May 2024 Foodman Website and JD Supra
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On 4/11/24, the IRS concluded the release of the Dirty Dozen 2024.  The Dirty Dozen is an annual taxpayer awareness campaign which began in 2002 listing twelve scams and schemes that place taxpayers, businesses, and the tax professional community at risk of losing money, personal information, data and more. The Dirty Dozen 2024 is an IRS educational effort on behalf of the public and has the purpose of raising awareness as it relates to cyber criminals and deceptive activities that seek to extract information and money. Although the schemes and scams noted in the Dirty Dozen 2024 tend to peak during  tax filing season, taxpayers will encounter these all throughout the year. IRS’s message is clear:  “Don’t fall prey” and “talk to a trusted tax professional.”

Dirty Dozen 2024

  1. Phishing and smishing scams designed to steal sensitive taxpayer information: fake communications posing as legitimate organizations in the tax and financial community, including the IRS and state tax agencies. These messages arrive in the form of unsolicited texts or emails to lure unsuspecting victims to provide valuable personal and financial information that can lead to identity theft. There are two main types: Phishing: An email sent by fraudsters claiming to come from the IRS. The email lures the victims into the scam with a variety of ruses such as enticing victims with a phony tax refund or threatening them with false legal or criminal charges for tax fraud. Smishing: A text or smartphone SMS message where scammers often use alarming language such as, “Your account has now been put on hold,” or “Unusual Activity Report,” with a bogus “Solutions” link to restore the recipient’s account. Unexpected tax refunds are another potential lure for scam artists.
  2. Aggressive promoters who dupe taxpayers into making questionable Employee Retention Credit (ERC) claims: ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were either fully or partially suspended due to a government order or had a decline or significant decline in gross receipts during the eligibility periods. Promoters pushed  aggressive and misleading marketing that oversimplified or misrepresented the eligibility rules and pushed applicants into the program. Some applicants submitted incorrect ERC claims and their business were placed in jeopardy of  penalties, interest, and potentially criminal prosecution.
  3. “Helpful” scammers offering to set up an IRS Online Account: this scheme entails scammers (third-party) attempting to sell or offer help setting up an Online Account on The IRS Online Account, which allows taxpayers to access information about their tax account is a useful tool that scammers target. The scammer poses as helpful to set up the IRS online account and is able to obtain a taxpayer’s personal information including address, Social Security number or Individual Taxpayer Identification number (ITIN) and photo identification and then sell it the information or use the sensitive details to file fraudulent tax returns, obtain loans and open credit accounts.
  4. Promoters who push improper Fuel Tax Credits claims: promoters push improper Fuel Tax Credits claims which are only available for off-highway business and farming use and not for most taxpayers. IRS continues to see instances where promoters or return preparers mislead taxpayers about fuel use and create fictitious documents or receipts for fuel.
  5. Offer in Compromise “mills” that falsely claim their services are necessary to resolve IRS debt: promoters aggressively mislead taxpayers into thinking their tax debts can disappear by promising to settle taxpayer debt at steep discounts for pennies on the dollar by charging excessive fees. Legitimate Offers in Compromise agreements only occur directly between the taxpayer and the IRS.
  6. Fake charities exploiting taxpayer generosity: con artists that pose as charitable groups in order to attract donations from unsuspecting contributors. The scammer can use email communications or manipulate caller IDs to deceive people into donating funds to charities. These fraudsters often target groups such as seniors and those with limited English proficiency and steal their money and personal information through identity theft.
  7. Untrustworthy tax preparers; “ghost preparers” that can disappear with taxpayer cash, information: there are unscrupulous tax preparers who encourage individuals to file false tax returns and then steal their personal information. Ghost preparers encourage taxpayers to take advantage of tax credits and benefits for which they don’t qualify and charge a large percentage fee of the refund or even steal the entire tax refund. After the tax return is prepared, ghost preparers  disappear and leave the taxpayer to deal with the consequences.
  8. Taking tax advice on social media can be bad news for taxpayers; inaccurate or misleading tax information circulating: social media platforms can routinely circulate inaccurate or misleading tax information. Promoters via social media encourage individuals to misuse common tax documents like Form W-2, or more obscure ones like Form 8944 involving a technical e-file form not commonly used by taxpayers. Both schemes encourage individuals to submit false, inaccurate information in hopes of getting a refund.
  9. Tax professionals and businesses to be cautious of ongoing spearphishing attacks to gain sensitive information; warns of surge in “new client” scams: in the new client scam, an identity thief or cybercriminal poses as  a potential client using fake emails. The cybercriminal,  through spearphishing emails, impersonates taxpayers that are seeking help with their taxes and are able to obtain sensitive data or gain access to a tax professional’s client information from their computer systems.
  10. Bogus tax avoidance strategies: include syndicated conservation easements and micro-captive insurance. Promoters are syndicating conservation easement transactions that purport to give an investor the opportunity to claim charitable contribution deductions and corresponding tax savings that significantly exceed the amount the investor invested. A micro-captive is an insurance company whose owners elect to be taxed on the captive’s investment income only. Abusive micro-captives involve schemes that lack many of the attributes of legitimate insurance. These structures often include implausible risks, failure to match genuine business needs, and in many cases, unnecessary duplication of the taxpayer’s commercial coverages.
  11. Misusing a tax treaty with Maltese individual retirement arrangements (scheme with an international element): this scheme involves a U.S. citizens or resident attempting to avoid U.S. tax by contributing to foreign individual retirement arrangements in Malta or another country. These countries allow for contributions in a form other than cash and do not limit the amount of contributions by reference to employment or self-employment activities. By improperly asserting this as a “pension fund” for U.S. tax treaty purposes, the U.S. taxpayer improperly claims an exemption from U.S. income tax on gains and earnings in, and distributions from, the foreign individual retirement arrangement.
  12. Digital Assets (another scheme with an international element): promoters promise that digital asset transactions are untraceable and undiscoverable by the IRS. A false promise given that the IRS can identify and track anonymous transactions of digital assets around the globe. For federal tax purposes, digital assets are treated as property. General tax principles applicable to property transactions apply to transactions using digital assets. Transactions involving a digital asset are generally required to be reported on a federal tax return.

The IRS has its Eye on Compliance

In the release of the Dirty Dozen 2024, the IRS states that the “IRS will challenge the purported tax benefits from transactions in the Dirty Dozen and other questionable arrangements and impose penalties where needed”. Moreover, “whether anchored offshore or in the U.S., abusive transactions and schemes remain a high priority for the IRS. The IRS is always on the lookout for promoters and participants of these types of schemes and where appropriate, the IRS will challenge them and impose penalties. The IRS continues to improve investigation and enforcement in these areas by utilizing new and evolving data analytic tools and enhanced document matching.”

The IRS also reminds taxpayers to:

  • Think twice before including questionable arrangements like this on their tax returns, as they are responsible for what’s on it once signed.
  • Rely on a reputable tax professional they know and trust.

Are you a Victim of the Dirty Dozen 2024 List?

Who is your Tax Expert? ©