Each year, the IRS Dirty Dozen Tax Scams are updated with the most common trends in IRS-related fraud and scams. Here is what to know this year.
It’s the tax man’s job to ensure that the government gets its legal share – but masquerading as the IRS has been and continues to be a problem for thousands of Americans caught in tax scams year by year. Each year, the IRS puts out an advisory to help taxpayers keep an eye out for the twelve most common and most effective scams, and the forms they might take on. This is called the IRS Dirty Dozen.
Not all of these are tax scams directly aimed at the average taxpayer. They include scams aimed at tax professionals, dubious or unscrupulous services, abusive arrangements, illegal or unprofessional deals, and other illegal or questionable activity that, at the very least, could lead to serious financial problems and identity theft, and at worst, may lead to criminal charges.
What are the IRS Dirty Dozen Tax Scams?
The Dirty Dozen change on a yearly or near yearly basis, and the IRS keeps track of the last few IRS Dirty Dozen tax scams to give taxpayers an idea of what direction the trends have been moving in, and what the future of tax scamming might look like.
Most of these scams revolve around promising taxpayers the impossible, or soliciting information in lieu of serving the IRS, either through threats or promises of tax credits. Let’s go over the most common IRS Dirty Dozen tax scams for 2021, and how to avoid them.
The New IRS Dirty Dozen
This year’s Dirty Dozen will be officially separated into four distinct categories, namely the:
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- “Pandemic-related scams”
- “Personal information cons”
- “Rues focused on unsuspecting victims”
- “Schemes that persuade taxpayers into unscrupulous actions”
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In total, the Dirty Dozen this year include:
– Economic impact payment theft:
The economic impact payment, or the stimulus check, was part of the coronavirus aid and recovery measures implemented by the government in 2020. The vast majority of these were paid out automatically by the IRS, usually via mail. They could have been stolen by intercepting mail or looting mailboxes, or through phishing scams aimed at getting into your bank account.
– Phishing scams aimed at tax pros:
While phishing (the use of official-looking emails or proxy sites to steal and harvest login data and sensitive information) is nothing new, an emerging trend in 2021 has been the use of phishing to scam tax professionals in particular. These phishing attempts may revolve around trying to get tax pros to verify Electronic Filing Identification Numbers.
– Impersonator calls:
Sometimes also known as vishing, this tax scam involves impersonating someone from the IRS in order to coerce information or even money through threats of tax liens and debt. Note that the IRS always notifies taxpayers of anything important through a letter and/or notice first and will only call if these notices go ignored. Even so, the IRS will NEVER request sensitive information over the phone. Hang up immediately if the caller is asking for info like your TIN or SSN, or if they request payment via suspicious methods like Google Play or iTunes gift cards.
– Social media scams:
These are examples of identity theft using social media info to trick friends and family into providing further information, as well as malware.
– Ransomware:
Ransomware has been an emerging trend in recent years, forcefully locking access to a computer until a ransom is paid and encrypting (and subsequently deleting) the data on the computer if the demands are not met. These attacks are generally aimed at financial and healthcare organizations.
– Fake charities:
These fake charities may attempt to solicit money for COVID-19 victims, only to disappear once enough people have been scammed to take notice.
– Senior fraud:
Scammers are targeting seniors and immigrants with poor English skills in particular, often via the phone, usually to get them to transfer money to a “friend” or “forgotten family member” in need.
– Offer-in-compromise mills:
An offer in compromise allows taxpayers with a significant tax debt to pay off less than they might owe, if very specific criteria are met. Offer in compromise mills market themselves with the promise that they can always get their clients off on an offer in compromise, only to take their money, run, and disappear, or do the bare minimum for an exorbitant fee.
– Dangerous tax preparation scams:
Tax preparers must be officially recognized and licensed by the IRS via a Preparer Tax Identification Number. Yet not everyone offering tax preparation services has a PTIN. This can be a scam in and of itself, as these unregistered tax preparers might be looking for a quick profit by demanding upfront payments or using fake deductions.
– Unemployment fraud:
These are schemes based on manipulating employers or banks in order to continue to claim benefits they aren’t entitled to.
– Improper claims of business credits:
Taxpayers may claim certain business credits, such as research-related credits, by qualifying for the credit. Claiming it without proper qualifications, however, can lead to trouble with the IRS, including penalties and tax debt.
– Micro-captive schemes:
A micro-captive scheme is based on captive insurance companies, wherein both the insurer and the insured have shared ownership of the company, specially created in cases where the insured did not want to lose out on the tax benefits of insurance when their specific circumstances and risks are not usually covered.
In captive insurance, the insured receives coverage in exchange for greater premiums. This rabbit hole goes further down, and can lead into abusive micro-captive insurance schemes where taxpayers are convinced into paying exorbitant premiums for what amounts to little to no real insurance.
Avoiding Tax Scams in 2021 and Beyond
It is always best to thoroughly exercise caution and be mindful of the IRS Dirty Dozen tax scams. If you aren’t sure that a message or call is really coming from the IRS, or if something sounds too good to be true, or if you’re just plain suspicious of a specific service, then do the reasonable thing: look into it. Call a reputable tax attorney for more information. Contact the IRS itself, ask if what you’ve witnessed is legitimate, and report it if it isn’t.
As a general rule of thumb, note that the IRS isn’t going to ask for personal information or important tax info over the phone or via email. These are almost always attempts at getting the information scammers need to pull off their schemes.
The IRS will either ask you to mail copies of certain documents to addresses that are very clearly an IRS field office (which you can easily verify), or they might ask you to fill certain information out online via their official website and portal, NOT through an email.