I get it. You hate paying taxes.
Each year, the IRS compiles a list of the most common tax scams, highlighting classic cons and sophisticated schemes designed to convince people that there are workarounds when it comes to their tax obligations. Here’s the “Dirty Dozen” for 2023:
1. Employee retention credits
Promoters have been blasting ads on the radio and internet touting refunds involving these pandemic-era credits. The employee retention credit is a refundable tax credit available to businesses that continued paying employees after shutting down because of the pandemic or that had a significant decline in gross receipts from March 13, 2020, to Dec. 31, 2021.
The IRS said tax professionals have reported getting pressure from clients to claim the ERC, even when they aren’t eligible.
“The aggressive marketing of these credits is deeply troubling and a major concern for the IRS,” said IRS Commissioner Danny Werfel.
2. Phishing and smishing schemes
Cybercriminals are pretending to be IRS agents in an attempt to steal your information through scam emails or text messages.
With phishing, you get an email, purportedly from the IRS, claiming that you are due a refund or that you may be the subject of a criminal investigation for tax fraud.
In a smishing scheme, you receive a text message that may say, “Your account has now been put on hold.” A link is supposed to restore the account. It’s bogus.
The IRS will never initiate contact with you by email, text or social media regarding a bill or tax refund.
3. The online account scam
In this scam, a third party offers to help you set up an online IRS account. The goal is to either steal your information to commit identity theft or to submit a tax return in your name and get a fraudulent refund.
4. Frivolous fuel tax credit promotion
As the IRS points out, the federal government taxes gasoline, diesel fuel, kerosene, alternative fuels and certain other types of fuel. But certain commercial uses of these fuels are nontaxable. Taxes paid for fuel to power vehicles and equipment used off-road may qualify for the credit and may include farm equipment. However, the credit is not available to most taxpayers.
Unscrupulous tax preparers or promoters are pitching this credit as a way to get a bigger refund.
5. Fake charities
You see a charity asking for money and want to help. Plus, you can get a tax break if you give, it claims.
Generally, you must itemize your deductions to claim charitable contributions. And your donation counts only if it goes to a qualified tax-exempt organization recognized by the IRS.
Scammers often create fake organizations after natural disasters to capitalize on people’s generosity. So check before making a gift. Use the IRS’s Tax Exempt Organization Search Tool at irs.gov to find qualified charities.
6. Shady tax preparers
Choose your preparer wisely, because when it comes to your tax return, you are ultimately responsible for the information on it.
A sign your preparer might be shady: The tax preparation fee is based on the size of your refund.
7. Trending tax advice on social media
One scheme circulating on social media encourages people to use tax software to manually put false information on a W-2 form to inflate withholdings and get a bigger refund — sometimes as much as five figures, the IRS said.
“The IRS continues to see a lot of inaccurate information that could get well-meaning taxpayers in trouble,” said Werfel, who was confirmed as the new IRS commissioner this month. “People should remember that there is no secret way to fill out a form and simply get a larger refund that they aren’t entitled to.”
8. Spear-phishing emails
One way to get a lot of information on taxpayers is to go after the professionals who work with them.
In this scheme, scammers target tax preparers and the trove of information they have on clients. The IRS cautions preparers to protect client information by being careful when opening emails, clicking on links or receiving requests that appear to come from a client.
9. Offer-in-compromise ‘mills’
You’ve probably heard the ad: “If you owe $10,000 or more to the IRS, call for a free tax consultation. We can stop IRS liens, levies and wage garnishment.”
What the firms promoting this claim aren’t telling you is that their strategy involves an “offer in compromise,” or OIC. “It is an option for those unable to pay the full tax liability or if doing so creates a financial hardship,” the IRS says.
But an OIC is extremely hard to get approved, a fact many people signing up for tax help through these companies are not told. Among other things, you have to provide detailed financial information to prove your economic status and you have to exhaust all other payment options.
Of the nearly 50,000 offers submitted in fiscal 2021, the IRS accepted just over 15,000. You can check eligibility for free using the IRS’s Offer in Compromise Pre-Qualifier tool on its website.
“OICs are minuscule, particularly when you compare them to the overall overdue collection inventory and the number that are being resolved through installment agreements,” IRS spokesman Eric Smith said.
10. Schemes targeting high-income filers
Legit tax rules are twisted by promoters and taxpayers to avoid paying income taxes.
For instance, last year, the Justice Department shut down a multistate operation that was promoting the fraudulent use of charitable remainder annuity trusts. Such trusts allow individuals to donate assets to charity and draw annual income for life or for a specific time period.
“Unfortunately, these trusts are sometimes misused to try to eliminate ordinary income and/or capital gain on the sale of property,” the IRS said.
11. Bogus tax avoidance strategies
Promoters pitch bogus tax strategies — for a high fee — that attempt to show taxpayers how to game the tax system with grossly inflated tax deductions.
One such scheme involves what are called “syndicated conservation easements,” tax breaks for property set aside for conservation. However, in unscrupulous schemes, appraisals are inflated, resulting in a higher deduction.
Trump got a $21 million tax break for saving the forest outside his N.Y. mansion. Now the deal is under investigation.
12. Offshore accounts and digital assets
Stashing money overseas or holding digital assets, such as cryptocurrency, offshore will probably put you on the IRS’s radar.
Here are some tips to keep in mind to help you avoid being a victim of tax scams:
- The IRS will not initiate contact with you by phone or email to ask for your personal or financial information. The government loves a paper trail. The IRS will write to you first. If you are unsure about a tax bill, call the IRS at 1-800-829-1040.
- The IRS will not give you an ultimatum to pay up immediately. You will get a bill.
- The IRS will not dictate how to pay your bill by requiring, for example, that you buy gift cards.
- The agency isn’t going to threaten to send the police to your house.
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