Don't Mess With Taxes

The Internal Revenue Service has wrapped up its 2021 version of the Dirty Dozen Tax Scams. In announcing the cons by category, the agency was able to elaborate more on each trick on the list.

In case you missed the posts earlier this week, here are the ol' blog's posts on each of them:

Pandemic related scams, aka Part 1, which focuses on attempts steal COVID-19 Economic Impact Payments (EIPs) and other tax-related coronavirus relief distributed by the IRS, from Monday, June 28;

Personal information cons, or Part 2, with a look at phishing, its cousin voice phishing or vishing, and ransomware, from Tuesday, June 29;

Ruses that focus on unsuspecting victims, the Part 3 that examines fake charities and fraudulent schemes targeting senior citizens or immigrants, from Wednesday, June 30; and

Questionable schemes that promote abusive structures, aka Part 4, with a review of some somewhat elaborate tax breaks, such as syndicated conservation easements and the U.S.-Malta tax treaty, from Thursday, July 1.

In easy list-form, too: And below, as promised (or threatened, depending on your tolerance for tax scam talk) repeated this week, is the 1-through-12 Dirty Dozen list that I gleaned from the IRS four-part series.

Why the redundancy? Because I am a list loving tax geek!

For all you with me, here is 2021's slate of bad tax actors and actions, with the IRS category post in which they were originally mentioned also noted —

1. COVID-19 economic impact payment scams continue. Ah, yes, the coronavirus pandemic. Not only did it massively disrupt our lives for 18 months (and more in some cases), it opened up a whole new area for tax scammers. Most of these cons, as noted in the Part 1 post on pandemic related scams, were created to try to steal the various COVID relief payments enacted in 2020 and 2021.
   
   
2. Unemployment scams join the list this year. Millions lost their jobs due to the pandemic. At least they were eligible for unemployment benefits. But crooks, "working" at their, uh, jobs, took advantage of this situation, too, with two versions of COVID-related unemployment scams.
   
   First, there are the individuals who learned that someone had stolen their identities and used that info to apply for the out-of-work financial assistance. That left the real taxpayers on the hook for taxes due, or at least unraveling the tax mess, at filing time, after they got a Form 1099-G for unemployment insurance benefits they never claimed or received. This is discussed in 2021's Dirty Dozen part 1 post.
   
   The second set of unemployment fraud victims were employers, states, and financial institutions. Crooks concocted ways, acting in coordination with or against employers and financial institutions, to get state and local financial aid to which they are not entitled. The IRS warns that these institutional scams can pose problems that can adversely affect taxpayers in the long run.
   
   
3. Phishing for tax and financial details is the preferred scam tactic of so, so many crooks. As noted in Part 2 of this year's personal information scams discussion, both individuals and tax professionals were (and are) the targets.
   
   
4. IRS impersonations continue to be a big part of the personal info scams, with calls threatening legal action, loss of government benefits or even jail, as noted in Part 2.
   
   
5. Social media scams have grown as more of spend time on popular internet outlets. Here, as noted in the Part 2 post, crooks gather the personal data we share and often are able to piece together ways to get into our accounts. If they can't get enough to go there directly, they use the tidbits we too eagerly share online as hooks in phishing attempts to get us to reveal even more.
   
   
6. Ransomware tends to be a problem, also noted in Part 2, for entities rather than individuals. But it's a good reminder for us all to make sure our computers and tax files and information are secure and backed up regularly.
   
   
7. Fake charities are one of the worst side effects of natural disaster or tragedies. Con artists try to take advantage of taxpayer good will, as noted in Part 3's look at tax ruses, to get them to donate. They offer a potential tax deduction to sweeten the giving pot. Unfortunately, the charities to which they direct victims don't exist, meaning those in need don't get it, and the donor is out the gift and the tax break.
   
   
8. Senior citizens often are the targets of the frauds discussed in Part 3. Too often, they are lonely and respond to the attention and praise for helping. Others may be more easily frightened when con artists threaten them with the loss of Social Security benefits unless they share account info with the con artist.
   
