IRS Releases 2023 ‘Dirty Dozen’ Tax Scam List

As the 2022 tax season comes to a close, with less than two weeks left to submit returns, the Internal Revenue Service (IRS) has released its annual Dirty Dozen list of tax scams—warning individual citizens, businesses, and tax professionals to not let their guard down. “Scammers are coming up with new ways all the time to try to steal information from taxpayers,” said IRS Commissioner Danny Werfel. “People should be wary and avoid sharing sensitive personal data over the phone, email or social media to avoid getting caught up in these scams. And people should always remember to be wary if a tax deal sounds too good to be true.” These scams and schemes happen throughout the year, and not just during the tax season, said the agency. Here’s the full IRS list of possible scams that are encountered most by taxpayers. Some of this year’s entries are new to the list. Employee Retention Credit Claims Scammers use aggressive marketing tactics to advertise fake refunds related to the Employee Retention Credit (ERC). Taxpayers must be aware of such blatant attempts by fraudsters who promote their large refunds on radios and online—enticing citizens with a large payout. The end result is that no one receives a refund while scammers get hold of personal information that they will use for identity fraud. Phishing and Smishing Phishing is the practice of impersonating legitimate organizations to persuade individuals to reveal personal information. Tax scammers purport to be from companies including the IRS, and lure unsuspecting citizens to divulge financial information and personal data, which will be used for identity theft. Smishing is phishing via mobile text messages. The IRS typically reaches out through regular mail, and will not initiate contact with taxpayers by email, text, or social media. Online Help Personal information is easily stolen when taxpayers depend on third parties for “help” with creating an IRS online account. The process is simple, and citizens are encouraged to do the activity themselves through IRS.gov. Fuel Tax Credits Unscrupulous promoters entice taxpayers to inflate refunds by erroneously claiming the fuel tax credit, which is meant for off-highway business and farming use. Fake Charities Taking advantage of natural disasters and other crises, scammers pretend to be charities and misuse the public’s generosity. Besides losing money and personal information, citizens are not eligible for deductions if the charity is not a qualified tax-exempt organization recognized by the IRS. Fake Consultants Registered professionals have no issues signing or including their IRS Preparer Tax Identification Number as required by law. So, if the tax preparer does not wish to reveal themselves, this is a major red flag, and citizens ought to keep an eye out for such consultants, while also informing the IRS regarding such providers. Moreover, taxpayers should never sign a blank or incomplete return and are not advised to deal with someone who charges based on the tax refund payout. Social Media Refunds Fraudulent marketers make use of techniques like promoting obscure tax documents like Form W-2 or Form 8944 to lure taxpayers with additional refunds. Although the forms are real, many people are not eligible for these kinds of refunds, and in the process of cooperating with the online marketer, have nothing to gain but repercussions for inaccurate filing and loss of personal information. Spearphishing Spearphishing is a tailored phishing attempt that pertains to a specific organization or business, and targets tax preparers. Falling for this scam results in unscrupulous individuals gaining access to client data as well as the tax preparers’ identity, which allows the criminals to file fraudulent returns. Offers in Compromise Offers in Compromise are used by people who cannot pay to settle their federal tax debts due to various reasons. Fraudsters take advantage of the situation and offer misleading solutions to taxpayers who do not meet the criteria. Citizens can check their eligibility using this IRS tool. High-Income Filers The IRS has warned high-income taxpayers to be wary of two schemes. Charitable Remainder Annuity Trusts let individuals donate assets to charity and draw an annual income. Fake promoters misuse this facility to eliminate ordinary income and/or capital gain on the sale of the property. Scammers also make use of Monetized Installment Sales to defer the recognition of gain upon the sale of appreciated property through facilitating a “sale” in exchange for a fee. Tax Avoidance Schemes A micro-captive is an insurance company whose owners elect to be taxed on the captive’s investment income only, according to the IRS. However, schemers use micro-captives to register implausible risks, and unnecessary duplication of the taxpayer’s commercial coverages in a bid to avoid taxes. Another bogus tax avoidance strategy is employing syndicated conservation easements for inflatin

IRS Releases 2023 ‘Dirty Dozen’ Tax Scam List

As the 2022 tax season comes to a close, with less than two weeks left to submit returns, the Internal Revenue Service (IRS) has released its annual Dirty Dozen list of tax scams—warning individual citizens, businesses, and tax professionals to not let their guard down.

“Scammers are coming up with new ways all the time to try to steal information from taxpayers,” said IRS Commissioner Danny Werfel. “People should be wary and avoid sharing sensitive personal data over the phone, email or social media to avoid getting caught up in these scams. And people should always remember to be wary if a tax deal sounds too good to be true.”

