05/31/2024 in Accountant

The Dirty Dozen: IRS Tax Scams You Need to Know About

Tax season can be a stressful time for anyone, but unfortunately, it’s also a prime time for scammers looking to take advantage of unsuspecting taxpayers. The Internal Revenue Service (IRS) is constantly vigilant against these fraudulent schemes, compiling an annual list of the “Dirty Dozen” tax scams to raise awareness and help taxpayers protect themselves. 

1. Phishing: Phishing scams involve fake emails or websites designed to trick individuals into providing personal or financial details. These emails often appear to come from the IRS or other trusted organizations (government, tax preparation services, etc.), when in reality they are sent by scammers looking to steal sensitive information.

2. Phone Scams: Phone scams involve callers impersonating IRS agents and demanding immediate payment for supposed back taxes or fines. The IRS will never call to demand immediate payment over the phone. If you receive such a call, it’s a red flag for fraud.

3. Identity Theft: Identity theft occurs when someone uses your personal information, such as your Social Security number, to file a fraudulent tax return and claim a refund. Safeguard your personal information and monitor your credit report regularly to detect any suspicious activity.

Identity theft can also affect fraudulent unemployment claims. You may not realize that someone has claimed unemployment benefits on your behalf until you receive the 1099-G from the IRS. 

4. Return Preparer Fraud: Some tax preparers may promise inflated refunds or charge exorbitant fees for their services. Choose a reputable tax preparer and avoid those who engage in unethical or illegal practices. Stay away from tax preparers who ask for payment in cash only, do not have a valid Preparer Tax Identification Number (PTIN) or ask you to sign a blank or incomplete tax return form. 

5. Fake Charities: Scammers often take advantage of people’s generosity by creating fake charities to solicit donations. Before donating, research the organization to ensure it’s legitimate and that your contribution will be used for its intended purpose. Ask for a receipt or confirmation of the donation that you can use in your tax documents. 

6. Inflated Refund Claims: Some tax preparers may encourage taxpayers to claim false deductions or credits to inflate their refunds. If a tax refund seems too good to be true, it probably is. If you are suspicious of a promised tax refund, you can always take your tax returns to another professional preparer for a review or second look.

7. Falsifying Income to Claim Credits: Scammers may falsely report income to qualify for tax credits, such as the Earned Income Tax Credit (EITC). Taxpayers should report all income accurately and only claim credits they’re eligible for to avoid penalties, audits and legal consequences.

8. Excessive Claims for Business Credits: Small business owners should be wary of tax preparers encouraging them to claim excessive or inappropriate business credits to reduce their tax liability. Maintaining detailed records of purchases, keeping receipts and staying organized is critical for small business financial management. 

9. Frivolous Tax Arguments: Some individuals promote outlandish tax arguments to avoid paying taxes altogether. These arguments are typically based on misinterpretations of tax law and can result in substantial fines and penalties if pursued.

10. Abusive Tax Shelters: Tax shelters that promise to reduce or eliminate tax liability through complex financial arrangements should also be approached with caution. These schemes are often illegal and can result in severe consequences for all involved.

11. Offshore Tax Avoidance: While there are legitimate reasons to hold assets offshore, using offshore accounts to evade taxes is illegal. The IRS has been cracking down on offshore tax evasion in recent years, and taxpayers who fail to report offshore income can face significant penalties.

12. Impersonation of Charitable Organizations: Similar to number 5 above, scammers may prey on people’s generosity, but in a different way. By impersonating legitimate charitable organizations to solicit donations for disaster relief efforts or other causes, scammers can gain access to funds that were otherwise meant for an actual charity. Before donating, verify the authenticity of not only the organization, but the person handling the donation transaction to ensure your contribution will reach those in need.

Having a professional and experienced tax professional is important no matter if you are an individual filing income tax, a small business or a large corporation. Contact the team at Whitt Accounting for a professional review or to discuss how our services can help you.