Key Takeaways:
- IRS-related scams occur year-round, with increased activity during tax season.
- The IRS does not initiate contact via email, text message, or social media.
- Promises of large refunds, secret strategies, or guaranteed tax savings are major red flags.
- Taxpayers are legally responsible for what appears on their tax return, even if a third party prepared it.
Here’s a recap of this year’s IRS Dirty Dozen, along with tips to protect yourself:
Employee Retention Credit (ERC) Claims
Scammers continue to aggressively market large refunds tied to the Employee Retention Credit, often targeting businesses and individuals who do not qualify.
Tips
- Avoid ads promoting guaranteed or unusually large ERC refunds.
- Do not share personal or business information with unsolicited promoters.
Phishing and Smishing
Be hyper-alert for fake communications from those posing as the IRS agents, which arrive in the form of an unsolicited text (smishing) or email (phishing) to steal personal or financial information.
Tips
- Don’t click links or open attachments claiming to be from the IRS.
Remember that the IRS will not contact you by email or text to discuss refunds or bills.
Assistance in Setting Up Online Accounts
Scammers offer to assist with creating an IRS account, then they use the information to commit identity theft or to file fraudulent tax returns.
Tips
- Never share your Social Security Number or login credentials.
- If you need help, contact the IRS directly using contact information found on IRS.gov.
False Fuel Tax Credit Claims
The fuel tax credit is intended for off-highway business and farming use and, as such, is not available to most taxpayers. Promoters often encourage improper claims to inflate refunds.
Tips
- Be cautious of preparers who suggest claiming credits you do not understand.
- Watch for improper use of Form 4136, Credit for Federal Tax Paid on Fuels.
Fake Charities
Scammers impersonate legitimate charities, especially during crises or natural disasters, to solicit donations.
Tips
- Be wary of charities with names similar to familiar or nationally known organizations.
Verify the legitimacy of charitable organizations using the IRS Tax Exempt Organization Search tool on IRS.gov.
Return Preparer Fraud
Legitimate tax professionals are a vital part of the U.S. tax system. Though some dishonest preparers operate each filing season to scam clients, perpetuate refund fraud, identity theft, and other scams that hurt taxpayers.
Tips
- Choose preparers recommended by people you trust.
- Review the IRS guidance on selecting a tax professional at IRS.gov.
Misleading Tax Advice on Social Media
Social media platforms often circulate inaccurate tax strategies involving common forms like W-2s or obscure filings designed to generate improper refunds.
Tip
- Remember, there is no secret way to fill out a form and simply get a larger refund that you aren’t entitled to.
Spearphishing Emails
Spearphishing is a phishing attempt tailored to a specific organization or business. Here, scammers target tax preparers and attempt to steal the tax preparer’s identity and secure the information they have on their clients— leading the thief to file fraudulent returns.
Tip
- The IRS cautions preparers to protect client information by being careful when opening emails, clicking links, or receiving requests that appear to come from a client.
Offer in Compromise ‘Mills’
Be wary of misleading tax debt resolution companies that exaggerate the likelihood of settling tax debts through an Offer in Compromise (OIC) while charging high fees to taxpayers who do not qualify. Although the OIC program helps thousands of taxpayers each year to reduce their tax debt, not everyone qualifies for an OIC.
Tips
- Use the IRS Offer in Compromise Pre-Qualifier tool to assess eligibility for free.
- You can apply for an OIC directly through the IRS without third-party representation.
Schemes Targeting High-Income Filers
These scams include Charitable Remainder Annuity Trusts (CRAT), where someone donates assets to charity and draws annual income, according to the IRS, and Monetized Installment Sales, which look for “taxpayers seeking to defer the recognition of gain upon the sale of appreciated property.”
Tip
- These arrangements are frequently misused and should be carefully reviewed with a qualified professional.
Bogus Tax Avoidance Strategies
Promoters pitch bogus tax strategies—for a high fee—that attempt to show taxpayers how to game the tax system with grossly inflated tax deductions.
One such scheme involves what are called “syndicated conservation easements,” tax breaks for property set aside for conservation. However, in unscrupulous schemes, appraisals are inflated, resulting in a higher deduction. Another scheme involves “micro-captive insurance arrangements,” which include implausible risks, failure to match genuine business needs and, in many cases, unnecessary duplication of the taxpayer’s commercial coverages.
Tip
- Learn more at https://www.irs.gov/newsroom/dirty-dozen.
Schemes With International Elements
Holding assets overseas, including offshore cryptocurrency, can significantly increase the likelihood of coming under IRS review.
Tips
- Be cautious of arrangements promising secrecy or reduced reporting obligations.
- Work with reputable tax professionals who understand international reporting requirements.
Frequently Asked Questions
How does the IRS typically contact taxpayers?
The IRS generally initiates contact by mail. It does not contact taxpayers by email, text message, or social media regarding refunds or payments.
What should I do if I think I’ve encountered a tax scam?
Do not respond or share information. Report the incident through IRS.gov and consult a trusted tax professional.
Am I responsible if my tax preparer makes a mistake?
Yes. Taxpayers are legally responsible for the accuracy of their tax returns, even when prepared by a third party.
Are all aggressive tax strategies illegal?
Not necessarily, but strategies promising guaranteed savings or secret loopholes should be treated with caution and reviewed carefully.
Working With Janney
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Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
