The IRS's 2023 Dirty Dozen: Trust no one

April 7, 2023 5:59 PM

This year's IRS Dirty Dozen offers scams both familiar and new. ID theft is a frequent motivation. Crooked tech and equally crooked tax preparers make what seem to be their unfailing appearances again this year, backed up by a chorus of relative newcomers such as social media, pandemic-relief hucksters and even a specialized tax credit.

Through many of the agency's warnings, one theme stands out: If help seems too good to be true, run.

"Scammers are coming up with new ways all the time to try to steal information from taxpayers," said IRS Commissioner Danny Werfel in a statement.

Sit back, relax, and don't say nobody warned you about this year's 12 dirtiest.

ERC bunkum

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"Aggressive pitches" rarely produce happy outcomes in tax prep, and this year's Dozen opens with a warning about scammers who promote large refunds related to the Employee Retention Credit. Not only do promoters who are "blasting ads on radio and the internet" tout refunds while failing to mention inaccurate information related to eligibility and computation of the credit, some are just looking to hook taxpayers' personal information for ID theft.

Phishing and smishing

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Taxpayers and tax pros alike are targets for fake communications from those posing as legitimate organizations in the tax and financial community, including even the IRS and the states. These messages, unsolicited texts (smishing) or emails (phishing), lure victims to provide personal and financial information. Again, the goal is ID theft. And again (and again and again), never click on any unsolicited communication claiming to be the IRS, an agency that initiates most contacts through regular mail and will never initiate contact with taxpayers by email, text or social media regarding a bill or refund.

With friends like these …

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IRS online account help from third-party scammers comes in high on this year's list, as swindlers are all too ready to offer to help create a taxpayer's online account at IRS.gov. No help is needed, of course, and these crooks use their offers as opportunities to pickpocket taxpayers' personal info.

Fuel me once

The fuel tax credit is meant for off-highway business and farming use and is unavailable to most taxpayers. Sleazy tax preparers and promoters are undaunted by that fact, however, enticing taxpayers to inflate refunds by erroneously claiming the credit. In this scam, a third party convinces a taxpayer to fraudulently claim the credit with promises of a windfall refund. But the promoters looked to give some high test to their own gain, taking advantage of the taxpayer with inflated fees, refund fraud and ID theft.

The sour milk of human kindness

Fake charities are an oldie-but-goodie scam that mushrooms whenever a crisis or natural disaster strikes. Scammers set up these fake organizations, seeking cash and personal information. Not to mention that taxpayers who give money or goods to a charity might be able to claim a deduction on their federal return only if they itemize and the gift goes to a qualified tax-exempt organization recognized by the IRS.

Bad apples

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"Most tax preparers provide outstanding and professional service," is how the IRS opens this entry in this year's Dozen — giving you a pretty good idea of what's coming next: shady tax professionals and their common warning signs, including charging a fee based on the size of the refund or refusing to sign a return. Year after year, it's tough to exorcise these ghosts from the list.

Anti-social behavior

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From fraudulent form filing to outright bad advice, social media can circulate inaccurate or misleading tax information, and the IRS has recently seen several examples on everything from the everyday W-2 to the more obscure 8944. Both schemes encourage people to submit false, inaccurate information in hopes of getting a refund. Guess how that turns out?

Fear the spears

Phishing means sending emails or text messages to get users to cough up personal info. Spearphishing is a phishing attempt that is tailored to a specific organization or business — in this case, tax pros and their troves of taxpayers' data. Spearphishing begins with a suspicious email, one that may appear as a tax preparation application or another e-service or platform. Some scammers will even use the IRS logo and claim something like "Action required: Your account has now been put on hold."

Often these emails stress urgency and will ask tax pros or businesses to click on links to input or verify information — and then it's open sesame for filing phony returns.

Accept no compromise

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Offers in compromise are awful good tools for folks in deep tax debt — so naturally scammers are trying to prey on debtors' desperation with aggressive promotion. OIC "mills" misrepresent paths of relief to people who clearly don't meet the qualifications for an offer, making outlandish claims about how they can settle a person's tax debt for cheap. The fees are often excessive and taxpayers pay the OIC mill to get the same deal they could have received on their own by working directly with the IRS.

High (net worth) risk

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This one kicks off ripoffs aimed at the wealthy, which make up the rest of the latest Dozen. Charitable remainder annuity trusts are misused to try to eliminate ordinary income and/or capital gain taxes on the sale of property using a sleight of hand (and ownership). In potentially abusive monetized installment sales, promoters find taxpayers seeking to defer recognition of gain on the sale of appreciated property, setting up a purported monetized installment sale for the taxpayer in exchange for a fee. The seller gets the lion's share of the proceeds but improperly delays recognition of gain until the final payment on the installment note, often years later.

Bogus tax avoidance

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Abusive micro-captive insurance arrangements involve schemes little resembling legit insurance. These structures often include implausible risks, failure to match genuine business needs and, in many cases, unnecessary duplication of the taxpayer's commercial coverages.

In syndicated conservation easements, taxpayers may claim a charitable contribution deduction for the fair market value of such an easement transferred to a charity if the transfer meets the requirements of the Internal Revenue Code; in abusive arrangements, which generate high fees for promoters, participants grossly inflate deductions.

Going international

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Last on the lists of the latest Dozen is hiding assets in offshore accounts and accounts holding digital assets, such as cryptocurrency. Asset protection professionals and unscrupulous promoters continue to lure Americans into placing assets offshore with the lie that they're out of reach of the IRS.

In Maltese individual retirement arrangements, U.S. citizens or residents dodge U.S. tax by contributing to foreign individual retirement arrangements in Malta (or other countries) by calling the arrangement a "pension fund" for tax treaty purposes and claiming an improper exemption.

Finally, U.S. owners of closely held entities participate in a purported insurance arrangement with a Puerto Rican or other foreign corporation, claiming a deduction for premiums for "insurance coverage" provided by a fronting carrier, which reinsures the "coverage" with the Puerto Rican or other foreign corporation.