Every year, the IRS publishes a list of the latest, most prevalent tax scams. This list, called the Dirty Dozen, serves as a warning to taxpayers, tax professionals and financial institutions, and the IRS urges everyone to remain vigilant in protecting themselves against these and other tax scams.
For 2021, the list contains scams that fall into four categories: pandemic related scams, financial information cons, scams focusing on unsuspecting victims, and schemes that persuade taxpayers into unscrupulous actions.
Below is a summary of this year’s Dirty Dozen:
“Phishing” is a term that refers to fake emails or websites that are designed to steal personal information. Be on the lookout for anything that seems off, and never open an attachment or click a link in an email from an unknown source—or even from a known source if it is unexpected or seems off in any way. It’s much better to err on the side of caution and contact that person separately to see if their email is legitimate. The IRS will never initiate contact with taxpayers via email about a bill or tax refund.
- Phone Scams
As in past years, phone calls from con artists impersonating IRS agents remain an ongoing threat. As a reminder, the IRS will never call to demand immediate payment, ask for credit, debit, or gift card information over the phone, or threaten to arrest you or involve police or other agencies.
- Identity Theft
Did you know that criminals can file fraudulent tax returns using your social security number? The IRS warns against this and other types of identity theft, in which criminal steal your personal information. Be diligent about protecting your personal data, such as your social security number, credit card numbers, etc.
- Return Preparer Fraud
Taxpayers should be on the lookout for con artists posing as reputable CPAs in order to gain access to the personal data of unsuspecting taxpayers. When finding a CPA, be sure to vet their authenticity and reputability prior to giving them access to your personal information.
- Inflated Refund Claims
Similarly to #4, taxpayers should be wary of anyone asking them to sign a blank tax return, promises a big refund before looking at their personal records, or who charges fees based on a percentage of the refund.
- Falsifying Income to Claim Credits
There are several new tax credits available as a result of the COVID-19 pandemic, and the IRS is being diligent about verifying the income of taxpayers who qualify for these credits. If a taxpayer invents income—or is manipulated into doing so by a scammer posing as a legitimate CPA—they may face large bills to pay back taxes as well as legal penalties.
- Falsely Padding Deductions on Returns
The IRS is on the lookout for taxpayers falsely inflating their deductions or expenses on their tax returns to minimize their tax liability or maximize their refund. Falsely padding your deductions, or allowing your preparer to, is never a good idea.
- Fake Charities
Be on the lookout for groups posing as charitable organizations in order to fraudulently solicit donations—they may use names that are similar to familiar local or nationally-known organizations to fool potential donors. If you are contributing to a charity, it is worthwhile to use the tools available on the IRS website to check the status of charitable organizations.
- Excessive Claims for Business Credits
Claiming certain credits, such as the fuel tax credit or the research credit, can be a red flag for the IRS, as these are reserved for very specific types of businesses.
- Offshore Tax Avoidance
Another big no no—hiding money or income offshore to avoid paying taxes will inevitably eventually lead to a negative outcome for taxpayers.
- Frivolous Tax Arguments
Promoters of frivolous tax argument schemes encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes. These claims are repeatedly thrown out in court, and the penalty for filing a frivolous tax return is $5,000.
- Abusive Tax Shelters
Taxpayers should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, get a second opinion regarding complex tax minimization strategies.
Tax scams seem to get more prevalent and more complex each year. To keep yourself and your assets secure, it is important to be diligent in protecting your personal data, and always err on the side of caution when it comes to anything that seems a bit off or too good to be true.
If you have questions about the dirty dozen or any other tax scams, please leave a comment below or feel free to reach out to me directly. I’m happy to help!