Wednesday April 17, 2024
Washington News
IRS Publishes Top 12 Scams For 2023
On April 5, 2023, the Internal Revenue Service (IRS) published the 12 top tax scams for 2023. The IRS and its Security Summit partners highlight the scams for taxpayers to be on the lookout for fraudsters. The fraudsters attempt to steal money, personal information and your personal data when engaging in the scams.
IRS Commissioner Danny Werfel stated, "Scammers are coming up with new ways all the time to try to steal information from taxpayers. People should be wary and avoid sharing sensitive personal data over the phone, email or social media to avoid getting caught up in these scams. And people should always remember to be wary if a tax deal sounds too good to be true."
1. Employee Retention Credit (ERC) Scam — Aggressive scammers have been blasting ads on radio and the internet claiming refunds are available for Employee Retention Credits. The ERC benefits are limited to specific individuals and businesses. Many of the scammers are simply attempting to collect personally identifiable information and will use it to conduct identity theft.
2. Phishing and Smishing — Fake communications through email (phishing) or text (smishing) are a frequent strategy. In the communication, the scammer claims to represent a legitimate tax or financial organization. He or she lures unsuspecting victims into providing personal and financial information for the purpose of identity theft. The IRS emphasizes that it generally initiates contacts through regular mail, never through texting or email.
3. Online Accounts Help — Swindlers claim to be a "helpful" third party and offer assistance to create an IRS Online Account at IRS.gov. The third parties are offering the help in an attempt to steal personal information and commit identity theft.
4. False Fuel Tax Credits — There is a fuel tax credit that was created to exclude agricultural vehicles and construction equipment from the highway fuel tax. However, scammers prepare returns and erroneously claim the credit using IRS Form 4136, Credit for Federal Tax Paid on Fuels.
5. Fake Charities — Fictitious charities are a common problem. After a natural disaster, scammers create fake organizations to take advantage of generous individuals. The scammer absconds with the gifts and the donor does not receive a deduction because the fake charity is not a qualified tax-exempt organization.
6. Unscrupulous Tax Return Preparers — Most tax preparers are excellent professionals providing a high-quality service. However, taxpayers should be cautious of preparers who charge a fee based on the size of the refund and may be unwilling to sign the return. A qualified preparer is required to include his or her IRS Preparer Tax Identification Number (PTIN) on the return.
7. Social Media Fraud — Social media can be a source of information, but also may be inaccurate or misleading. Scammers use social media to advocate various methods for filing false forms, such as IRS Form W-2 or IRS Form 8944. The IRS emphasizes that IRS Form 8944 is applicable to a very limited group, excluding them from some filing requirements.
8. Spear-phishing and Cybersecurity for Tax Professionals — Scammers are focused on CPAs and other tax preparers through the use of spear-phishing and cybersecurity focused schemes. Spear-phishing includes a series of emails or text messages that are intended to build a relationship with the tax preparer. After the relationship has been created, the scammer sends an email with a link that loads malware on the network of the professional. The malware allows access to client information and enables the filing of fraudulent tax returns.
9. Offer in Compromise Mills — The IRS has an important program called the Offer in Compromise (OIC) plan. This is a method that helps some individuals with payment plans or other ways to settle tax debts. The Offer in Compromise Mills frequently charge large payments up front for taxpayers who do not qualify for an OIC plan. Taxpayers should use the IRS Offer in Compromise Pre-Qualifier Tool on IRS.gov to determine eligibility.
10. High-Income Filers — There are two popular strategies used for victims who have high incomes. A charitable remainder annuity trust (CRAT) is created and funded with appreciated property. The promoter wrongly claims there is a step up in basis. The trust assets are used to purchase a single premium immediate annuity (SPIA) and the scammer claims the payments will be tax-free. These plans fail to produce the promised tax-free income. A second plan is a monetized installment sale. The scammer claims that a high-income person with appreciated property can sell to a third party through an installment note. After 10 to 20 years of interest-only payments on the note, the capital gains tax will be due. These are abusive arrangements that may produce an IRS deficiency for back taxes, interest and large penalties.
11. Micro-Captive Insurance Plans — A micro-captive is an insurance company, which has made an election to be taxed on captive investment income only. However, many scammers have promoted schemes that are not a legitimate micro-captive insurance arrangement. The scheme may involve an implausible risk, ignore genuine business needs and duplicate existing coverage.
12. Syndicated Conservation Easements — Many taxpayers properly claim a charitable contribution deduction for the fair market value of a conservation easement. However, syndicated conservation easement promoters have frequently failed to comply with the laws and have improperly inflated the tax deductions.