These scams and schemes happen throughout the year, and not just during the tax season, said the agency. Here’s the full IRS list of possible scams that are encountered most by taxpayers. Some of this year’s entries are new to the list.

Employee Retention Credit Claims

Scammers use aggressive marketing tactics to advertise fake refunds related to the Employee Retention Credit (ERC). Taxpayers must be aware of such blatant attempts by fraudsters who promote their large refunds on radios and online—enticing citizens with a large payout. The end result is that no one receives a refund while scammers get hold of personal information that they will use for identity fraud.

Phishing and Smishing

Phishing is the practice of impersonating legitimate organizations to persuade individuals to reveal personal information. Tax scammers purport to be from companies including the IRS, and lure unsuspecting citizens to divulge financial information and personal data, which will be used for identity theft. Smishing is phishing via mobile text messages. The IRS typically reaches out through regular mail, and will not initiate contact with taxpayers by email, text, or social media.

Online Help

Personal information is easily stolen when taxpayers depend on third parties for “help” with creating an IRS online account. The process is simple, and citizens are encouraged to do the activity themselves through IRS.gov.

Fuel Tax Credits

Unscrupulous promoters entice taxpayers to inflate refunds by erroneously claiming the fuel tax credit, which is meant for off-highway business and farming use.

Fake Charities

Taking advantage of natural disasters and other crises, scammers pretend to be charities and misuse the public’s generosity. Besides losing money and personal information, citizens are not eligible for deductions if the charity is not a qualified tax-exempt organization recognized by the IRS.

Fake Consultants

Registered professionals have no issues signing or including their IRS Preparer Tax Identification Number as required by law. So, if the tax preparer does not wish to reveal themselves, this is a major red flag, and citizens ought to keep an eye out for such consultants, while also informing the IRS regarding such providers. Moreover, taxpayers should never sign a blank or incomplete return and are not advised to deal with someone who charges based on the tax refund payout.

Social Media Refunds

Fraudulent marketers make use of techniques like promoting obscure tax documents like Form W-2 or Form 8944 to lure taxpayers with additional refunds. Although the forms are real, many people are not eligible for these kinds of refunds, and in the process of cooperating with the online marketer, have nothing to gain but repercussions for inaccurate filing and loss of personal information.

Spearphishing

Spearphishing is a tailored phishing attempt that pertains to a specific organization or business, and targets tax preparers. Falling for this scam results in unscrupulous individuals gaining access to client data as well as the tax preparers’ identity, which allows the criminals to file fraudulent returns.

Offers in Compromise

Offers in Compromise are used by people who cannot pay to settle their federal tax debts due to various reasons. Fraudsters take advantage of the situation and offer misleading solutions to taxpayers who do not meet the criteria. Citizens can check their eligibility using this IRS tool.

High-Income Filers

The IRS has warned high-income taxpayers to be wary of two schemes. Charitable Remainder Annuity Trusts let individuals donate assets to charity and draw an annual income. Fake promoters misuse this facility to eliminate ordinary income and/or capital gain on the sale of the property. Scammers also make use of Monetized Installment Sales to defer the recognition of gain upon the sale of appreciated property through facilitating a “sale” in exchange for a fee.

Tax Avoidance Schemes

A micro-captive is an insurance company whose owners elect to be taxed on the captive’s investment income only, according to the IRS. However, schemers use micro-captives to register implausible risks, and unnecessary duplication of the taxpayer’s commercial coverages in a bid to avoid taxes. Another bogus tax avoidance strategy is employing syndicated conservation easements for inflating tax deductions on real estate. A conservation easement transferred to a charity, in normal circumstances, meets the requirements of Internal Revenue Code 170.

International Schemes

The IRS has warned individuals hiding assets in offshore accounts and accounts holding digital assets, such as cryptocurrency. The agency claims that it has the ability to track anonymous transactions of foreign financial accounts as well as digital assets. Secondly, the IRS cautions taxpayers against avoiding U.S. tax payments through fraudulent retirement arrangements in Malta, and improperly claiming tax exemptions. Finally, the agency has warned citizens against using fake insurance companies in Puerto Rico or other foreign nations, and then claiming tax deductions for the premium amounts.

As the IRS becomes aware of these schemes, they will challenge the transactions, and if found guilty, will impose penalties, said the federal agency. Taxpayers are legally liable for the information they provide on their tax returns.

For information regarding fraudulent practices, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary reward.