Let your 2024 New Year’s Resolution be to avoid the IRS Dirty Dozen! Every year the IRS releases a list of the most recent tax scams and identity fraud schemes and they call them the Dirty Dozen. As we are now entering tax season, our CPAs and Accountants want to warn you to steer clear of the following:
- Employee Retention Credit Claims: Taxpayers should be aware of aggressive pitches from scammers who promote large refunds related to the Employee Retention Credit (ERC). The warning follows blatant attempts by promoters to con ineligible businesses to claim the credit, using ads via email, radio and internet touting refunds involving Employee Retention Credits. These promotions are based on inaccurate information related to eligibility for and computation of the credit. Additionally, some of these advertisements exist solely to collect the taxpayer’s personally identifiable information in exchange for false promises. The scammers then use the information to conduct identity theft.
- Phishing and smishing: Be alert to fake communications from those posing as legitimate organizations in the tax and financial community, including the IRS and State taxing authorities. These messages arrive in the form of an unsolicited text (smishing) or email (phishing) to lure unsuspecting victims to provide valuable personal and financial information that can lead to identity theft. The IRS initiates most contacts through regular mail and will never initiate contact with taxpayers by email, text or social media regarding a bill or tax refund.
- Online account help from third-party scammers: Swindlers pose as a “helpful” third party and offer to help create a taxpayer’s IRS Online Account at IRS.gov. In reality, no help is needed. The online account provides taxpayers with valuable tax information. But third parties making these offers will try to steal a taxpayer’s personal information this way. Taxpayers can and should establish their own online account through IRS.gov.
- Fake Charities: Bogus charities are a perennial problem that gets bigger whenever a crisis or natural disaster strikes. Scammers set up these fake organizations to take advantage of the public’s generosity. They seek money and personal information which can be used to further exploit victims through identity theft. Always check out a charity on https://www.irs.gov/charities-non-profits/tax-exempt-organization-search before you make a donation!
- Unscrupulous tax return preparers: Most tax preparers provide outstanding and professional service. However, people should be careful of shady tax professionals and watch for common warning signs, including charging a fee based on the size of the refund. A major red flag or bad sign is when the tax preparer is unwilling to sign the dotted line. Avoid these “ghost” preparers, who will prepare a tax return but refuse to sign or include their IRS Preparer Tax Identification Number (PTIN) as required by law. Taxpayers should never sign a blank or incomplete return.
- Social media bad advice & fraudulent form filing: Social media can circulate inaccurate or misleading tax information, and the IRS has recently seen several examples. These can involve common tax documents like Form W-2 or more obscure ones like Form 8944. While Form 8944 is real, it is intended for a very limited, specialized group. Both schemes encourage people to submit false, inaccurate information in hopes of getting a refund.
- Spear-phishing and cybersecurity for business professionals: Phishing is a term given to emails or text messages designed to get individuals to provide personal information. Spear-phishing is a phishing attempt tailored towards a specific organization or business. There is greater potential for harm if there is a data breach since thieves can ultimately steal the business’ client data to file fraudulent returns.
- Offer in Compromise mills: Offers in Compromise are an important program to help people who can’t pay to settle their federal tax debts. But “mills” can aggressively promote Offers in Compromise in misleading ways to people who don’t meet the qualifications, frequently costing taxpayers thousands of dollars. A taxpayer can check their eligibility for free using the IRS Offer in Compromise Pre-Qualifier tool: https://irs.treasury.gov/oic_pre_qualifier/
- Schemes aimed at high-income filers:
- Charitable Remainder Annuity Trust (CRAT): Irrevocable trusts allow individuals to donate assets to charity and draw annual income for life or a specific period. Unfortunately, these trusts are sometimes misused by promoters, advisors and taxpayers to try to eliminate ordinary income and/or capital gain on the sale of the property.
- Monetized Installment Sales: In these potentially abusive transactions, promoters find taxpayers seeking to defer the recognition of gain upon the sale of appreciated property. They facilitate a purported monetized installment sale for the taxpayer in exchange for a fee.
- Bogus tax avoidance strategies:
- Micro-captive insurance arrangements: A micro-captive is an insurance company whose owners elect to be taxed on the captive’s investment income only. Abusive micro-captives involve schemes that lack many of the attributes of legitimate insurance. These structures often include implausible risks, failure to match genuine business needs and, in many cases, unnecessary duplication of the taxpayer’s commercial coverages.
- Syndicated conservation easements: Generally, taxpayers may claim a charitable contribution deduction for the fair market value of a conservation easement transferred to a charity if the transfer meets the requirements of Internal Revenue Code 170. In abusive arrangements, which generate high fees for promoters, participants attempt to game the tax system with grossly inflated tax deductions.
- Offshore accounts with digital assets: Asset protection professionals and unscrupulous promoters continue to lure U.S. persons into placing their assets in offshore accounts and structures saying they are out of reach of the IRS. These assertions are not true. The IRS can identify and track anonymous transactions of foreign financial accounts as well as digital assets.
- False Fuel Tax Credit claims: The fuel tax credit is meant for off-highway business and farming use and, as such, is not available to most taxpayers. However, unscrupulous tax return preparers and promoters are enticing taxpayers to inflate their refunds by erroneously claiming the credit. The IRS has seen an increase in the promotion of filing certain refundable credits using Form 4136, Credit for Federal Tax Paid on Fuels.
Contact Us: If it sounds too good to be true it is probably a scam! Many of these tax related scams run rampant during tax filing season, but they are also prevalent throughout the year. TFG accounting professionals can help you sort through what is real, and what is a scam or fraudulent. Contact us at CPA@fuoco.com or 855-542-7537 if you suspect scams are aimed at you, a family member, or your company. Also, check out our article on IRS requests for identity verification HERE.
