With tax payers feeling the crunch as tax season comes to an end, it’s a ripe time for scammers to strike.
The Internal Revenue Service (IRS) recently published its annual list of the Dirty Dozen tax scams for 2023, urging taxpayers and businesses to watch out for these schemes all year round.
The Dirty Dozen list highlights the most common tactics used by fraudsters to steal money, personal information, and data from unsuspecting victims.
IRS advice: Be wary and avoid sharing sensitive personal data over the phone, email or social media. If a tax deal sounds too good to be true, it most likely is.
Scammers and identity thieves are constantly coming up with new ways to try to steal sensitive personal data from taxpayers.
This year’s list includes a range of old and new scams, such as false fuel tax credit claims, fake charities, unscrupulous tax return preparers, and other schemes aimed at preying on taxpayers.
In this article, we’ll cover the first six tax fraud schemes and finish with the remaining six in the next article.
2023 Dirty Dozen Tax Scams Summary (Part 1)
Employee Retention Credit Claims
The Employee Retention Credit (ERC) has recently become a popular target for scammers, who are using aggressive tactics to entice taxpayers with promises of large refunds. These fraudulent promoters have been luring ineligible individuals into claiming the credit in this tax scam, often using radio and internet advertisements. However, these promotions can contain misleading and inaccurate information about the eligibility criteria and computation of the credit. Furthermore, some of these ads are a ploy to collect taxpayers’ personal information, which can then be used for identity theft.
Phishing and Smishing
Be alert to fake communications from those posing as legitimate organizations in the tax and financial community, including the IRS and the states. These tax scam messages are designed to lure unsuspecting victims into giving valuable personal and financial information that can lead to identity theft.
Watch out for:
- Unsolicited text (smishing)
- Unsolicited email (phishing)
The IRS initiates most contacts through regular mail and will never initiate contact with taxpayers by email, text or social media regarding a bill or tax refund.
Online Account Help from Third-Party Scammers
Swindlers pose as a “helpful” third party and offer to help create a taxpayer’s IRS Online Account at IRS.gov. In the process, fraudsters will try to steal a taxpayer’s personal information. Taxpayers can and should establish their own online account through IRS.gov.
False Fuel Tax Credit Claims
The fuel tax credit is meant for off-highway business and farming use so it’s not available to most taxpayers. However, unscrupulous tax return preparers and promoters are enticing taxpayers to inflate their refunds by erroneously claiming the credit. This is a tax scam. The IRS has seen an increase in the promotion of filing certain refundable credits using Form 4136, Credit for Federal Tax Paid on Fuels.
Fake Charities
Bogus charities are becoming an increasingly bigger problem, particularly during times of crisis or natural disaster. Scammers create these fake organizations to prey on the kindness of the public—often soliciting money and personal information—which they can use for identity theft.
Be aware of the legitimacy of the charity before making any donation to claim a tax deduction.
Donations to charity may be eligible to claim a deduction on your federal tax return, provided you itemize deductions. However, not all donations are tax-deductible, and only donations made to IRS-approved tax-exempt organizations qualify.
Unscrupulous Tax Return Preparers
Most tax preparers provide outstanding and professional service. However, people should be careful of shady tax preparers. Watch for these warning signs:
- Charging a fee based on the size of the refund
- “Ghost” preparers who refuse to sign or include their IRS Preparer Tax Identification Number (PTIN) as required by law
- Ask you to sign early: Never sign a blank or incomplete return.
In the next article, we’ll cover the remaining six scams from this year’s Dirty Dozen.
In conclusion, be cautious and vigilant about these tax scams and report any suspicious activity to the IRS or local law enforcement.
Taxpayers should avoid:
- Sharing sensitive personal data over the phone, email, or social media
- A tax deal that sounds too good to be true.
By taking simple precautions, taxpayers can protect themselves from becoming victims of tax scams and identity theft.
When it comes to promises of big refunds or other flashy tax arrangements, keep in mind that you, the tax payer, are legally responsible for what’s on your return, not a promoter making promises and charging high fees.
It makes sense to rely on reputable tax professionals you know and trust.
More Information
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Patty Ward
Patty has more than 30 years experience in public accounting. She reviews tax returns for high net worth clients, focusing on individual tax work. Her mission is to provide high level service to her clients, reducing their tax burdens, keeping them informed and instilling confidence.
About Smith Patrick CPAs
Smith Patrick CPAs is a boutique, St. Louis-based, CPA firm dedicated to providing personal guidance on taxes, investment advice and financial service to forward-thinking businesses and financially active individuals. For over 30 years, our firm has focused on providing excellent service to business owners and high-net worth families across the country. Investment Advisory Services are offered through Wealth Management, LLC, a Registered Investment Advisor.