Don't Mess With Taxes

Today's post on the second half of the 2024 Internal Revenue Service's Dirty Dozen tax scams looks at a wide range of schemes and potential victims. Tax pros are targets, as are high income earners in schemes 7 through 12. Together with the Dirty Dozen's first six scams posted last week, there's a scam for almost all of us taxpayers. Take notice and don't become a Dirty Dozen victim.

Last Friday, I shared the first six of the Internal Revenue Service's annual Dirty Dozen list. As promised, this post wraps up schemes, cons, and scams 7 through 12.

This compilation of the year's most prevalent tax scams et al was first issued by the IRS in 2002. Now, almost a quarter century later, the tax crooks and the list warning about their schemes is still going strong.

The Dirty Dozen highlights scams that target taxpayers, businesses, and the tax professional community, and that all too often end with victims losing their personal information, tax data, and money. 

But, as the IRS and its Security Summit partners in state tax agencies and the tax industry frequently warn, awareness of the most popular schemes is a good start in stopping them. When you know the tricks that tax crooks are using, we all can avoid falling prey to these malicious actors.

Today's Part 2 of 2024 IRS Dirty Dozen infamy list, like last week's Part 1, is this week's featured Tax Felon Friday post. Also like last week's post, today's highlights of Dirty Dozen cons 7 through 12 have highlighted links that you can click on to read more directly from the IRS.

The crooks are still scheming, so let's get to the lookout list. 

7. Untrustworthy tax preparers. Professional tax help can solve a lot of taxpayer problems. But using an unqualified and unscrupulous tax preparer can cause taxpayers a lot more trouble. Bogus tax preparers have been a recurring theme in the Dirty Dozen for years. They cost not only taxpayers, but the U.S. Treasury.

Take, for example, the paid tax return preparer in Kennewick, Washington, who is facing Department of Justice (DoJ) action for allegedly filing tax returns for customers that officials contend "were riddled with errors, fabrications and fraudulent entries."

The DoJ complaint alleges that the tax preparer cost the United States an estimated $42 million dollars in lost tax revenue between 2017 and 2020. The taxpayers whose returns were part of the alleged fraudulent filings are the ones who could face further federal action.

Such shady preparers obvious steal taxpayer money, both as fees for the questionable tax prep service, as well as in many instances by skimming off illegally inflated refunds the filings created. But they also often steal taxpayer identities, creating continuing financial problems. Make sure you hire a legitimate tax preparer. And definitely beware tax preparers who show up only when tax season rolls around with promises of outrageous refund amounts before ghosting both taxpayers and the IRS.

8. Bad online tax advice. Most of us nowadays are online creatures. We depend on the internet for information, entertainment, and, yes, tax advice (thank you for reading!). But there's a lot bad tax information on social media. Taking tips from someone on Tik Tok or X, formerly known as Twitter,  without confirming its validity can lead to tax identity theft and tax problems.

"Social media is an easy way for scammers and others to try encouraging people to pursue some really bad ideas, and that includes ways to magically increase your tax refund," said IRS Commissioner Danny Werfel. "Unlike hacks to fix a leaky kitchen sink or creative makeup tips, people shouldn't rely on made-up ways on social media to patch up their tax return and boost their refund."

9. Spearphishing attacks of tax pros. We regular taxpayers obviously are tax scammer targets. But the crooks also know they can get more information by going after tax professionals. By hacking a tax office, criminals get their hands on the business' client data.

That's why the IRS this filing season continues to see a barrage of e-mail spearfishing attempts designed to steal the valuable information in tax pros' databases. Heck, even folks who aren't tax pros are getting them. Yes, I, a tax journalist and blogger, has a spam mailbox full of such emails.

Below is a sample I got. I redacted the purported new clients seeking my tax filing help so that people with the same names aren't confused for tax crooks.

Another email one from a different scammer included a "secure link" to that person's tax info if I could take them on as a new client. Sure, Jan.

If I'm getting these, I can only imagine how jammed tax preparers' email inboxes are.

10. Schemes targeting high-income filers. I admit it. I bought a Powerball lottery ticket when it topped $1 billion. Obviously I didn't win, but I still think about what I'd do if I ever had that much money, after, of course, I paid the humongous tax bill.

While the very rich are different from all us regular folk, we share one tax trait. They also want to find ways to reduce Uncle Sam's cut of their wealth. That's why tax crooks come up with schemes aimed at folks with lots and lots and lots of disposable income. These illegal tax cons include improper art donation deductions, charitable remainder annuity trusts, and monetized installment sales.

Here's the best tax advice for these wealth tax scam targets. Hire a legitimate financial and tax advisor and take their advice, not the unsolicited offers tax crooks propose.

11. Bogus tax avoidance strategies. Two phony tax avoidance schemes again appear on the Dirty Dozen list, syndicated conservation easements, micro-captive insurance arrangements.

Generally, taxpayers may claim a charitable contribution deduction for the fair market value of a conservation easement transferred to a charity if the transfer meets Internal Revenue Code requirements. That tax code condition is not met by promoters who syndicate conservation easement transactions that purport to give an investor the opportunity to claim charitable contribution deductions and corresponding tax savings, but by grossly inflating tax deductions that significantly exceed the amount the investor invested. The taxpayer is left on the tax hook while these abusive arrangements, while the promotors collect the high fees that the easement scheme generates.

In abusive micro-captive insurance arrangements often include implausible risks, failure to match genuine business needs, and in many cases, unnecessary duplication of the taxpayer's commercial insurance coverages. In addition, the so-called premiums paid under these arrangements are often excessive.

12. International tax avoidance scheme. Fraudulent offshore schemes designed to reduce or avoid taxes altogether are year-round tax thorn in the IRS' side, so it's no surprise that they once again round out the 2024 top 12 tax scams.

The Foreign Account Tax Compliance Act (FATCA) requires most U.S. taxpayers holding financial assets outside the United States to report those assets to the IRS. It also requires certain foreign financial institutions to report directly to the IRS about financial accounts held by U.S. taxpayers. But unscrupulous promoters continue to lure U.S. persons into placing their assets in offshore accounts and structures, saying they are out of reach of the IRS. These assertions are not true. The IRS can identify and track anonymous transactions of foreign financial accounts.

Digital assets often are a hook used to reel in tax victims. Shady promoters often recommend digital assets as being untraceable and undiscoverable by the IRS, especially if the transactions are made abroad. But, warns the IRS, it can identify and track anonymous transactions of digital assets, form virtual and crypto currency to stablecoins to non-fungible tokens (NFTs) around the globe.

Report fraud: If you encounter any of these or other scams, report them. You can do so electronically by using IRS Form 14242, Report Suspected Abusive Tax Promotions or Preparers.

You also can mail or fax a completed paper version of Form 14242 and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations. That U.S. Postal Service mailing address is —

Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, California 92677 3405

The fax number for the office is (877) 477-9135.

Taxpayers and tax professionals can also submit this information to the IRS Whistleblower Office, where they may be eligible for a monetary award. For details, refer to the sections on Abusive tax schemes and abusive tax return preparers.

Tax Felon Friday: If you want to catch up on all sorts of unscrupulous actions like those in the Dirty Dozen list, check out the ol' blog's posts on tax scams and identity theft schemes.

As for other tax miscreants, the ol' blogs' special Tax Felon Friday page is a good place to start. You also can peruse, what else, the tax crimes category. You'll find this post at the top of that collection right now, so just scroll down for more.

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