The IRS Dirty Dozen: What They Are & What to Watch For

Every year, the Internal Revenue Service (IRS) releases its “Dirty Dozen” list, which lists the most prevalent tax scams and schemes that taxpayers should be wary of. These scams come in various forms, from phishing emails to fake charities, and they can lead to serious financial consequences for unsuspecting individuals and businesses.

Here’s a look at the Dirty Dozen for 2024:

Phishing

Phishing scams involve fraudulent emails or websites that attempt to trick individuals into providing personal information, such as Social Security numbers or bank account details. These scams often impersonate the IRS or other legitimate organizations. While these schemes tend to peak during tax season, they do continue throughout the year so it’s important to remain vigilant.

Watch out for: Unsolicited emails or messages requesting sensitive information, containing suspicious links or attachments. The IRS will never initiate contact via email, text message, or social media.

Questionable Employee Retention Credit (ERC) claims.

The ERC is a refundable tax credit against certain payroll taxes for businesses that continued paying employees while shut down as a result of the COVID-19 pandemic. While the credit is real, some aggressive promoters misrepresented what businesses would actually qualify for the credit and persuaded many businesses to improperly claim the credit.

Watch out for: Businesses or individuals advising you that your business qualifies for the credit without doing a proper review. These third parties will charge a large fee upfront or a fee based on the refund amount. Be cautious of any offers or advice that promise to maximize your ERC without proper documentation or adherence to IRS guidelines.

Offers of assistance to set up your online account on the IRS website.

This online tool provides easy access to an individual’s personal information which makes it valuable to identity thieves who can then use this information to submit fraudulent tax returns.

Watch out for: Be cautious of anyone offering to set up your online account on IRS.gov for a fee or requesting personal information to do so. The IRS provides comprehensive guidance on how to create an online account for free directly through their official website, and you should never provide sensitive information or payment to third parties claiming to offer this service. Always verify the legitimacy of any website or service before providing personal information.

Offer in compromise (OIC) mills.

The OIC is a program offered by the IRS that allows taxpayers to settle their tax debt for less than the full amount owed if they meet certain eligibility criteria. Scammers promise to settle taxpayers’ tax debts for a fraction of what they owe through the Offer in Compromise program, but they often fail to deliver on their promises.

Watch out for: Companies or individuals that promise they can settle your tax debt for “pennies on the dollar” or make them magically disappear, especially if they require high fees upfront. Legitimate tax professionals will thoroughly evaluate your financial situation and eligibility for an OIC before making any promises or charging fees. Always verify the credentials and reputation of any company offering OIC services before entering into an agreement.

False Fuel Tax Credit claims.

The fuel tax credit is a refundable tax credit available to eligible taxpayers who use certain types of fuel for specific purposes, such as off-highway business use or for certain types of farming activities. However, some promoters or return preparers mislead taxpayers about fuel use and create fictitious documents and/or receipts for fuel, leading to false or fraudulent claims.

Watch out for: Exercise caution if someone advises you to claim fuel tax credits for activities or uses that do not qualify under IRS guidelines, or if they encourage you to inflate the amount of fuel used in order to claim a larger credit. Incorrectly claiming fuel tax credits can result in penalties, interest, and potential legal consequences. Always ensure that you have accurate records and documentation to support any fuel tax credits claimed on your tax return.

Fake Charities

Fake charities often surface during times of disaster or tragedy, preying on people’s goodwill and generosity.

Watch out for: Charities with names similar to well-known organizations, high-pressure tactics to donate, or requests for payment via wire transfer or gift cards.

Ghost Tax Preparers

Ghost preparers are tax preparers who do not sign the tax returns they prepare for clients. They often operate illegally and may refuse to provide their Preparer Tax Identification Number (PTIN) on the return. Ghost preparers may lure clients with promises of inflated refunds or charge excessive fees for their services, but they ultimately avoid accountability for the returns they prepare.

Watch out for: Tax preparers who refuse to sign your tax return or provide their PTIN. Legitimate tax professionals are required by law to sign the returns they prepare and include their PTIN. Failure to do so could indicate that the preparer is operating illegally or engaging in fraudulent activities. Always verify the credentials and reputation of your tax preparer before entrusting them with your tax affairs.

Bad tax information on social media.

With the rise of social media platforms, misinformation about taxes has become increasingly prevalent. Individuals may come across inaccurate or misleading tax advice on social media, which can lead them to make incorrect decisions regarding their taxes. Following bad tax advice can result in various issues, including identity theft, penalties, and other tax-related problems.

Watch out for: Be cautious when relying on tax information obtained through social media platforms. Always verify the credibility of the source and cross-reference any advice with official IRS publications or reputable tax professionals. Avoid sharing personal or sensitive information on social media platforms, as it can increase the risk of identity theft and other fraudulent activities.

Ongoing spear-phishing attacks targeting tax professionals.

Tax professionals are increasingly being targeted by spear-phishing attacks, where cybercriminals craft personalized emails to trick them into divulging sensitive client information or clicking on malicious links. These attacks often masquerade as requests from potential new clients or official communications from tax authorities. Falling victim to these scams can compromise the security of client data and expose tax professionals to legal and reputational risks.

Watch out for: Tax professionals should exercise extreme caution when receiving unsolicited emails, especially those from individuals claiming to be new clients or government agencies. Verify the authenticity of all requests for information through trusted channels before responding or taking any action. Implement robust cybersecurity protocols, such as multi-factor authentication and regular staff training, to mitigate the risk of falling victim to spear-phishing attacks.

Three tax traps targeting wealthy individuals.

Wealthy individuals are being targeted by dishonest promoters and shady tax practitioners who promote schemes designed to exploit tax loopholes for their benefit. Three common traps include improper art donation deductions, charitable remainder annuity trusts, and monetized installment sales. These schemes may promise significant tax savings but often involve misleading or fraudulent practices that can result in severe financial and legal consequences for taxpayers.

Watch out for: Wealthy individuals should be wary of schemes promising excessive tax benefits through art donation deductions, charitable remainder annuity trusts, or monetized installment sales. Before engaging in any tax strategy, seek advice from reputable tax professionals and thoroughly vet the legitimacy of any promoters or practitioners offering tax-saving opportunities. Remember that if a tax scheme sounds too good to be true, it likely is, and could ultimately lead to audits, penalties, and legal troubles.

Bogus tax avoidance strategies with an international element.

Some taxpayers may fall victim to bogus tax avoidance schemes that involve international elements, such as offshore accounts or complex transactions designed to conceal income and evade taxes. These schemes often promise significant tax savings but are based on fraudulent or illegal practices that can lead to serious financial and legal consequences for taxpayers.

Watch out for: Taxpayers should exercise caution when approached with tax avoidance strategies involving international elements. Be wary of schemes that claim to exploit legal loopholes or offshore structures to reduce taxes, as they may ultimately result in audits, penalties, and legal liabilities. Consult with reputable tax professionals and thoroughly vet any proposed tax strategies to ensure compliance with tax laws and regulations.

The IRS’s Dirty Dozen list serves as a valuable resource, highlighting common tactics used by scammers and fraudsters to exploit unsuspecting taxpayers. Remember, if something seems too good to be true or raises suspicion, it’s important to verify the legitimacy of the claims and seek advice from trusted tax professionals.