Don't Mess With Taxes

Scammers tend to use tried and true techniques to con people out of their identities and money. One of the most popular schemes involves crooks pretending to be real-life officials.

And the Internal Revenue Service is near the top of government agencies that con artists impersonate.

CloudFlare, a company which provides security for many companies' online operations, says that the IRS ranks sixth in the 50 top brands when it comes to phishing attempts that use fake sites. The example given by CloudFlare included "IRS" along with the words "contact" and "payment." A big tip-off that the URL is fake comes from its .com suffix, rather than the .gov that is at the end of real federal and state agency websites.

That's why the IRS' 2023 version of its annual Dirty Dozen tax scams list includes a warning to be alert for fake communications from con artists posing as legitimate tax and financial group representatives.

Old or new, still costly: Many of the other cons that made this year's list also are oldies-but-baddies. Others are new to the 2023 list, which was compiled by the IRS and its Security Summit partners in state tax agencies and the tax industry, including tax professionals,

These tax scams and schemes pop up year-round, with fraudsters looking for ways to steal money, personal information, data, and more. But the perpetrators are especially active during the annual tax filing season.

If you've yet to file, they offer fake tax-saving schemes. If you've submitted your return and are awaiting a refund, the crooks say they can get your money to you sooner.

And if filed, paid or got your refund, and you think you're done with the IRS, think again. Some crooks tell their victims that there's an issue with their return.

So wherever you are on the tax season spectrum, stay alert and don't fall for any of the following 12 tax schemes. You can click on the numbered scam titles for more information.

1. Employee Retention Credit (ERC) claims: This filing season the IRS has seen aggressive pitches from scammers who promote large refunds related to the Employee Retention Credit (ERC). This refundable tax credit was created to help businesses that continued to pay employees after they closed due to the COVID-19 pandemic. It also covers companies' significant declines in gross receipts from the pandemic's prime period of March 13, 2020, to Dec. 31, 2021.

Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates. Only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021.

You may have heard ads on the radio or internet touting radio touting ERC refunds. However, warns the IRS, these promotions can be based on inaccurate information related to eligibility for and computation of the credit. Some promoters use blatant attempts to get ineligible people to claim the tax credit, says the IRS. Others simply are using the advertised false tax relief promises as a way to collect personal information and steal their victims' identities.

2. Phishing and smishing: As noted earlier, fake communications from scammers posing as legitimate tax or financial organizations, such as the IRS, remain prevalent. The unsolicited email phishing and text smishing messages are created to lure unsuspecting victims to provide valuable personal and financial information that can lead to identity theft. The IRS initiates most contacts through regular mail and will never make first contact with taxpayers about a bill or tax refund by email, text, or social media.

3. Online account help from third-party scammers: Swindlers offer to help taxpayers create an Online Account at IRS.gov. In reality, you don't need outside help to set up your federal online tax account. But these crooked third parties will take the account information and use it to steal their victims' identities and possible tax refund (and other) money.

4. False Fuel Tax Credit claims: The fuel tax credit is meant for off-highway business and farming use, and therefore is not available to most taxpayers. However, unscrupulous tax return preparers and promoters are enticing taxpayers to inflate their refunds by erroneously claiming the credit. The IRS has seen an increase in the promotion of filing certain refundable credits using a real tax document, Form 4136, Credit for Federal Tax Paid on Fuels.

5. Fake charities: Bogus charities are a perennial problem that gets bigger whenever a crisis or natural disaster strikes, and we've had plenty of those already this year. Scammers set up fake organizations to take advantage of the public's generosity. In addition to asking for money, the con artists often also ask for donors' personal information, which can be used to further exploit the generous victims through identity theft.

If you plan to itemize and deduct your donation, before you give to any group make sure you know the tax rules. A prime one is that charitable donations only count if they go to a qualified tax-exempt organization recognized by the IRS.

6. Unscrupulous tax return preparers: Most tax preparers are reputable professionals who provide reliable, correct service. But the sad fact is that, as in all professions, some tax pros are in the business to steal from their clients. To avoid hiring a shady tax professional, the IRS urges you to watch for common warning signs, such as charging a fee based on the size of the refund.

Another major red flag is when the tax pro won't sign the preparer line on your return. Avoid these ghost preparers, who got that moniker due to their refusal to sign or include their IRS Preparer Tax Identification Number (PTIN), as required by law, on the 1040s they prepare. Never sign a blank or incomplete return.

