IRS Warns Taxpayers of Home-Based Business Tax Avoidance Strategies

The Internal Revenue Service wants taxpayers to be aware of a tax reduction promotion being marketed by scam artists who claim that you can deduct most or all of your personal expenses, including most of the cost of operating your home, as a home-based business deduction.

The people marketing these deceptive tax-saving schemes suggest that taxpayers can create a bogus home-based business, deduct the cost of operating the home, and then take deductions for payments to children for non-business activities such as answering the telephone or washing your car, costs associated with operating your vehicle, costs of personal furniture and electronic equipment and toys for your children, and all personal travel, meals, and entertainment expenses on the theory that everyone is a potential client.

The IRS wants taxpayers to understand that they should be wary of such suspicious tax avoidance schemes and should realize that they may be liable for additional taxes, tax underpayment penalties, interest, legal costs, and criminal penalties.

Taxpayers who want more information about suspicious tax reduction programs or who want to report such a program can get more information at the IRS's Criminal Investigation Web site.

Taxpayers who participated in a home-based business tax avoidance scheme and who wish to remove the deductions from a previously-filed tax return can do so by filing a Form 1040X, Amended U.S. Individual Income Tax Return. Only tax returns from 1999 to the present can be amended at this time. Taxpayers who file amended federal tax returns should also look into the rules for amending their state income tax return.

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