The IRS has concluded its 2023 Dirty Dozen list of tax scams by warning taxpayers, businesses, and tax professionals to stay vigilant year-round. The list includes both new and returning entries, aiming to alert people about scams and schemes to avoid. Here are the top 5 of the dirty dozen that every business should be careful about.
- Employee Retention Credit Claims
Taxpayers should beware of aggressive offers from scammers offering huge Employee Retention Credit returns (ERC). Promoters advertising Employee Retention Credit refunds on social media and direct email reach out were called out by the IRS. These advertisements may use erroneous credit eligibility and computation information. Some ads capture taxpayers' personal information for fraudulent promises, which can be used to steal identities.
Eligible taxpayers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:
2. Phishing and smishing
Phishing is an email from fraudsters claiming to come from the IRS or another legitimate organization, including state tax organizations or a financial firm. The email lures the victims into the scam by various ruses, such as enticing victims with a bogus tax refund or frightening them with false legal/criminal charges for tax fraud.
Smishing is a text or smartphone SMS message that uses the same technique as phishing. Scammers often use alarming language like, "Your account has now been put on hold," or "Unusual Activity Report" with a bogus "Solutions" link to restore the recipient's account. Unexpected tax refunds are another potential target for scam artists.
3. Social media: Fraudulent form filing and bad advice
The IRS has noticed multiple incidents of tax misinformation on social media. Forms W-2 and 8944 are examples. Form 8944 is real, but only for a select few. Both approaches incentivize people to lie for refunds. Taxpayers should never believe something that sounds too good to be true.
4. Spearphishing and cybersecurity for tax professionals
Emails or texts requesting personal information are called phishing. Spearphishing is targeted phishing.
Because data breaches can hurt tax preparers, the IRS warns about spearphishing. A successful spearphishing assault can steal customer data and the tax preparer's identity, enabling false returns.
How to side-step spearphishing:
- Never click suspicious links
- Double-check the requests with the original sender
- Be vigilant year-round, not just during filing season
5. Bogus tax avoidance strategies
- Micro-captive insurance: Micro-captive insurance companies choose to be taxed only on investment income. Abusive micro-captives lack several insurance features. These structures generally have unrealistic risks, don't meet company demands, and duplicate the taxpayer's commercial coverages.
- Conservation easements restrict real property usage. If Internal Revenue Code 170 applies, taxpayers can deduct the fair market value of a conservation easement donated to a charity. Participants use overstated tax deductions to scam the tax system in abusive arrangements, which yield huge promotion fees.
The Dirty Dozen tax frauds should be avoided by taxpayers. This involves carefully selecting tax preparers, preserving personal information, and reporting questionable activities to the IRS. Taxpayers can prevent these frauds and comply with tax regulations by remaining informed and taking safeguards.
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