If a taxpayer is the victim of a tax scheme, you can mail a completed IRS Form 14242, Report Suspected Abusive Tax Promotions or Preparers to the IRS Lead Development Center, Stop MS5040, 24000 Avila Road, Laguna Niguel, CA 92677-3405.
IRS Commissioner Danny Werfel stated, "Scammers are coming up with new ways all the time to try to steal information from taxpayers. People should be wary and avoid sharing sensitive personal data over the phone, email or social media to avoid getting caught up in these scams. And people should always remember to be wary if a tax deal sounds too good to be true."
1. Employee Retention Credit (ERC) Scam — Aggressive scammers have been blasting ads on radio and the internet claiming refunds are available for Employee Retention Credits. The ERC benefits are limited to specific individuals and businesses. Many of the scammers are simply attempting to collect personally identifiable information and will use it to conduct identity theft.
2. Phishing and Smishing — Fake communications through email (phishing) or text (smishing) are a frequent strategy. In the communication, the scammer claims to represent a legitimate tax or financial organization. He or she lures unsuspecting victims into providing personal and financial information for the purpose of identity theft. The IRS emphasizes that it generally initiates contacts through regular mail, never through texting or email.
3. Online Accounts Help — Swindlers claim to be a "helpful" third party and offer assistance to create an IRS Online Account at IRS.gov. The third parties are offering the help in an attempt to steal personal information and commit identity theft.
4. False Fuel Tax Credits — There is a fuel tax credit that was created to exclude agricultural vehicles and construction equipment from the highway fuel tax. However, scammers prepare returns and erroneously claim the credit using IRS Form 4136, Credit for Federal Tax Paid on Fuels.
5. Fake Charities — Fictitious charities are a common problem. After a natural disaster, scammers create fake organizations to take advantage of generous individuals. The scammer absconds with the gifts and the donor does not receive a deduction because the fake charity is not a qualified tax-exempt organization.
6. Unscrupulous Tax Return Preparers — Most tax preparers are excellent professionals providing a high-quality service. However, taxpayers should be cautious of preparers who charge a fee based on the size of the refund and may be unwilling to sign the return. A qualified preparer is required to include his or her IRS Preparer Tax Identification Number (PTIN) on the return.
7. Social Media Fraud — Social media can be a source of information, but also may be inaccurate or misleading. Scammers use social media to advocate various methods for filing false forms, such as IRS Form W-2 or IRS Form 8944. The IRS emphasizes that IRS Form 8944 is applicable to a very limited group, excluding them from some filing requirements.
8. Spear-phishing and Cybersecurity for Tax Professionals — Scammers are focused on CPAs and other tax preparers through the use of spear-phishing and cybersecurity focused schemes. Spear-phishing includes a series of emails or text messages that are intended to build a relationship with the tax preparer. After the relationship has been created, the scammer sends an email with a link that loads malware on the network of the professional. The malware allows access to client information and enables the filing of fraudulent tax returns.
9. Offer in Compromise Mills — The IRS has an important program called the Offer in Compromise (OIC) plan. This is a method that helps some individuals with payment plans or other ways to settle tax debts. The Offer in Compromise Mills frequently charge large payments up front for taxpayers who do not qualify for an OIC plan. Taxpayers should use the IRS Offer in Compromise Pre-Qualifier Tool on IRS.gov to determine eligibility.
10. High-Income Filers — There are two popular strategies used for victims who have high incomes. A charitable remainder annuity trust (CRAT) is created and funded with appreciated property. The promoter wrongly claims there is a step up in basis. The trust assets are used to purchase a single premium immediate annuity (SPIA) and the scammer claims the payments will be tax-free. These plans fail to produce the promised tax-free income. A second plan is a monetized installment sale. The scammer claims that a high-income person with appreciated property can sell to a third party through an installment note. After 10 to 20 years of interest-only payments on the note, the capital gains tax will be due. These are abusive arrangements that may produce an IRS deficiency for back taxes, interest and large penalties.
11. Micro-Captive Insurance Plans — A micro-captive is an insurance company, which has made an election to be taxed on captive investment income only. However, many scammers have promoted schemes that are not a legitimate micro-captive insurance arrangement. The scheme may involve an implausible risk, ignore genuine business needs and duplicate existing coverage.
12. Syndicated Conservation Easements — Many taxpayers properly claim a charitable contribution deduction for the fair market value of a conservation easement. However, syndicated conservation easement promoters have frequently failed to comply with the laws and have improperly inflated the tax deductions.
If a taxpayer is the victim of a tax scheme, you can mail a completed IRS Form 14242, Report Suspected Abusive Tax Promotions or Preparers to the IRS Lead Development Center, Stop MS5040, 24000 Avila Road, Laguna Niguel, CA 92677-3405.
Published April 7, 2023
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