Each year, the IRS produces a list of its “Dirty Dozen” tax scams. These scams tend to spike from December through April, but they can—and do—happen year-round. It’s wise to stay on top of the latest list of common issues—and take some simple steps to stay safe from them.
Here’s a recap of this year’s IRS Dirty Dozen, along with tips to protect yourself against the consequences of them:
Be hyper-alert for fake emails or websites looking to steal personal information, especially during tax season. The IRS will never send taxpayers an email about a bill or refund out of the blue.
- Don’t click on one claiming to be from the IRS.
- Be wary of emails and websites that may be nothing more than scams to steal personal information.
Phone calls from criminals impersonating IRS agents remain an ongoing threat. The IRS has seen a surge of these phone scams in recent years as scam artists threaten taxpayers with police arrest, deportation, and license revocation, among other things.
- 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.
Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally-known organizations.
- Take a few extra minutes to ensure your hard-earned money goes to legitimate and currently eligible charities.
- Use tools on IRS.gov to check out the status of charitable organizations
Return Preparer Fraud
Be on the lookout for unscrupulous return preparers. Legitimate tax professionals are a vital part of the U.S. tax system. The vast majority provide honest, high-quality service. 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
- Turn to a well-known brand preparer company
Social Media Scams
Be aware of the potential for social media scams that can lead to tax-related identity theft. Using personal information, a scammer may email a potential victim and include a link to something of interest to the recipient which contains malware intended to commit more crimes. Scammers also infiltrate their victim’s emails and cell phones to go after their friends and family with fake emails that appear to be real and text messages soliciting, for example, small donations to fake charities that are appealing to the victims.
- Confirm the legitimacy with your family member/friend outside of social media before clicking a link or making a donation
Unscrupulous Tax Return Preparers
Although most tax preparers are ethical and trustworthy, taxpayers should be wary of preparers who won’t sign the tax returns they prepare, often referred to as ghost preparers. For e-filed returns, the “ghost” will prepare the return, but refuse to digitally sign as the paid preparer.
By law, anyone who is paid to prepare, or assists in preparing federal tax returns, must have a valid Preparer Tax Identification Number (PTIN).
Unscrupulous tax return preparers may also: require payment in cash only and will not provide a receipt, invent income to qualify their clients for tax credits, claim fake deductions to boost the size of the refund or direct refunds into their bank account, not the taxpayer’s account.
- Be sure to choose your taxpayer wisely. Visit https://www.irs.gov/tax-professionals/choosing-a-tax-professional for tips.
- Remember that you, as the taxpayer, are legally responsible for what is on your tax return, even if it is prepared by someone else, so protect yourself by choosing wisely.
Unemployment Insurance Fraud
Unemployment fraud scams can pose problems that may adversely affect taxpayers in the long run, so it’s important for states, employers, and institutions to be aware of the following scams related to unemployment insurance:
- Identity-related fraud
- Employer-employee collusion fraud
- Misrepresentation of income fraud
- Fictitious employer-employee fraud
- Insider fraud
Look out for these red flags:
- Unemployment payments are coming from a state other than the state in which the customer reportedly resides or has previously worked.
- Multiple state unemployment payments are made within the same disbursement timeframe.
Offer In Compromise “Mills”
Be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for “pennies on the dollar” through an Offer in Compromise (OIC). But 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 reduce their tax debt, not everyone qualifies for an OIC.
- You can use the free online Offer in Compromise Pre-Qualifier tool to see if you qualify.
- Taxpayers can apply for an OIC without third-party representation; but if you do solicit help, be cautious about whom you hire.
Syndicated Conservation Easements
In syndicated conservation easements promoters take a provision of tax law for conservation easements and twist it through using inflated appraisals of undeveloped land and partnerships. These abusive arrangements are designed to game the system and generate inflated and unwarranted tax deductions, often by using inflated appraisals of undeveloped land and partnerships devoid of a legitimate business purpose.
- Find additional information at IRS Increases enforcement action on Syndicated Conversion Easements.
Abusive Micro-Captive Arrangements
In abusive “micro-captive” structures, promoters, accountants or wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes of insurance. For example, coverages may “insure” implausible risks, fail to match genuine business needs or duplicate the taxpayer’s commercial coverages. But the “premiums” paid under these arrangements are often excessive and used to skirt tax law.
- Additional information can be found here.
Ransomware is malware—an invasive software often inadvertently downloaded by the user—targeting human and technical weaknesses to infect a potential victim’s computer, network, or server. Once downloaded, it tracks activity and once infected, ransomware looks for and locks critical or sensitive data with its own encryption.
- Cybercriminals might use a phishing email to trick a potential victim into opening a link or attachment containing the ransomware, such as solicitations to support a fake COVID-19 charity.
- Use the free, multi-factor authentication feature being offered on tax preparation software products.
Immigrant/ Senior Fraud
IRS impersonators and scammers often target groups with limited English proficiency as well as senior citizens. The IRS reminds taxpayers that the first contact with the IRS will usually be through mail, not over the phone. Legitimate IRS employees will not threaten to revoke licenses or have a person deported.
- The Schedule LEP PDF allows a taxpayer to select in which language they wish to communicate. Once they complete and submit the schedule, they will receive future communications in that selected language preference.
- Seniors need to be alert for a continuing surge of fake emails, text messages, websites, and social media attempts to steal personal information.
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This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.
Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. 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.
The examples provided are all hypothetical and do not take into account any specific situations. The hypothetical examples are provided to help illustrate the concepts discussed throughout and do not consider the effect of fees, expenses, or other costs that will effect investing outcomes. Any actual performance results will differ from the hypothetical situations illustrated here. Please consult a professional to help you evaluate your situation before implementing any of the strategies discussed here.