We must be aware of the many pitfalls that the unwary tax payer can fall into as we begin another tax season. I am a Certified Public Accounting. I have seen the effects of tax scams, and other fraudulent schemes. The IRS “Dirty Dozen List” is a vital tool in our arsenal of defense. This list, which is updated annually, contains the most common scams taxpayers might encounter. Understanding the threats is a good first step to protecting yourself.
The IRS’ “Dirty Dozen list” serves as a warning to taxpayers and professionals about the fraudsters’ deceptive tactics. The list covers a wide range of illegal activities from identity thefts to sophisticated tax evasion schemes. We can protect our personal information and finances by becoming familiar with these scams. This article will cover the highlights of the IRS’s list published in 2023.
Phishing is one of the biggest threats to our digital lives today. They are emails or websites that pretend to be legitimate organizations in order to steal sensitive data. These emails often appear to come from the IRS or other related organizations. Remember that the IRS will never contact taxpayers by email and ask for personal or financial details. Do not click any links in the email or give any personal information if you receive it. Report it instead to the IRS. You will only receive correspondence from the IRS via paper delivered to your postal address.
Another common tactic is phone scams. These calls usually involve scammers impersonating IRS officers with fake badge numbers or altered caller identification information. The scammers often threaten to arrest, deport, or revoke licenses. The IRS will send a tax bill or notice to any taxpayer that owes money. The IRS will not threaten law enforcement or demand immediate payment if you call them.
Identity theft is a major concern, particularly around tax season. The criminals will use stolen information to claim refunds and file false tax returns. To reduce this risk, you should protect your Social Security Number, review your credit report regularly, and file as soon as possible. Apply for an IRS Identity Protection PIN to increase your tax return filing safety. IRS randomly assigns PINs to tax payers. However, you can request one by calling. Your return can only be electronically filed with this PIN.
Fraudulent tax preparers are dishonest individuals who steal refunds from clients, overcharge fees or promise high or guaranteed refunds. You must choose a reputable preparer. Check if they have an IRS Tax Preparer Identification Number (PTIN). Also, check with the Better Business Bureau and state boards of accounting to see if there are any disciplinary measures.
Some tax preparers claim that they can get you a larger refund by inflating income or deducting expenses or by directing a portion of your refund to their account. You are responsible for the accuracy and completeness of your return, no matter who prepared it.
During tax season, charity fraud is more prevalent. Scammers create fake charities in order to take advantage of taxpayers’ generosity, and their desire for tax deductions. Use tools such as the IRS Tax-Exempt Organization Search tool to confirm the legitimacy of a charity.
Tax season scams are not confined to businesses. Beware of claims that are inflated for business credits, such as the Research and Development Credit. These can be complicated and have strict qualification criteria. Inflating or padding deductions can result in significant penalties and interests. The IRS has recently halted the processing of all Employee Retention credits (ERCs) due to widespread fraud and abuse. The IRS also launched an amnesty programme that allows taxpayers who received money from fraudulent or questionable applications to return it. I personally was involved in a situation in which an ERC mill from out of state was harassing our client to submit what I considered to be ineligible ERC requests. They were aggressive and persistent; their fee was 25% of the tax credits received. If you’re not aware, that is a hefty fee. In most cases, penalties would be imposed on taxpayers if the credit was calculated incorrectly. Tax scams in 2023 were dominated by fraudulent ERC claims.
All of these schemes can have severe financial and legal consequences. IRS aggressively pursues offshore tax evasion which involves hiding income or assets in foreign accounts.
In the digital age, technology plays a significant role in tax fraud. Scammers are using sophisticated techniques to trick taxpayers. The IRS and tax professionals rely increasingly on advanced software and analytics in order to detect and prevent fraudulent activity. I use the latest technology as a CPA to ensure that my clients’ tax returns are accurate and secure. It includes the use of secure portals to exchange encrypted documents, using two-factor authentication, regularly updating passwords, and utilizing software that flags any potential errors or inconsistencies.
Recently, we saw massive data breaches at MGM and Ceasars Palace properties. In the last few months, I have heard of more property crimes, thefts, and financial frauds than ever before. I suggest taking all precautions, including monitoring your credit score, changing your passwords regularly for email and banking and using two-factor authentication, like Google Authenticator. You should also shred sensitive documents and encrypt your hard drive, use a VPN and a password manager, and monitor your credit report.
While the tax season is fraught with danger, a thorough understanding of the IRS “Dirty Dozen Scams” and professional advice will help to mitigate the risks. In the world of taxation, knowledge and vigilance are your best weapons. With the right guidance and approach, you can successfully navigate this tax season.
Donovan Thiessen, CPA, is the owner and founder of The Accountant, LLC. We aim to provide timely and accurate financial analysis and tax advice in order to help business owners take better decisions. You may reach Donovan at [email protected], www.theaccountant.cpa and 702.389.2727.
The article Navigating Tax Season Perils: A Guide to IRS “Dirty Dozens” first appeared on Vegas Legal Magazine.