Let’s face it: few people really enjoy doing taxes, and even fewer enjoy paying them. That makes most of us willing to consider any opportunity to make doing taxes easier, and especially less costly. Unfortunately, scammers know this, and each year come up with inventive ways to separate us from our money under the guise of helping us. Some of these scams are high-tech, and some are less so, but they have all been effective, which is why they persist. The IRS calls the worst offenders the “dirty dozen” and updates their list annually. Take a look at the IRS’ 2023 dirty dozen, and remember: if something seems too good to be true, it probably is.
Getting Tax Advice and Forms From Social Media
We should all know by now: just because something is on social media doesn’t mean it’s true or accurate. Schemes circulating on social media have been encouraging taxpayers to fill out tax forms with false or misleading information in order to get a refund, or a bigger refund. Schemes circulating this year include Form 8944 (Preparer e-file Hardship Waiver Request) and Form W-2 (Wage and Tax Statement) Bottom line: If a tax “savings” tip requires you to use false information, it’s a crime—and the IRS is already watching for it. Get your tax advice from a reputable source.
Online “Help” Establishing IRS Accounts
There are scammers online who may offer to help you create an online account with the IRS. These accounts are real and helpful, but you don’t need anyone to help you set them up; it’s quite easy using the link above. Anyone offering you assistance establishing an account, even for free, is most likely trying to get their hands on your personal identifying information. Steer clear.
Dodgy Tax Preparers
A perennial entry on the IRS 2023 dirty dozen list is unethical tax preparers. While most tax preparers are trained professionals who take their responsibilities seriously, there are some who take advantage of taxpayers’ dislike of doing their own taxes. Red flags to watch for are preparers who are unwilling to sign your return as a preparer or include their IRS Preparer Tax Identification Number (PTIN) and preparers who ask you to sign a blank, incomplete, or false return.
Employee Retention Credit Scams
You may have heard or seen advertisements urging people to claim the Employee Retention Credit, a real tax credit for employers who shut down or lost significant revenue early in the COVID-19 pandemic but continued to pay employees. Unfortunately, those encouraging the public to apply may be basing “eligibility” on misleading information, and may even be trying to steal personal information in order to commit identity theft. If you are unsure whether you qualify for this credit, ask your accountant.
False Fuel Tax Credit Claims
You may not have heard of the fuel tax credit, which makes sense since only a very small percentage of taxpayers qualify (it’s intended for off-highway business and farming use). However, that hasn’t stopped scammers and shady tax return preparers from trying to get tax filers to claim the credit and inflate their refund. Again, if you’re not sure you are eligible for a certain tax credit, ask a qualified tax preparer.
Phishing and Smishing
“Phishing” and “smishing” sound funny, but these entries on the IRS 2023 dirty dozen are anything but. Phishing is an unsolicited email; smishing is an unsolicited text. These communications are designed to get the recipients to give up personal or financial information that allows the senders to steal their money or identity. Many claim to be from the IRS, which never contacts taxpayers unsolicited via email, text, or social media about a tax bill or refund.
While phishing is an unsolicited communication often sent out to a large group of people, “spearphishing” is a phishing attempt targeted to a particular business or organization, including tax preparers. If a tax preparer suffers a data breach due to a spearphishing attempt, not only may clients’ sensitive information be stolen, but the tax preparer’s identity may be stolen as well. That can result in the spearphisher filing fraudulent tax returns using the legitimate preparer’s identity.
Americans love giving to those in need, and scammers prey on this generosity in multiple ways. They often establish fake charities, especially in the wake of a natural disaster or other crisis. Charitable individuals may not screen these “donation opportunities” carefully, and often have not only their donations but identifying information stolen. To add insult to injury, only donations to a qualified tax-exempt charitable organization are tax-deductible.
Schemes Targeting High-Income Taxpayers
High-income tax filers are often more sophisticated, but they are not exempt from being tricked by the IRS 2023 dirty dozen. Certain schemes target them directly, such as promoters or advisors who encourage taxpayers to misuse Charitable Remainder Annuity Trusts (CRATs) to try to dodge taxation on income or capital gains from the sale of property.
Tax Schemes with International Components
Many people try to avoid taxation by placing money and other assets in offshore accounts or other international plans that promise large tax savings. Be assured that if your tax savings scheme involves international elements, the IRS is likely scrutinizing it carefully. Some such plans include Maltese individual retirement arrangements, which improperly assert the arrangement as a pension plan that allows contributions to be exempted from taxable income.
Offer in Compromise “Mills”
When a taxpayer cannot afford to pay their federal tax debts, they may be eligible for the “Offer in Compromise” program which allows them to settle their debt for less than they owe. However, not everyone is eligible for this program. So-called OIC “mills” mislead people to think they may be eligible, often costing them thousands of dollars and ultimately offering no benefit. You can check your eligibility for free using this IRS OIC pre-qualifier tool.
Bogus Tax Avoidance Strategies
There are, of course, legitimate ways to avoid paying unnecessary tax, but this item in the IRS 2023 dirty dozen includes bogus strategies like micro-captive insurance arrangements that lack the traits of legitimate insurance, but allow the owners of the insurance company to be taxed only on the captive’s investment income. Another scheme involves claiming a charitable contribution tax deduction for a conservation easement transferred to a charity, but with a grossly-inflated claimed value.
Everyone wants to save on their taxes. But working with a “professional” with questionable training or ethics, or claiming a deduction to which you are not entitled, could end up costing you more in the end. To learn more about the IRS 2023 dirty dozen, or tax planning in general, contact Estate Planning & Elder Law Services to schedule a consultation.