7. Social media's fraudulent filing and bad tax advice: I do my best to share the most up-to-date and accurate tax information. So do the tax pros I know who blog and/or are on social media. Unfortunately, that's not universally true, meaning inaccurate or misleading tax information can quickly go viral on Twitter, TikTok, Facebook, and other online outlets.

The IRS — and I and the #TaxTwitter community — have seen such examples. These often involve common tax documents like Form W-2 or more obscure ones like Form 8944, Preparer e-file Hardship Waiver Request. While Form 8944 is real, it is intended for a very limited, specialized group. In both schemes, the bad social media advice encourages people to submit false, inaccurate information in hopes of getting a refund.

A couple of truisms come to mind here. First, from the IRS, which says always remember that if something sounds too good to be true, it probably is. And my recommendation that you always double check online tax advice, either at IRS.gov or with a trusted tax professional.

8. Spearphishing and cybersecurity for tax professionals: Phishing makes a second appearance on this year's Dirty Dozen in its specialized spearphishing form. These emails are phishing attempts tailored to a specific organization or business. Spearphishing is a particular concern for tax professionals, whose client database can be a treasure trove for criminals. A successful spearphishing attack that ultimately steals client data and the tax preparer's identity will enable the thief to file fraudulent returns.

9. Offer in Compromise (OIC) mills: An offer in compromise (OIC) is an important program to help people settle large tax debts they can't pay. There are, however, requirements before the IRS accepts a less-than-full payment offer. OIC mills, however, aggressively promote these payments in misleading ways to people who clearly don't meet the qualifications, frequently costing taxpayers thousands of dollars. A taxpayer can check their OIC eligibility for free using the IRS' Offer in Compromise Pre-Qualifier tool.

10. Schemes aimed at high-income filers: Taxpayers of all incomes are tax scam targets. However, crooks love to sucker high-income filers because, well, they have more money to steal. The IRS has included a couple of schemes aimed at higher earners in this year's Dirty Dozen. They are —

• Charitable Remainder Annuity Trusts (CRATs), which are irrevocable trusts that let individuals donate assets to charity and draw annual income for life or a specific period. Unfortunately, these trusts are sometimes misused by promoters, advisers, and taxpayers to try to eliminate ordinary income and/or capital gain on the sale of the property.

• Monetized Installment Sales, where promoters find taxpayers seeking to defer the recognition of gain upon the sale of appreciated property. These potentially abusive transactions facilitate a purported monetized installment sale for the taxpayer in exchange for a fee.

11. Bogus tax avoidance strategies: Taxes are complicated. That's a curse for taxpayers, but a boon to crooks who use the Internal Revenue Code's byzantine structure to come up with their own bogus tax schemes aimed at reducing taxes or avoiding them altogether. These schemes can take many shapes, ranging from abusive deals involving syndicated conservation easements and micro-captive insurance arrangements.

12. Schemes with international elements: Tax crooks also go exotic with their ploys, peddling purported tax saving schemes that have an international component. They range from hiding cash and digital assets offshore to Maltese foreign individual retirement accounts to foreign captive insurance with a Puerto Rico or a non-United States corporation.

The con artists tell their targets that placing assets in foreign accounts and/or setting up structures abroad are out of reach of the IRS. That's a lie. The IRS can (and does) identify and track anonymous transactions of foreign financial accounts as well as digital assets.

Taxpayers ultimately responsible: The main reason to avoid each of these Dirty Dozen scams, schemes, and cons is to protect your personal and tax data. Falling prey to these false tax promises could cost you dollars well beyond tax time.

The other reason is that while the 12 listed here are illegal and the IRS Criminal Investigation Division will prosecute scheme perpetrators when it catches them, their taxpayer victims will also pay.

When you sign your tax return (even if your ghost preparer doesn't), you are swearing upon penalty of perjury that what's on that filing is true and correct. You (and your spouse, too, if y'all are filing a joint return) also are pledging to pay any tax liability. You (and your applicable spouse), not your preparer, are responsible.

The IRS might let you off the hook criminally if you're an unwitting victim, but you'll still have to pay any tax, and penalty and interest charges, that was avoided by the illegal tax scams.

"Scammers are coming up with new ways all the time to try to steal information from taxpayers," said IRS Commissioner Danny Werfel. "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."

You also might find these items of interest:

• Don't fall for frivolous tax arguments
• IRS approves some fake charities. What's a donor to do now?
• Ways to keep your business from becoming a tax cybercrime target
• GAO urges IRS to include abusive tax schemes, ways to report promoters, in Dirty Dozen list

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