Each year the Internal Revenue Service unveils its annual listing of notorious tax scams, known as the "Dirty Dozen," reminding taxpayers to be wary of schemes that promise to eliminate taxes or otherwise sound too good to be true.

Despite the agency's consistent warnings that there are no easy solutions or shortcuts to dismissing tax obligations, many taxpayers continue to seek ways to avoid paying what's due. They are lured with the promise of not paying taxes or at least paying substantially less than they did in the past so they become easy prey for these scams because schemers know that someone is always trying to beat the system.

Taxpayers always responsible for return's accuracy

Taxpayers soon discover that there's no easy route as far as tax obligations are concerned. There are, of course, ways to plan an effective tax strategy with the help of an experienced tax professional who will point out various options to pay the minimum tax allowed by law.

However, any scheme that purports to alleviate your tax burden completely or significantly reduce it is just that -- a scheme designed to take advantage of the situation. Experts say that these scams will reap benefits but only for dishonest return preparers who derive financial gain by skimming a portion of their clients' refunds and charging inflated fees for return preparation services.

The IRS reminds filers that no matter who prepares the return, the taxpayer is ultimately responsible for its accuracy.

"Taxpayers should think carefully before paying for services or signing important documents," said IRS Commissioner Mark W. Everson. "Don't be fooled by these outrageous claims. There is no secret way to escape paying taxes."

Andy Martin, Fiducial's tax support manager, noted that if anything is unclear on your return and you haven't asked the preparer about it or they haven't asked you about it, "that's no excuse because you still have to ask. It's your return and you're held responsible."

Indeed, the stakes are high for taxpayers who get mixed up with tax schemes which can lead to imprisonment and fines. While the IRS routinely pursues and shuts down promoters of these scams, it reminds taxpayers that anyone pulled into these schemes can face repayment of taxes plus interest and penalties.

Doing things outside the rules

Among the 2005 scams is Return Preparer Fraud which Randy Penn, Fiducial's branch manager in Arvada, CO, says involves people trying to do things that are outside the rules or taking a position that the IRS has said is not appropriate.

"It doesn't matter if it's clients that ask about it or if the preparer suggests it because if it's against the rules, it's still against the rules," said Penn. He indicated that small business owners and consumers stand the best chance of falling victim to this scam for the return to be prepared incorrectly.

"This scam is about someone that comes to you and asks you to buy a program that will reduce your taxes," he said. "That's what all 12 of these schemes are about. They want you to be aware that people will be asking for your money to sell you a product that reduces your taxes and stands a good chance of not working so you lose twice."

Identity theft is also a high-profile tax scam this year.

"This is just one more way that people try to get you to give your information so they can steal your identity," Penn said. "Crooks call claiming you're under an audit and they can fix it."

Another area where people tend to get into trouble, Penn says, is with employment taxes that are described as trust fund taxes because they don't belong to the government and they don't belong to the business.

"These taxes are being paid on behalf of the employees and that's why the IRS penalizes businesses that don't pay the employer taxes on time and in the right amount," he said. "These are known as 100% penalties -- that's just how serious the issue is. It's not a smaller amount for oops you failed to pay over the money that doesn't belong to you and doesn't belong to us because it goes to credit of that person's account whether it's for Social Security or Medicare."

Heading schemers off at the pass

When Gene Polley, a senior business advisor in Fiducial's San Diego office, was working as a chief financial officer at a private company some years ago, his employer was targeted by several tax scams and it was his job to investigate them. His boss was a high-worth individual who had shady individuals referred to him by reputable business sources who were duped themselves.

"In our case it was trying to do something legitimate but using some very creative tax strategies to do it," said Polley. "My boss wasn't trying to cheat on this taxes but he was trying to find a loophole within the law. He was promised these loopholes by someone who purportedly came up with something that pushed the envelope."

Fortunately, Polley helped head off the schemers at the pass and the company's owner did not fall victim to these scams. Today his small business clients don't have the resources to be inviting targets for schemers.

"Let's face it, most of these scams are trying to take money out of people's pockets," he said. "Most of my clients don't have the spare cash to be suckered. It's the most affluent ones that are more at-risk."

Early in his career of investing in the late 1970s Polley and his business partner wrote checks for an oil drilling operation that turned out to be a scam. Fortunately, they changed their minds the day after they made the decision to invest, did not lose any money and ended up contacting the IRS about the scam.

"At that time you could write off three to four times what you invested in the drilling and make money because of the leveraged losses," he said. "If they had been doing the drilling it would have been entirely legal."

Beware of pie in the sky promises

Debra Dimone, a senior business advisor in Fiducial's Newberg, OR, office said a new client recently came to see her after falling victim to a tax scam. The client, who operates a welding operation, had been approached by a Nevada company about starting up a corporation in that state. The owner paid a pretty hefty fee up front to the Nevada company for tax work but when he got his return back Dimone says his corporation was treated as a sole proprietorship instead.

"They told him if he set up a virtual office in the state of Nevada then he cannot file a return in the state of Oregon," said Dimone. "But he has a service business locally and all of his income is being produced in Oregon. So just because it's a corporation in Nevada, it does not prohibit the state of Oregon from collecting taxes."

The lesson the client learned the hard way is that he should have gotten a second opinion from an attorney or a CPA about how this Nevada corporation would effect his business in Oregon.

"He did say he was a little suspicious when he wasn't able to reach the gentleman that prepared the return," she said. "He did not realize that his return should have been a corporation return but what he got was a 1040 with a Schedule C attached. He didn't get what he paid for. You can't get something for nothing. He thought he was going to save a lot of money on taxes."

Dimone has had a number of clients approach her about this Nevada company making its virtual office pitch since they frequently advertise in Oregon and in the nearby states of California, Arizona, New Mexico and Colorado through mailers and television commercials. Despite the company's "pie in the sky" promises, it's still sparking interest from businesses anxious to save money on taxes. Dimone attributed this to those marketing the scam who "are so convincing and come across as very knowledgeable."

Offering tips to entrepreneurs on how to avoid being taken in by tax scams, Dimone says they should always be cautious when things seem too good to be true.

"If it's something that's not commonly done that's a sure sign [of a scam]," she said. "If you're talking to other business people and they're unaware of these sorts of schemes that's another sign."

Other warning signals are "if you're not able to get a hold of the people who contracted with you and if you seem to be charged a lot of money and are not getting much in the way of results."

STEPHEN PAREZO is the Media Manager for Fiducial.