Each year, the IRS publishes the "Dirty Dozen" tax scams. This helpful list benefits taxpayers and tax professionals.
While tax scams tend to peak during tax-filing season, it is important to understand them. Scammers could take advantage of taxpayers at any time during the year.
IRS Commissioner Danny Werfel noted, "Scammers are coming up with new ways all the time to try to steal information from taxpayers. People should be wary and avoid sharing sensitive personal data over the phone, email or social media to avoid getting caught up in these scams. And people should always remember to be wary if a tax deal sounds too good to be true."
The 2023 Dirty Dozen includes a variety of new and creative scams. Below is the first half of the scam list. Next week's newsletter will cover the remaining half.
- Employee Retention Credit Scam — During the COVID-19 pandemic, Congress passed several incentives to encourage employers to retain their employees. One of these programs was a credit that could provide a substantial tax refund. It had the title Employee Retention Credit (ERC) and was designed to assist companies that had experienced a dramatic loss of business due to COVID-related lockdowns. However, ERC promoters attempted to deceive ineligible business owners to claim the credit. Many promoters used highly inaccurate information. Con artists will applied for credits for companies or businesses that did not have the required downturn and did not qualify. Some scammers also gathered data from businesses, failed to apply for the credit and then used the financial information for identity theft.
- Phishing and Smishing — Tax fraudsters have risen to new levels of creativity in email (phishing) and text (smishing) efforts. Email or text scams often impersonate the IRS, local law enforcement, a bank or financial institution. The fraudster attempts to lure a victim into sharing personal and financial information. This can then be used for identity theft. The IRS emphasizes that it initiates most contacts through regular mail and does not contact taxpayers by email, text or social media.
- Third-Party Scammer Help — A swindler will pose as a "helpful" third party. He or she offers to assist in creating an IRS online account at IRS.gov. In creating the online account, the helpful fraudster acquires personal and financial information from the taxpayer. This data can be used for identity theft. The IRS emphasizes that everyone can use IRS.gov to create his or her online account.
- Fuel Tax Credit Claims — Many businesses and farms use vehicles in fields or for construction purposes. Because these vehicles are not using the highways, there is a fuel tax credit available. The non-highway use qualifies the individual to receive a credit for the tax paid on gasoline and diesel fuel. However, tax fraudsters encourage taxpayers to claim an erroneous credit and inflate their refunds. There has been a dramatic increase in the number of false credits filed using IRS Form 4136, Credit for Federal Tax Paid on Fuels.
- Fake Charities — When there is a natural disaster (such as a pandemic), tax scammers often create fake charities. Good-hearted Americans respond to help those in need. However, donors should always use recognized and reputable charities for their gifts. The scammers create a fake charity with a name similar to a recognized nonprofit and then abscond with all of the gifts. The other problem for taxpayers is that a gift to a fake charity does not qualify for a charitable deduction. Only gifts to qualified tax-exempt charities qualify for a deduction.
- Ghost Tax Preparers — Most tax preparers are honest and capable individuals. However, there are some dishonest tax preparers who may claim they can increase the size of a refund. Anyone who charges a fee based on the amount of a refund is suspect. There are "ghost" preparers who prepare returns but typically refuse to sign the return or include an IRS Preparer Tax Identification Number (PTIN). This PTIN is required by law. Never sign a blank or incomplete tax return.
The IRS encourages individuals who suspect tax fraud to complete IRS Form 14242, Report Suspected Abusive Tax Promotions or Preparers. This can be sent to the Internal Revenue Service Lead Development Center, Stop MS5040, 24000 Avila Road, Laguna Niguel, CA 92677-3405.