   
   
   I've got to point out, though, that the grandchildren of older tax scam targets shouldn't get too complacent. Recent studies have found that young people are increasingly scam victims. So everyone beware.
   
   
9. Non-English speakers get similar treatment from tax crooks. As also noted in Part 3, the threat of deportation is used to coerce these individuals to pay the con artists.
   
   
10. An Offer in Compromise (OIC) is one way to legitimate pay part of a large tax bill you owe. OIC mills, however, are fraudulent promised of making your excessive tax bill go away. Instead, as discussed in Part 3, the cons running these mills take more of the tax-owing individuals' money without resolving the underlying tax debt.
    
    
11. Abusive tax break arrangements are ways that promoters convince taxpayers they can reduce what they owe Uncle Sam. As discussed in Part 4, the aggressive advocates of these plans tend to take a part of the Internal Revenue Code and twist it to their questionable, and sometimes abusive, tax plans. When the IRS determines those tax break takes are not legit, the promoters and participating taxpayers end up owing and possibly facing criminal tax charges.
    
    
12. Ghost tax preparers and other unscrupulous tax professionals are among the scariest of scammers. Sketchy tax pros don't just focus on the elaborate arrangements in #11. They also con regular Joe and Jill Taxpayers who are just looking for professional help to legally file and pay as little as possible or get tax breaks they might have overlooked. But when the help isn't legit, as discussed in Part 2, these tax pros who break bad leave their victims holding the tax bag.

Getting help if you are a scam victim: If you fall prey to ghost preparers or any of the other bad tax actors and cons listed above, who you gonna call? The real IRS, among others.

The IRS' special online Taxpayer Guide to Identity Theft page has a variety of links for assistance. If your identity has been used to file a false tax return, you'll likely learn of that when you go to file an your real 1040 is rejected or you get a notice from the IRS about your not-real filing.

In the case of a crook beating you to the filing punch, you now can get a copy of the fraudulent return filed in your name. Then you need to complete IRS Form 14039, Identity Theft Affidavit. You can't e-file it, but you can use the IRS' fillable form version, then print it and attach the 14039 to your legitimate return that you'll mail via the U.S. Postal Service. More details are on the form.

If you find out about an illegal filing using your personal information thanks to an IRS notice about the fraudulent return, respond immediately to that notice. Call the number on the correspondence.

The IRS has more tax ID theft info and advice on its Identity Theft Victim Assistance: How It Works page and in the overview IRS Publication 5027, Identity Theft Information for Taxpayers. If you prefer calling, use the IRS ID Theft toll-free line at 1-800-908-4490.

The Federal Trade Commission's (FTC) general IdentityTheft.gov page also is a good resource. There you can report identity theft and get started on a recovery plan, such as placing a fraud alert with the three national credit reporting companies and closing accounts that you know or suspect might be compromised.

Prevention preferred: However, the best protection from tax scams is prevention.

A special IRS-issued number to thwart tax identity theft is now available to all taxpayers. The agency's identity protection personal identification number, or IP PIN, program was expanded nationwide at the start of the 2021 filing season. Previously it was available only to victims of ID theft or taxpayers in certain states.

The IP PIN lets the IRS verify that it is indeed you who has filed your tax return. Once you have the six-digit code, the agency won't accept an electronically filed return in your name without it. If a paper return shows up without the IP PIN, it will get added IRS scrutiny.

Learn more about the IP PIN program and apply for one at the IRS' special web page.

Tax software companies also have increased security measures. This filing season, manufacturers offered multi-factor identity protection to their online tax preparation products.

Note the distinction. If you still buy the companies' hard-disk, off the store shelf versions to load onto your computer, the multi-factor authentication feature might not be available. I suspect that will change after the 2021 filing season. Until then, take extra security precautions yourself.

As for some other security steps to protect your tax identity, check out my post 6 ways to avoid being a tax scam victim.

And even if you don't fall victim, please share attempts to con you with officials. The IRS has a couple of online pages — How Do You Report Suspected Tax Fraud Activity? and Tax Scams - How to Report Them — with more on how you can do this.

By learning of every new or revised tax scam as soon as possible, the IRS and its Security Summit partners will be able to shut them down and warn others.

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