income or assets from taxation. The list specifically highlights donor-advised funds and contributions of historic façade easements as instances where donors should be cautious. Both of these issues are currently being reviewed by the Senate Finance Committee.

Another item on the 'Dirty Dozen' is nonprofit credit counseling agencies, which are being thoroughly scrutinized by both the IRS and the Finance Committee. According to the IRS, some of these agencies are charging debtors large fees while providing little or no counseling.

'It's unfortunate that charity fraud is on this list, but it is a reminder that we always have to be vigilant and use best practices when dealing with donors,' said AFP President and CEO Paulette Maehara, CFRE, CAE. 'We need to continue to work to educate donors and the public that this type of abuse is conducted almost entirely by fraudulent actors and is not the work of legitimate organizations.'

The entire 'Dirty Dozen' list includes:

  1. Trust Misuse
  2. Frivolous Arguments
  3. Return Taxpayer Fraud
  4. Credit Counseling Agencies
  5. 'Claim of Right' Deduction
  6. 'No Gain' Deduction
  7. Corporation Sole
  8. Identity Theft
  9. Abuse of Charitable Organizations and Deductions
  10. Offshore Transactions
  11. Zero Return
  12. Employment Tax Evasion

For an explanation and more information on these items, go to the IRS website.

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