Every year, the IRS alerts taxpayers to the most prevalent tax scams and avoidance schemes through its “Dirty Dozen” list. These scams range from simple phishing attempts to complex tax avoidance strategies, all designed to deceive taxpayers. Understanding these scams is crucial not only to protect your personal information and assets but also to ensure compliance with tax laws, thus avoiding potential audits. Here’s an in-depth look at each of the “Dirty Dozen” scams for this year and how you can steer clear of them.
- Misuse of Employee Retention Credit
The Employee Retention Credit was designed to help businesses keep employees on the payroll during challenging times. However, it’s important to be wary of schemes promising to secure this credit for ineligible businesses, often leading to false claims and potential legal trouble.
- Phishing Scams
Phishing and smishing (phishing via SMS) are common tools for fraudsters pretending to be the IRS to steal sensitive information. Always verify the authenticity of communications and remember that the IRS does not contact taxpayers via email or text message for personal or financial information.
- Third-Party Scams Offering Online Account Assistance
Creating an IRS online account should be done directly through the official IRS website. Third-party services offering to assist with account creation may be fronts for stealing personal and financial information.
- Illegitimate Fuel Tax Credit Claims
The fuel tax credit is for specific business uses of fuel, not for personal use vehicles. Some schemes falsely claim you can get this credit for everyday driving, leading to incorrect filings and scrutiny from the IRS.
- Fake Charities
Fake charities not only exploit the generosity of taxpayers but also involve them in fraudulent tax deduction claims. Always research charities through the IRS’s Tax Exempt Organization Search tool before donating.
- Unscrupulous Tax Return Preparers
Choose your tax preparer wisely. “Ghost” preparers may promise large refunds by falsifying information but leave you responsible for the inaccuracies.
- Social Media Misinformation
Tax advice on social media can be misleading and incorrect. Always cross-reference tax advice with reputable sources or consult a tax professional.
- Spearphishing Targeting Tax Professionals
Tax professionals are also targets of scams aimed at accessing their clients’ information. Ensure your tax professional uses secure methods to protect your data.
- Misrepresented Offer in Compromise
Beware of companies that promise to settle tax debts for pennies on the dollar without a thorough examination of your specific tax situation. These offers are often exaggerated and not applicable to all taxpayers.
- Schemes Targeting High-Income Filers
High-income filers are often the target of complex schemes involving trusts or offshore accounts to evade taxes. These strategies can lead to significant penalties and legal issues.
- Bogus Tax Avoidance Plans
From abusive micro-captive insurance arrangements to inflated conservation easements, these schemes promise tax benefits outside the bounds of the law and are closely scrutinized by the IRS.
- International Schemes
Hiding income through offshore accounts or engaging in complex international tax evasion strategies is illegal and a surefire way to attract IRS attention.
Protecting Yourself and Staying Compliant
The key to avoiding these scams is vigilance, informed decision-making, and seeking advice from reputable tax professionals. If an offer seems too good to be true, it likely is. By staying informed about these common scams, you can protect yourself from fraud and reduce your risk of an IRS audit.
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