Tax Scams: The “Dirty Dozen” to Avoid

Unfortunately, the time when people are preparing their income tax returns is ripe for criminals to hack computers, commit fraud, steal personal data and money.

Below is a summary of this year’s list[1] of scams to stay vigilant about and some tips to help you to avoid becoming a victim.

Phishing and Smishing

Scammers often send fake emails and/or text messages (smishing) coaxing individuals to click on nefarious  links or attachments, divulge personal or financial information or download malware to compromise the security of their computer. Phishing and smishing attempts can come from a variety of sources and often use scare tactics to entice the victim to act immediately fearing that their accounts have been compromised or that they are in trouble with the IRS or other government agency.

Social Media Tax Advice

Social media is a petri dish for spreading inaccurate and misleading tax advice, which may encourage people to submit false information in hopes of a refund. The IRS is wise to these scams and taxpayers can face civil and criminal penalties. Some of the recommendations being circulated can also lead to exposing personal information creating even more problems for taxpayers. Tax advice should come from the IRS or from a trusted and reputable tax professional, not Tik Tok or other social media platforms.

“Helpful” scammers offering to set up online accounts

Scammers pose as services that help taxpayers open IRS Individual Online Accounts, then use the data provided to steal personal information, open credit accounts, secure loans and file fake tax returns. Opening an Individual Online Account does not require third-party assistance. The IRS urges taxpayers to set up their accounts directly on their official IRS.gov website only.

Fake charities

Crises, like those resulting from natural disasters or geopolitical unrest, can create opportunities for scammers to take advantage of sympathetic people. Criminals may establish fake charities, sometimes with familiar sounding names, soliciting donations, often enticing people with the possibility of an income tax deduction. Not only do they abscond with well-meaning peoples’ money, but also their personal and financial information to use for further fraud.

False Fuel Tax Credits

Some promoters push improper Fuel Tax Credits which most taxpayers are ineligible for. Scammers purport to be tax preparers who “prepare returns” using fabricated receipts claiming fictitious fuel use to charge more in preparation fees. Once paid, they are nowhere to be found when the IRS figures it out. The taxpayers are left behind to resolve their bad claims and make restitution. Following this inaccurate information and guidance can lead to having to make repayment and potentially pay fines.

Credits for Sick Leave and Family Leave

This specialized credit, available for self-employed individuals for the 2020 and 2021 tax years, no longer exists. The IRS has observed numerous taxpayers incorrectly using Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to claim a credit based on income earned as an employee rather than as a self-employed individual.

Bogus self-employment tax credit

Social media advice continues to circulate about a non-existent “Self-Employment Tax Credit” misleading taxpayers into filing bogus claims. Promoters market it as a way for self-employed people and gig workers to get big payments for the COVID-19 pandemic period. Like misleading marketing around the Employee Retention Credit, there is inaccurate information circulating to suggest people qualify for the tax credit and payments up to $32,000 when they do not.

In reality, the underlying credit being referred to in social media is not the “Self-Employment Tax Credit,” it’s a much more limited credit called the Credits for Sick Leave and Family Leave. Many people simply do not qualify for these credits. The IRS is closely reviewing claims, so taxpayers filing claims do so at their own risk.

Improper household employment taxes

Taxpayers “invent” fictional household employees and then file Schedule H (Form 1040) to claim a refund based on false sick and family medical leave wages they never paid.

The overstated withholding scam

A recent scheme spreading on social media urges people to falsely complete W-2s and 1099s with fabricated income and withholding amounts. Fraudsters advise individuals to invent fake employers supplying high income and withholding amounts. They then encourage taxpayers to file these false returns electronically, hoping to receive a refund based on the fabricated withholding. If the IRS cannot verify the income, wages, or withholding reported, the refund will be delayed for further review. Taxpayers should always file accurate and complete returns, using only legitimate documents, such as a Form W-2 from an employer, to ensure their returns are correct.

Misleading offers in compromise

An Offer in Compromise (OIC) is an agreement where the IRS helps eligible taxpayers settle their tax bill at a reduced amount. While this is a legitimate IRS program, it is fertile ground for unethical companies and individuals (known as OIC “mills”) who falsely advertise that they can settle tax debts at “pennies on the dollar.” In exchange for their services, they often collect a hefty fee upfront.

Ghost tax return preparers

Taxpayers should beware of “ghost” or unscrupulous tax preparers who may inflate refunds with false deductions and credits or vanish after filing. These preparers often charge high fees or steal the refund entirely. A major warning sign is when a preparer refuses to sign the return or include their IRS Preparer Tax Identification Number (PTIN), as required by law. Taxpayers should never sign a blank or incomplete return. A legitimate preparer will always ask for documentation to support deductions and will never charge an upfront fee based on the size of the anticipated refund. Always ensure the preparer signs the return before you do.

Spear phishing of tax professionals

While this scam affects tax professionals and preparers, it is still good to be aware that scammers target these professionals all year, but especially during tax time. They will send fake emails impersonating new potential taxpayer clients, hoping the professional will engage in an email exchange. The scammers then send a malicious attachment or links that can compromise the tax professional’s computer systems and allow the scammer to access current client data and the professional’s credentials. Tax professionals must remain vigilant. Taxpayers should ask their professionals what safeguards they have in place against fraud.

Protect Yourself from Tax Scams

Abusive tax schemes are a high priority for the IRS. The IRS Criminal Investigation Division is vigilant in their efforts to identify and impose penalties on promoters and participants in these schemes. Remember, at the end of the day, taxpayers are legally responsible for their returns. Here are some tips to help avoid trouble:

• Do not click on emails or attachments, texts, or instant messages claiming to be from the IRS. The IRS never uses these forms of communication to contact you. Report such phishing/smishing scams to the IRS at phishing@irs.gov.
• Be wary of phone calls from unrecognized numbers. The IRS will always first notify you by regular mail through the U.S. Postal Service before calling you. Similarly, if you receive a letter from the IRS requesting that you contact them, first verify the number by calling IRS customer service 800-829-1040.
• Obtain and use the IRS Identity Protection Personal Identification Number (IP PIN) which prevents someone from filing a tax return using your Social Security number or Individual Taxpayer Identification Number.
• Always request your income tax preparer’s qualifications and signature. You should make sure they have an official Preparer Tax Identification Number (PTIN) and that they sign your completed return before you sign and submit it to the IRS. Report suspected fraudulent tax preparers to the IRS Whistleblower Office.
• Make certain the charities listed on your tax return are qualified charitable organizations using the IRS website’s search function.
• Think twice before entering questionable arrangements or “tax strategies” that seem too good to be true.
• Always practice good cyber security. For more information on cyber security best practices visit our Cyber Security page on our website.

In closing, if you suspect fraud or have been a victim of an abusive scheme or tax preparer, report it immediately to the IRS. If you would like to learn more about the current and past IRS Dirty Dozen Lists, visit the IRS Dirty Dozen website.