Some Tax Scams to Avoid According to the IRS
Employer Retention Credit Promoters: Businesses have been targeted by companies claiming to help them submit tax returns and adjustments to take maximum advantage of the Employee Retention Credit (ERC). These promoters collect a fee for preparation services, which is often tied to the value of the proposed credit. Frequently, the targeted businesses don’t qualify for the credit, so when the adjustment claim is either rejected by the IRS or found to be incorrect during an audit, the business is out the funds paid to the promoter, as well as repaying any monies received from the ERC they were not eligible for plus potential IRS cost.
Phishing and Smishing Scams: Emails, texts, phone calls. These are all popular channels for scammers trying to obtain sensitive information from taxpayers by lying and saying they work for the IRS. Please remember that the IRS will always initiate contact with taxpayers by U.S. mail, never by email or phone.
Online Account Assistance: The IRS Online Account tool provides helpful information to taxpayers. Scammers are using this as an opportunity to learn social security numbers and other sensitive information by calling and offering to help taxpayers set up their online accounts. This can lead to identity theft and a big headache for taxpayers trying to sort everything out. To create an IRS Online Account, always go directly through the IRS.gov website.
Fuel Tax Credit Promoters: Like the Employee Retention Credit promoters, Fuel Tax Credit promoters claim that the taxpayer is qualified for the credit when they may not be. These scammers usually charge a big fee to assist the taxpayer in submitting these claims, and they are not around for the audit. Use only legitimate sources.
Fake Charity Scams: Major disasters like hurricanes, floods, and wildfires can lead to an increase in counterfeit charities used to dupe taxpayers. When these disasters occur, people want to help those affected. Scammers use fake charities as a front for stealing money and private information. Be sure to take the time to thoroughly research any organization before donating. You can even ask for a copy of their tax exemption letter.
Shady Tax Preparers: Common warning signs of a shady tax preparer include charging a fee based on the size of the refund or refusing to sign the form as a preparer as required by law. Make sure your family and friends are using a trusted and knowledgeable tax preparer, such as Friedman + Huey.
Social Media Trends: While this may seem unsurprising to most, it bears repeating – you can’t always trust what you read on the internet. Social media can circulate misinformation quickly, including ‘hacks’ for getting a bigger tax refund. These trends usually involve lying on tax forms or creating false tax refunds. The IRS reminds taxpayers that falsifying tax documents is illegal and penalties are involved.
Spearphishing Email Scams: Bad players have been sending email requests to tax preparers and payroll and human resources teams to try and gain sensitive client and employee data like W-2 information. The scammers then use the data they collect to submit a series of false tax refund filings and collect on the tax returns. Reputable tax preparers never release confidential information without client authorization.
Offer in Compromise Mills: Promoters target taxpayers that owe the IRS money by offering to settle their debts with the IRS at a steep discount but for a fee. Many times, the targeted taxpayers don’t meet the technical requirements to obtain an offer, so they still owe the IRS the same amount and are paying excessive fees to these companies. Taxpayers can check their eligibility for an Offer in Compromise using this free IRS tool.
Charitable Remainder Annuity Trust Schemes: Promoters can misuse Charitable Remainder Annuity Trusts and monetized installment sales by misapplying the rules, leaving filers vulnerable. These types of schemes are often targeted at wealthy taxpayers. Always discuss these ideas with your trusted advisors.
Tax Avoidance Schemes: The IRS warns taxpayers to be wary of anyone claiming to reduce their taxes owed drastically or even to nothing. This could include micro-captive insurance arrangements, international accounts, and syndicated conservation easements. If it sounds too good to be true….
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Be diligent in protecting your information, teach your family and employees how to recognize scams, and immediately contact Friedman + Huey when anything questionable arises.