IRS’s Dirty Dozen for 2023
Each year the IRS issues a list of scams it refers to as the Dirty Dozen. The purpose of publishing the list is to alert taxpayers to schemes that may cause them not only financial harm, but which may also result in identify theft. This year’s list includes scams for which alerts have been previously issued, and new scams. The schemes which made this year’s list are:
1. Employee Retention Credit: Scammers are using ads on radio, TV, mailings and the internet to promote this credit. The ads mislead taxpayers into believing they are entitled to credits when, in fact, there are very strict requirements as to who qualifies for the credits. To learn more refer to: https://magdaabdogomezlaw.com/irs-warns-employers-of-third-parties-promoting-employee-retention-credit-claims/
The IRS warns taxpayers that it is increasing enforcement of claims involving this credit. Taxpayers need to understand that they are ultimately responsible for the accuracy of their return, and may be liable for tax, penalties and interest, even though they may have been led by a promoter to believe they qualified for the credit.
2. Phishing and smishing: These scams involve false communications which claim to come from the IRS. In a phishing scam, the scammer will send an email and lure the victim by promising a fake tax refund or frightening them with false legal/criminal charges for tax fraud. In smishing the scammer will send a text or SMS message that uses the same technique as phishing. Scammers often use alarming language like, “Your account has now been put on hold,” or “Unusual Activity Report” with a bogus “Solutions” link to restore the recipient’s account.
In addition, taxpayers may receive texts or emails that can appear to be from friends or family but are possibly stolen or compromised email or text accounts from someone they know. Individuals should verify the identity of the sender by using another communication method such as by calling the sender in a phone known to the recipient to be accurate.
3. Online Accounts: There are scammers who try to sell or offer help to taxpayers wishing to set up an Online Account on gov. Taxpayers can set up an online account with the IRS themselves. It is very simple to do so and costs nothing to set up.
4. Fuel Tax Credit: In this scam, a third party or an unscrupulous tax return preparer will convince taxpayers to inflate their refunds by claiming the fuel tax credit.
The promoters take advantage of the taxpayer with inflated fees, refund fraud and identity theft. The fuel tax credit is meant for off-highway business and farming use and is not available to most taxpayers.
5. Fake Charities: Scammers con taxpayers into contributing to fake charities. Although this scam occurs year-round, it is especially prevalent when a natural disaster occurs. To learn more about this scam refer to: https://magdaabdogomezlaw.com/tips-protecting-making-charitable-contributions/
6. Unscrupulous Return Preparers: Taxpayers should be careful when hiring a tax return preparer. There are warning signs of which taxpayers should be aware. Learn more about what to look for when hiring a tax return prepared by referring to: https://magdaabdogomezlaw.com/choosing-a-tax-return-preparer/
The ultimate responsibility for the accuracy of the return falls upon the taxpayer. If the return is inaccurate the taxpayer will be responsible for any taxes and penalties that may result from the inaccuracy. Choosing a knowledgeable and reputable tax preparer is important.
7. Social Media: The IRS warns taxpayers to beware of following tax advice posted on social media sites as the information provided may be inaccurate or misleading. The IRS is aware of several schemes trending on social media. The common theme of these schemes is the use of legitimate tax forms for the wrong reason.
One of the schemes involves false W-2 forms. To learn more about this scam refer to: https://magdaabdogomezlaw.com/irs-issues-alert-on-newly-detected-scams/
A second scheme involves the use of IRS Form 8944. The social media posts advise taxpayers that this form can be used to claim a refund even when the taxpayer actually owes taxes. This is false information as Form 8944 is used exclusively by tax return preparers to ask for a waiver of e-filing requirements.
8. Spearphishing: This warning is aimed mostly at tax professionals and businesses; however, anyone can fall prey to scammers using the tactic. “Phishing” refers to email or text messages which attempt to get the recipient to provide personal information by clicking on a link or attachment. Never click on links or attachments unless you are sure that they are coming from a legitimate source.
“Spearfishing” refers to a phishing attempt directed to a specific business or organization. Tax professionals are frequent targets of spearphising attempts because of the taxpayer information they hold. As a taxpayer, if your tax professional is the target of spearphishing your personal and tax information could be used by the scammer to file fraudulent returns. Protect yourself by making sure your tax professional has security measures to protect your data and to reduce the likelihood that spearphising attempts will be successful.
9. Offer in Compromise Mills: You have heard the TV and radio commercials of companies promising to settle IRS debt for pennies on the dollar. The IRS has renewed its warning regarding the misleading nature of what the IRS calls “outlandish promises” made by these companies. While a program does exist to reduce tax debt, there are strict requirements for qualification. These companies charge taxpayers excessive fees to represent a taxpayer who often times does not qualify for the program.
10. Charitable Remainder Trusts and Monetized Installment Sales: These abusive arrangements are aimed at wealthy taxpayers. The IRS recommends that taxpayers considering these types of arrangements consult with independent and knowledgeable professionals to verify the correctness/legality of the arrangement being proposed by the promoter of the scheme. The IRS continues to focus on these types of schemes in their enforcement efforts and has warned that participating in abusive schemes can lead to the imposition of the civil fraud penalty. These schemes were on the IRS’s Dirty Dozen in 2022. For more information regarding these schemes refer to: https://magdaabdogomezlaw.com/irs-dirty-dozen-for-2022/
11. Micro-captive Insurance Arrangements and Syndicated Conservation Easements: The goal of these schemes is to reduce taxes or eliminate them. They are generally marketed to wealthy taxpayers. Always remember that if the arrangement sounds too good to be true, it probably is. These schemes were on the IRS’s Dirty Dozen in 2022. For more details regarding these schemes refer to: https://magdaabdogomezlaw.com/irs-dirty-dozen-for-2022/
In the Consolidated Appropriations Act of 2023 Congress amended IRC §170 in an effort to reduce certain abusive conservation easement arrangements.
12. Schemes with International Elements: These include Maltese individual retirement arrangements and Puerto Rican and other foreign captive arrangements. These schemes were also part of the IRS’s Dirty Dozen in 2022. For more details regarding these schemes refer to: https://magdaabdogomezlaw.com/irs-dirty-dozen-for-2022/
Offshore accounts and digital assets: International tax compliance continues to be a high priority for the IRS. The IRS scrutinizes taxpayers who attempt to hide assets in offshore accounts and accounts holding digital assets (e.g. cryptocurrency). Taxpayers are required to report on their income tax return whether they hold foreign assets, foreign accounts, foreign entities and digital assets. Third parties are also required to report these holdings to the IRS.
Taxpayers and promoters of offshore schemes believe that the IRS cannot reach offshore assets and that digital assets cannot be discovered. The IRS warns that neither of these is true. The IRS reminds taxpayers that it can identity and track anonymous transactions of foreign financial accounts and digital assets. The IRS is able to identify individuals who conceal income and assets in offshore banks, brokerage accounts, digital asset accounts and nominee entities. The IRS examines structured transactions, private annuities, employee leasing schemes, foreign trusts, nominee ownership and any other arrangement with is used to conceal income, assets and ownership.