“The IRS ‘Dirty Dozen’ Roundup”

The Dirty Dozen isn’t only for the movies. Annually, the IRS compiles a list of twelve prevalent scams that tax professionals—and taxpayers—should be aware of. Here is the 2024 roundup:

1. Phishing and Smishing Scams: Through email and text messages, fraudsters attempt to trick recipients into clicking suspicious links, providing personal and financial information, or downloading malware files onto their computers or devices. These scams are designed to steal sensitive information for nefarious use, such as identity theft and fake tax returns for refunds.
2. Questionable Employee Retention Credit Claims: The Employee Retention Credit (“ERC”) is a legitimate tax credit that was designed to help businesses suffering from suspended operations or decline in gross receipts from the Covid-19 pandemic. This credit is subject to strict eligibility guidelines. In taking advantage of well-meaning businesses, promoters—in return for a hefty fee—will inform a business that it can claim the credit when, in fact, the business is ineligible.
3. IRS Online Account Help: The online account allows taxpayers to access tax-related information. Scammers will offer to help set up these accounts, thereby obtaining personal information to steal a tax refund or undertake other criminal endeavors.
4. False Fuel Tax Credit Claims: Like the ERC, the Fuel Tax Credit is a legitimate credit that is available only to a select few. Promoters, however, make taxpayers believe otherwise, charging high fees to create fictitious claims replete with false documents and receipts for fuel.
5. Offer in Compromise Mills: The IRS offers a program to settle tax debt for less than the full amount owed. Like other legitimate credits and programs discussed, the program has specific eligibility requirements. Promoters will promise taxpayers that they can take advantage of the program when they do not qualify.
6. Fake Charities: Scammers will disguise themselves as legitimate charities to obtain money and sensitive information from good-hearted groups and individuals. Most commonly, these fake charities are created in response to real tragedies, like natural disasters. The scammers prey on the public’s innate sense to provide help to those in need and promise charitable contribution tax deductions in return.
7. “Ghost” Tax Preparers: These “ghost” preparers encourage taxpayers to take advantage of credits and benefits they do not qualify for. As to the “ghost” name, the preparer will charge a large percentage of the tax refund, or the entire refund, then disappear after the tax return is filed. The taxpayer is then left to deal with the consequences alone.
8. Tax Advice on Social Media: Reminder – not everything on the Internet is true. People on social media may provide “advice” on how to get a tax refund. Most of these strategies, however, are unsound and illegal, focusing on improperly using legitimate tax forms.
9. Cyber Attacks to Gain Sensitive Information: Identity thieves send emails posing as potential new tax clients to gain access to tax professionals and their clients’ sensitive information. Everyone—especially business professionals—should remain vigilant in vetting emails from unknown contacts.
10. Schemes Aimed at High Income Filers: It is no surprise that high income filers are especially attractive to scammers. Over the years, various schemes have been created and deployed to these filers’ detriment. Recent schemes include improper art donation deductions, misapplication of rules related to charitable remainder annuity trusts, and monetized installment sales.
11. Aggressive Tax Avoidance Strategies – Syndicated Conservation Easements and Micro-Captive Insurance Arrangements: As to the easements, the tax code includes a charitable contribution deduction for specific conservation easements transferred to a charity. For high fees, certain promoters are hyping conservation easement transactions to investors that are purportedly eligible for the deduction and other tax savings, promising that the tax savings outweigh the investment. In fact, these schemes can become abusive if not handled correctly, resulting in grossly inflated tax reductions. And regarding micro-captive insurance agreements, there are a variety of illegitimate schemes stemming from such agreements. The common factor among these schemes is foundational – the insurance itself is illegitimate.
12. Schemes with International Elements: Tax schemes with international elements are nothing new. There are, however, new players in the game. First, by misusing a tax treaty with Malta, taxpayers are being lured into contributing to foreign individual retirement arrangements with false promises of exemption from U.S. income tax related to these arrangements. Second, scammers have glommed onto the digital asset hype, perpetuating various schemes based on the promise of these assets being untraceable and undiscoverable by the IRS.

Consequences stemming from these abusive tax schemes carry not only civil penalties, but criminal charges. If you fear that you may have become entangled in one of these schemes, or you are the target of a promoter marketing a strategy that seems too good to be true, call the trusted professionals at Flannery Georgalis.