June 27, 2022

IRS Finalizes Its Dirty Dozen Tax Scams

By Michael D’Addio, Principal, Tax & Business Services

IRS Finalizes Its Dirty Dozen Tax Scams Tax Return Compliance

The IRS has completed its list of Dirty Dozen Tax Scams for 2022, with eight additional schemes to defraud taxpayers. Click here for a discussion of the first four of this year’s Dirty Dozen.

The new scams (Nos. 5-12) include the following:

5. Pandemic-related scams used to steal money and identity with bogus emails, social media posts and unexpected phone calls.
6. Offer in compromise (OIC) mills and unscrupulous taxpayers who promise to reduce tax debt to “pennies on the dollar” or unreasonably large refunds.
7. Scammers who use tricks to steal identities, personal financial information, money and more.
8. Spear phishing attacks on tax professionals and other businesses.
9. Concealing assets in offshore accounts and improper reporting of digital assets.
10. High income individual non-filers.
11. Abusive syndicated conservation easements.
12. Abusive micro-captive insurance arrangements.

Identity Theft Scams

Items 5, 7 and 8 alert taxpayers to schemes of third parties to obtain information so as to steal money and or identities in order to obtain unemployment compensation, tax refunds through the filing of fictitious returns, and receiving any remaining balance of a taxpayer’s Economic Impact Payment.

These scams take a variety of forms including:

  • Posting of fake job offers on social media, enticing victims to provide personal information.
  • Making requests for donations to counterfeit charities (this tactic increases during a national crisis like the pandemic). The current exempt status of any charity should be verified using the IRS Tax Exempt Organization Search tool.
  • Sending text messages to smartphones claiming to be from IRS.
  • Email phishing scams. The IRS initiates most contacts through regular USPS mail and not by e-mail. The Service suggests that if a taxpayer receives an unsolicited email from the IRS, the email should be provided as an attachment to phishing@irs.gov.
  • Using pre-recorded or urgent phone calls with threatening messages. These will oftentimes inform victims that failure to return the call will result in a warrant being issued for their arrest. Certain law enforcement agencies will be informed and asked to intervene, or certain licenses (e.g., driver’s license) will be revoked.

The IRS also warns tax professionals and businesses of spear phishing attacks designed to steal a tax professional’s software preparation credentials or to otherwise steal client data. This information may be used, in part, to file fraudulent refund claims. These messages may use the IRS logo and contain threatening subject lines like “Action Required: Your Account Has Been Put on Hold.”

Potential victims must particularly be aware where a fraudulent message requests the recipient to click on a “solution link” to restore his or her account.

OIC Mills and Unscrupulous Tax Preparers

Item 6 on the list warns those with pending tax bills to be careful when selecting a third party to assist them in settling the tax problem with the IRS. The Service expresses concern with using companies that claim they can settle the problem for “pennies on the dollar” for the payment of a fee. The IRS Commissioner notes that the results may be no better than if the taxpayer dealt directly with the Service. If help is needed, the taxpayer should select from reputable tax professionals who can be found using tools available on the IRS’ website.

Similarly, taxpayers should be wary of tax preparers who promise unrealistic tax results. This is particularly true where the preparer is paid based on the amount of the refund claimed on a tax return. Additionally, a preparer who refuses to sign the tax return (a “ghost preparer”) should be viewed with skepticism.

Other Scams

The other listed scams (items 9-12), focus on tax violations most normally found in relation to high-income taxpayers. They range from simple violations like failing to file a return, to concealing assets in offshore accounts or failing to report gains or losses on the use of digital assets.

The list also names two types of tax planning devices which have been of particular interest to the Service over the past few years – abusive syndicated conservation easements and abusive micro-captive insurance arrangements. The IRS has bolstered in its enforcement efforts with several court victories involving both types of planning devices.

For questions concerning the scams and schemes described above, do not hesitate to contact your Marcum tax professional.