Don't Mess With Taxes

Perennial tax schemes, some tweaked ones, and a few new scams, make the 2024 version of the IRS Dirty Dozen. And these featured today are just the first six of the 12 cons the IRS calls out in 2024. The final 7 through 12 on the annual infamy list will be posted next week is posted here.

This week, as it does every week, the Department of Justice's Tax Division announced civil and criminal actions against several businesses and individuals accused of betraying taxpayer trust and cheating the Treasury Department out of tax dollars.

Some of those who were part of the tax legal actions allegedly were involved in activities that also made the Internal Revenue Service's 2024 Dirty Dozen list.

The annual Dirty Dozen list was first issued in 2002. It highlights scams that target taxpayers, businesses, and the tax professional community, and all too often end in the loss by victims of personal information, tax data, and money.

Tax schemes take place year round, as the IRS and its Security Summit partners in state tax agencies and the tax industry frequently warn. But some scams are more prevalent during the main, January to April 15, tax filing season. By being aware of the latest tax schemes, we all can better avoid falling prey to these malicious actions.

This year's IRS Dirty Dozen infamy list is featured in this week's Tax Felon Friday post. Well, actually the first half of the list is featured, as the IRS is spotlighting one scam a day and hasn't yet announced all 12 schemes. I'll showcase the remaining six next week.

Now, for your information, here are the first six Dirty Dozen cons that taxpayers and tax professionals should be alert for this tax season and beyond. The schemes are highlighted links that you can click on to read more directly from the IRS.

1. Phishing and smishing scams. This is an oldie and baddie that just will not go away. Phishing and smishing scams are designed to steal sensitive taxpayer information, and evolve every year. The methodology remains constant, though.

Taxpayers continue to be bombarded by phishing emails and smishing texts in which the fraudsters and identity thieves sending the communications try to trick the recipients into clicking a suspicious link, filling out personal and financial information, or downloading a malware file onto their computer.

"Scammers are relentless in their attempts to obtain sensitive financial and personal information, and impersonating the IRS remains a favorite tactic," said IRS Commissioner Danny Werfel. "People can be anxious to get the latest information about their refund or other tax issues, so scammers frequently try using the IRS as a way to trick people. The IRS urges people to be extra cautious about unsolicited messages and avoid clicking any links in an unsolicited email or text if they are uncertain."

2. Aggressive promotion of questionable Employee Retention Credit (ERC) claims. The ERC was a legitimate valuable tax break that helped companies and their employees make it through the worst part of the COVID-19 pandemic. But since the coronavirus has waned, unscrupulous and aggressive promoters have convinced many company owners to file ERC claims for which they were not eligible.

This has put unsuspecting businesses and other entities in jeopardy of penalties, interest, and potentially even criminal prosecution for claiming the ERC when they don't qualify and aren't entitled to it.

The IRS is working to stop improper claims, recover ones that were improperly paid, and nab those who are conning companies. The agency's efforts since last September have resulted in the stopping or recovery of more than $1 billion in erroneous ERC filings. And one of this week's Department of Justice (DoJ) actions was an indictment against a New Jersey tax preparer for allegedly seeking more than $150 million from the IRS by filing more than 1,600 false ERC returns for himself and his clients. 

With compliance work on ERC claims continuing and expanding through both audits and criminal investigations, the IRS reminds businesses they still have an option to withdraw any unprocessed claims.

3. "Helpful" scammers offer to set up taxpayers' online accounts. All of us need tax help now and then. But don't fall for those who show up, unsolicited, offering their assistance. This year's Dirty Dozen specifically includes scammers who offer help setting up an Online Account on IRS.gov. What they really are after is your personal tax and financial information that they then will use to commit identity theft.

As is the case in most scams, part of the con is true. Here, it's the IRS Online Account, a real IRS-created online tool that gives enrolled taxpayers access to their tax information. The information is also valuable to identity thieves, who use it to submit fraudulent tax returns in a victim's name to get a big refund.

"An Online Account at IRS.gov can help taxpayers view important details about their tax situation. But scammers have realized the sensitive information there is valuable to them, so they’re now focusing on tricking people that they need help setting up an account," said Werfel. So be wary of unexpected reach-outs from those purporting to be with the IRS or financial institutions. And never share sensitive personal data over the phone, email, or social media.

4. False Fuel Tax Credit claims. While tax scams typically are broad-based so as to con as many people as possible, sometimes specific cons (like the improper ERC claims in scam #2) find victims. That's the case with the fake Fuel Tax Credit claims that made this year's Dirty Dozen list.

The Fuel Tax Credit is a real tax breaks, but it is available only for off-highway business and farming use, not for most taxpayers. But the IRS continues to see instances where unscrupulous promoters or return preparers mislead taxpayers about fuel use and create fictitious documents or receipts for fuel. These fictitious claims are promoted by con artists who charge unsuspecting taxpayers inflated fees to file for the credit using the real IRS Form 4136, Credit for Federal Tax Paid on Fuels.

While fuel credit scammers too often drive away with the fees, leaving conned taxpayers to deal with the bad claim and its potentially costly tax ramifications, the DoJ announced this week that it had filed a suit against a multistate business accused of tax preparation fraud, including the filing false fuel credits.

5. Offer in compromise "mills" that claim only their services can help taxpayers resolve federal tax debt. Pricey offer in compromise (OIC) "mills" are a regular member of the annual Dirty Dozen list. The IRS warns that these companies, who tend to flood the media with aggressive advertisements that mislead taxpayers into thinking that the companies can make tax debts disappear for "pennies on the dollar." Not true.

While OIC is a real IRS tax debt reduction program and some companies do offer legitimate help here, many taxpayers do not meet the technical requirements to participate. By the time victims of OIC mills discover this, they've paid excessive fees to the scamming promoters.

"The program is legitimate, but it's not for everyone," said Werfel. "The IRS wants to help taxpayers who qualify for this program, but there are very specific requirements for people to qualify." You can find out about those OIC requirements, and learn if you are eligible to participate without having to pay for any outside help simply by using the IRS' free online Offer in Compromise Pre-Qualifier tool.

6. Fake charity scams. Whenever the sordidness of humanity gets me down, I find comfort in takes of how people so willingly help those in need. Then the IRS goes and reminds me that fake charities are again on the Dirty Dozen list.

Groups masquerade as charitable organizations to attract donations from unsuspecting contributors. The charity scammers are particularly active following natural disasters and other tragic events, when those compassionate individuals who cheer me up so readily donate money to help the victims. The vast majority give money or goods simply to help those who need it. Your contributions also could provide a tax deduction, but only if you itemize.

Sleazy charity scammers often cite the tax advantage of donating as part of their con. But they're not really interested in helping those who need the contributions or easing the tax bill of donors. Rather, they add insult to injury by not only taking donor money to their fake charities, but also by gathering sensitive personal and financial information that the crooks can use or sell for tax-related identity fraud.

Don't let these fake charities stop you from giving. Just donate wisely.

"People should remember it's important to never feel pressured to give donations immediately," said Werfel. "They should do some research and only donate to clearly established charities that help victims." Use the Tax-Exempt Organization Search (TEOS) online tool at IRS.gov. You also can find more on this process in my post 5 ways to determine whether a charity is naughty or nice.

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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