Here’s a recap of this year’s IRS Dirty Dozen, along with tips to protect yourself against the consequences of them:
Employee Retention Credit Claims
Beware of scammers who aggressively promote large refunds related to these pandemic-era credits.
- Avoid ads touting refunds, which can be based on inaccurate information related to eligibility for and computation of the credit.
- Do not provide personally identifiable information to these 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 lure you to provide valuable personal and financial information that can lead to identity theft. The IRS will never send taxpayers an email about a bill or refund out of the blue.
- Don’t click on a message claiming to be from the IRS.
- Be wary of emails and texts that may be nothing more than scams to steal personal information.
The Online Account Scam
Here, a third party offers to help you set up an online IRS account. The goal is to either steal your information to commit identity theft or to submit a tax return in your name and get a fraudulent refund.
- Never give out information—especially your Social Security Number—to someone claiming to represent the IRS.
- If you must, call the IRS directly; you can get the number from IRS.gov or a phone directory at your local library.
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.
- Beware of unscrupulous tax return preparers and promoters who may attempt to entice you to inflate your refunds by erroneously claiming the credit.
- Be on the lookout for those promoting filing certain refundable credits using Form 4136, Credit for Federal Tax Paid on Fuels.
Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors—especially when a crisis or natural disaster strikes.
- Be wary of charities with names similar to familiar or nationally-known organizations.
- Use the IRS’s Tax Exempt Organization Search Tool at irs.gov to find qualified charities.
Return Preparer Fraud
Legitimate tax professionals are a vital part of the U.S. tax system. Though there are some dishonest preparers who operate each filing season to scam clients, perpetuate refund fraud, identity theft and other scams that hurt taxpayers.
- Get a preparer recommendation from a person you trust.
- Visit https://www.irs.gov/tax-professionals/choosing-a-tax-professional.
Bad Advice on Social Media
Social media can circulate inaccurate or misleading tax information, which can involve common tax documents like Form W-2 or more obscure ones like Form 8944. These schemes encourage people to submit false, inaccurate information in hopes of getting a larger refund.
- Remember there is no secret way to fill out a form and simply get a larger refund that you aren’t entitled to.
Spearphishing is a tailored phishing attempt to a specific organization or business. Here, scammers target tax preparers and attempt to steal the tax preparers identity and secure the information they have on their clients— leading the thief to file fraudulent returns.
- The IRS cautions preparers to protect client information by being careful when opening emails, clicking on links or receiving requests that appear to come from a client.
Offer in Compromise ‘Mills’
Be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts through an Offer in Compromise (OIC). Unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt. Although the OIC program helps thousands of taxpayers each year to reduce their tax debt, not everyone qualifies for an OIC.
- You can can check their eligibility for free using the IRS Offer in Compromise Pre-Qualifier tool.
- You can apply for an OIC without third-party representation; but if you do solicit help, be cautious about whom you hire.
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.”
- Both of these arrangements can be misused by promoters and the IRS says taxpayers should avoid them.
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,” that often include implausible risks, failure to match genuine business needs and, in many cases, unnecessary duplication of the taxpayer’s commercial coverages.
- Learn more at irs.gov.
Schemes With International Elements
Those who stash money overseas or hold digital assets, such as cryptocurrency, offshore have a good chance at getting on the IRS’s radar.
- Think twice before including questionable arrangements on your your tax returns. After all, taxpayers are legally responsible for what’s on their return, not a promoter making promises and charging high fees.
- You can help stop these arrangements by relying on reputable tax professionals you know and trust.
Working With Janney
Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts.
For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.
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.