Every year during tax preparation season, the Internal Revenue Service issues its annual list of tax scams, called The Dirty Dozen – representing the common scams that taxpayers may encounter. These scams can happen anytime but especially peak during filing season as many people scramble to prepare their returns or hire someone to prepare them.
Perpetrators of these fraudulent schemes look for ways to steal money, personal information, data and more. In general, the IRS warns of avoid sharing sensitive personal data over the phone, email or social media to avoid getting caught up in these scams. Taxpayers should be wary if a tax deal sounds “too good to be true.”
Here are some of the most common, from the 2023 Dirty Dozen list released recently by the IRS:
Employee Retention Credit Claims
The Employee Retention Credit was a legitimate tax credit created by the U.S. government to encourage smaller businesses to retain employees during the COVID-19 pandemic. It can be taken on 2020 and 2021 tax returns, including amending a previously filed return to take the legitimate credit. But some scammers are using advertisements touting these credits and then providing inaccurate information related to the taxpayer’s eligibility.
The IRS notes that some of these promotions exist solely to collect the taxpayer’s personal information in exchange for false promises, facilitating sale of personal data and identity theft.
Smishing and Phishing
Scammers pretending to be the IRS or state taxing authorities can reach out to taxpayers through unsolicited texts (smishing) or email (phishing). Their intent is to lure unsuspecting victims to provide valuable personal and financial information that can lead to identity theft. Taxpayers need to keep in mind that the IRS initiates contacts through only regular mail and will never initiate contact with taxpayers by email, text or social media regarding a bill or tax refund.
Online Account “Help”
Swindlers can pose as a “helpful” third party and offer to help create a taxpayer’s online account at the IRS web site, www.IRS.gov. But taxpayers can easily create the accounts themselves. Again, third parties making these offers may be out to steal a taxpayer’s personal information.
False Fuel Tax Credits
The fuel tax credit is specifically meant for off-highway business and farming use and is not available to most taxpayers. However, dishonest tax return preparers and promoters can entice taxpayers to inflate their refunds by erroneously claiming this credit.
Fake Charities
Bogus charities sprout up whenever a crisis or natural disaster strikes, to take advantage of the public’s generosity. They solicit money and personal information, which can be used to further exploit victims through identity theft. Charitable donations only count as tax deductions (for taxpayers who Itemize) if they go to qualified tax-exempt organizations recognized by the IRS.
Unethical Tax Return Preparers
The vast majority of tax preparers operate under high professional and ethical standards. Warning signs that tax preparers are disreputable include charging a fee based on the size of the refund and being unwilling to sign the tax return or include their IRS Preparer Tax Identification Number (PTIN), as required by law.
“Offers in Compromise” Mills
“Offers in Compromise” is an IRS program that allows people who are truly unable to pay their tax liability to settle their federal tax debts. It involves a complicated application process and very specific eligibility requirements. Companies known as OIC mills aggressively promote the program through TV ads and other channels. They solicit people who may not meet the qualifications, potentially costing these taxpayers even more money in the future.
Ethical CPAs/Tax Preparers
As tax preparers, we are trusted advisors to our clients, who come to us for guidance and peace of mind. The vast majority of us follow the due diligence practices we are required to keep in optimizing your tax liability – in accordance with the law.
In addition, the CPA license requires rigorous education preparation and adherence to a code of ethics. It indicates an accounting professional’s commitment to excellence and integrity in a complex, highly regulated and constantly changing business world.
If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
