Tax Compliance Risks Catalog

Source: tax-compliance-risks-catalog.md (ingested 2026-03-28)

The listed items are tax compliance risks and questionable practices related to education expenses, scholarship reporting, income reporting, withholding, timing strategies, and compensation characterization. They can be cataloged into the following categories:

1. Inflating or Mischaracterizing Education Expenses

   • Claiming non-required books/supplies as required.
   • Reclassifying stipends as “tuition support.”
   • Rounding expenses up.
   • Including general purchases as “course materials.”
   • Inflating/duplicating receipts or reimbursements.
   • Counting rent/food/transport as education expenses (beyond allowable limits).

2. Misreporting Scholarship and Fellowship Income

   • Reporting $0 taxable scholarship income when some is taxable.
   • Treating living-allowance portions as non-taxable.
   • Not allocating scholarship between qualified/nonqualified expenses.
   • Ignoring 1098‑T/financial aid statements and school account detail.

3. Underreporting or Omitting Income

   • Leaving off side income (1099‑NEC/K, gig work, bank interest).
   • Ignoring IRS matching (W‑2/1099/1098‑T) and CP2000 notices.
   • Assuming “too small to audit.”

4. Improper Withholding and Estimated Tax Manipulation

   • Changing W‑4 to underwithhold.
   • Claiming exempt on W‑4 without qualifying.
   • Manipulating estimated tax payments timing.

5. Aggressive Tax Timing Strategies

   • Deferring income into next year (late invoices, delayed deposits).
   • Accelerating deductions into current year (prepaying expenses).
   • Choosing cash vs accrual timing inconsistently.

6. Misclassification of Compensation and Avoidance of Payroll Taxes

   • Labeling employment compensation as “fellowship.”
   • Routing pay through grants to avoid payroll taxes.
   • Splitting payments into “award” vs “wages” without basis.
   • Misclassifying employee vs independent contractor for fellowship work.