Admin—Conservation easements, digital assets, and microcaptive insurance — these are just some of the schemes and scams the IRS covered Thursday, the last day of its annual Dirty Dozen campaign.
Started in 2002 by the IRS, the annual Dirty Dozen campaign lists 12 scams and schemes that put taxpayers, businesses, and the tax professional community at risk of losing money, personal information, data, and more.
The IRS highlighted two topics Thursday: bogus tax-avoidance strategies and schemes with an international element.
Also making the Dirty Dozen list:
The IRS opened its 2024 Dirty Dozen list with a warning about evolving phishing and smishing scams designed to steal sensitive information. Fraudsters and identity thieves use these scams to trick recipients into clicking a suspicious link, filling out personal and financial information, or downloading malware onto their computer. The Dirty Dozen has included phishing since at least 2010, while smishing first appeared on the 2023 list.
The employee retention credit (ERC) was designed for businesses that paid their employees even if operations were suspended because of a government order during the COVID-19 pandemic or their gross receipts declined during limited eligibility periods. The IRS has blamed unscrupulous promoters for luring businesses into filing questionable claims. In September 2023, it initiated a moratorium on processing new claims. It also has offered a voluntary disclosure program — now suspended — for businesses that want to repay ERC money they should not have received. Businesses that filed ERC claims that have not received ERC money can still withdraw their claims.
Some scammers offer their services to create a taxpayer's online IRS account, giving them access to personal tax and financial information that they can use to steal someone's identity. For example, the information lets the scammers submit fraudulent tax returns in a victim's name to get a refund.
Taxpayers can and should establish their own online account, the IRS said.
The fuel tax credit is not available for most taxpayers because it applies only to off-highway business and farming use. But unscrupulous promoters or return preparers mislead taxpayers about fuel use and create fictitious documents or receipts for fuel, the IRS said, adding that it has seen an increased number of fictitious claims for fuel tax credits being filed on Form 4136, Credit for Federal Tax Paid on Fuels. Promoters get their money by charging inflated fees, while taxpayers are left with all the risk and responsibility that go with a bad claim.
Offer-in-compromise (OIC) mills promise to settle taxpayer debt at steep discounts even though many taxpayers may not meet the technical requirements for the program. These mills can charge excessive fees for information that taxpayers can obtain for free by using the IRS's Offer In Compromise Pre-Qualifier tool.
While some companies offer legitimate services, the IRS encouraged people to assess public information about eligibility criteria for the OIC program before they pay for outside help.
Scammers often use fake charities to obtain money from donors during tragedies such as natural disasters. They also gather personal and financial information that they can use for tax-related identity fraud.
Unscrupulous tax preparers, including "ghost preparers," encourage people to file false tax returns and steal valuable personal information, the IRS said. Ghost preparers get their name because they disappear after encouraging taxpayers to take advantage of tax credits and benefits for which they do not qualify, charging a large fee, and/or stealing the entire refund.
People posting on social media can post "wildly inaccurate tax advice," the IRS said, as it warned against looking to TikTok or similar outlets for help with their tax returns.
Spearfishing involves cybercriminals who impersonate real taxpayers seeking help from tax professionals. They use fake emails to get sensitive data or gain access to a tax professional's client information from their computer system.
Phishing refers to emails or text messages designed to steal personal information directly or by clicking on an embedded link or attachment. Spearphishing, however, targets specific individuals, organizations, or businesses, typically using malicious emails.
Wealthy taxpayers can fall for tax traps pushed by dishonest promoters and shady tax practitioners, including these three: inflated art donation deductions, aggressive charitable remainder annuity trusts (CRATs), and detailed shelters that maneuver to delay gains on property.
With improper art donation deductions, promoters encourage taxpayers to buy art that they promise is worth significantly more than the purchase price. Promoters may suggest taxpayers donate art annually and allow them to buy a quantity of art that guarantees a specific deductible amount. Promoters may even arrange for certain charities to take the donations.
CRATs are irrevocable trusts that let people donate assets to charity and draw annual income for life or for a specific time period. But these trusts are sometimes misused to eliminate capital gain.
In the third trap, promoters look for taxpayers seeking to defer the recognition of gain upon the sale of appreciated property. In these schemes, an intermediary purchases appreciated property in exchange for an installment note. These notes typically provide for interest payments only, with the principal to be paid at the end of the term. The seller gets the proceeds and, the IRS says, improperly delays gain recognition until the final payment on the installment note.
— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.
