2023 Dirty Dozen

June 3, 2023

Every year, the Internal Revenue Service (IRS) releases a list of the top 12 tax scams called the "Dirty Dozen". This list is made to inform both taxpayers and professionals about the most common tax frauds used in the previous year. These scams can include things like wrongly claiming tax credits to get bigger refunds or using offshore accounts. It's important to be aware of these schemes to avoid becoming a victim.

Employee Retention Credit Claims

Be careful of scammers who are trying to trick you into claiming the Employee Retention Credit (ERC) to get a large refund. These scammers are promoting the ERC through ads on the radio and the internet, and they may give you wrong information about whether you are eligible for the credit. They might also use this opportunity to steal your personal information for identity theft. The IRS warns taxpayers to be cautious and to only claim the ERC if they are eligible.

Phishing and Smishing

Beware of fake communications from people pretending to be from the IRS. These fake messages can come as unsolicited emails or texts and are intended to trick people into giving away personal and financial information that can be used for identity theft. Remember that the IRS usually contacts taxpayers through regular mail and will never use email, text, or social media to talk about a bill or refund.

 

Online Account Help From Third-Party Scammers

Be cautious of third-party scammers who offer to create an IRS Online Account for you. In reality, they want to steal your personal information. You don't need their assistance to create an online account. You can create your IRS Online Account directly on the IRS website.

False Fuel Tax Credit Claims

The fuel tax credit is for off highway-business and farming purposes, and is not for most taxpayers. Some tax return preparers and promoters are enticing taxpayers to inflate their refunds by erroneously claiming the credit.

 

Fake Charities

Fake charities are a major issue, especially during times of crisis or natural disasters. These scams are created to prey on people's kindness and willingness to help others. Scammers aim to collect money and personal information which can be used for identity theft. It's important to ensure that the charity is legitimate before donating.

 

Unscrupulous Tax Return Preparers

While most tax preparers are trustworthy and competent, there are some who are less than honest. Be wary of preparers who charge fees based on the size of your refund. It is also a red flag if the preparer is unwilling to sign the tax return, or if they refuse to include their IRS Preparer Tax Identification Number (PTIN) as required by law. These "ghost" preparers might prepare your taxes, but they won't sign on the dotted line. Always check your tax return carefully and don't sign a blank or incomplete return.

 

Social Media: Fraudulent Form Filing and Bad Advice

Beware of false or misleading tax information on social media. The IRS has observed several instances of such information being spread online, including misleading information about common tax forms like Form W-2. These schemes try to get people to submit false information in order to receive a refund. Always remember that if something seems too good to be true, it probably is.

 

Spearphishing and Cybersecurity for Tax Professionals

Spearphishing is a scam that targets a specific organization or business. This can lead to fraudulent tax returns being filed. It's important to be cautious and verify the authenticity of any requests for personal information.

 

Offer in Compromise Mills

The Offers in Compromise program is designed to help people who can't pay their federal taxes. However, some companies take advantage of people by misleading them into thinking they qualify for the program when they don't, and charging them a lot of money in the process. To avoid being scammed, taxpayers can use the free IRS Offer in Compromise Pre-Qualifier tool to see if they are eligible.

 

Schemes Aimed at High-Income Filers

• Charitable Remainder Trusts: This is a type of trust that allows individuals to donate assets to charity while receiving annual income for life or a set period. Unfortunately, these Charitable Remainder Trusts are sometimes misused by promoters, advisors and taxpayers.
• Monetized Installment Sales: This is another potentially abusive transaction in which promoters charge a fee.

 

Bogus Tax Avoidance Strategies

Micro-captive Insurance Arrangements and Syndicated Conservation Easements are two tax schemes that the IRS considers abusive. Abusive arrangements involve inflated tax deductions and generate high fees for promoters.

 

Schemes with International Elements

• Offshore accounts and digital assets: The IRS continues to scrutinize attempts to hide assets in offshore accounts and accounts holding digital assets, such as cryptocurrency. 
• Maltese individual retirement arrangements misusing treaty: These arrangements involve U.S. citizens or residents who attempt to avoid U.S. tax by contributing to foreign individual retirement arrangements in Malta.
• Puerto Rican and foreign captive insurance: Some U.S. business owners are involved in fake insurance schemes with foreign corporations. However, these arrangements are not genuine insurance and are only used to avoid paying taxes.

The IRS emphasizes that taxpayers are accountable for the accuracy of their tax returns, and not the promoters who charge exorbitant fees and make false promises. Taxpayers can prevent these schemes by seeking the guidance of reputable and trustworthy tax professionals. Additionally, the agency urges people to report any person promoting improper and abusive tax plans, and any tax preparer who intentionally files an incorrect return.

Sources: Image by Jjakub Kapusnak