On April 5, 2023 (IR-2023-71), the IRS updated its list of the “Dirty Dozen” tax scams for 2023; some items are new, others “made a return visit.” The first on the list is one that I have been repeatedly asked and re-asked about due to all the advertising and hype on radio and the internet stating that your business can receive up to $26,000 per employee, even if you received a PPP Loan; and it only takes minutes to determine your qualification.
Now on to the tax scams, or sometimes, maybe a difference of opinion, since the tax laws are complicated, convoluted, and subject to a myriad of interpretations.
1) Employee Retention Credit (ERC) Claims
The ERC is available for businesses that were forced to close by government mandates and who had a substantial decrease in gross receipts from March 13, 2020, to December 31, 2021, as compared to the same quarters from the prior year before COVID-19 restrictions. If your CPA and/or Payroll Service does not believe your business qualifies, you may want to avoid responding to the promoters. The IRS will most likely audit your business if you have applied for the Employee Retention Credit (ERC).
According to the IRS, “These promotions can be based on inaccurate information related to eligibility for and computation of the credit. Additionally, some of these advertisements exist solely to collect the taxpayer’s personal identifiable information in exchange for false promises. The scammers then use the information to conduct identity theft.”
2) Phishing and Smishing
Be alert to fake communications from those posing as the IRS, States, and tax and financial planning organizations. Such messages arrive as unsolicited text (smishing) and email (phishing) and can lead to identity theft and a computer virus.
The IRS should only communicate through regular mail and “will never initiate contact with taxpayers by email, text or social media regarding a bill or tax refund.”
3) 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 reality, no help is needed.” Third parties attempt to steal personal information.
My advice, other than business requirements for payroll tax deposits, DON’T create an account with the IRS… extend your tax returns to the latest possible date… send in paper returns… do not make it easier for the IRS to audit you!
4) False Fuel Tax Credit Claims
Only available for off-highway business and farming… don’t get sucked into filing Form 4136, Credit for Federal Tax paid on Fuels, unless you qualify!
5) Fake Charities
Bogus charities come out whenever a crisis or natural disaster occurs; some scammers not only seek money but are interested in your personal information for identity theft. Also, no deduction is available unless the charity is a qualified tax-exempt organization recognized by the IRS.
My advice, make sure the charity is legit. Just as important, 85%-to-90% ought to go to a charitable cause, NOT 10% or less. For example, only 5.7% of the Clinton Foundation’s “massive 2014 budget actually went to charitable grants.”
6) Unscrupulous Tax Return Preparers
“. . . be careful of shady tax professionals and watch for common warning signs, including charging a fee based on the size of the refund.”
7) Spearphishing and Cybersecurity for Tax Professionals
Phishing is a term given to emails or text messaging to get users to provide personal information; Spearphishing is a tailored approach going after specific business organizations and tax professionals to steal client data and the tax preparer’s identity.
8) Offer in Compromise Mills
The Offer in Compromise is an IRS program to help people settle their IRS debt who cannot pay. Promotors often mislead people who “clearly don’t meet the qualifications.” You can check your eligibility for free by going to the IRS website yourself.
9) Schemes Aimed at High-Income Filers
Be careful about promoters of (1) Charitable Remainder Annuity Trusts (CRAT) and (2) Monetized Installment Sales. According to the IRS, in many instances, “these [are] potentially abusive transactions.”
10) Bogus Tax Avoidance Strategies
The IRS deems Micro-Captive Insurance Arrangements and Syndicated Conservation Easements bogus tax-avoidance strategies. Get a second opinion and/or consult a “Big 4” CPA Firm before proceeding with these strategies.
11) Schemes with International Elements
a) Offshore Accounts and Digital Assets
You better have your ducks in order if you have offshore bank or brokerage accounts and/or you are involved in digital assets such as cryptocurrency. “The IRS can identify and track anonymous transactions of foreign financial accounts as well as digital assets.” Also, the reporting requirements are ominous and subject to unconscionable penalties.
b) Maltese Individual Retirement Arrangements Misusing Treaty
You know who you are… get a second opinion… consult a “Big 4” CPA Firm. I’d suggest PricewaterhouseCoopers (PwC) or Deloitte… I was a Senior Tax Manager with both.
c) Puerto Rican and Foreign Captive Insurance
Same advice as “b” above.
“Where appropriate, the IRS will challenge the purported tax benefits from these types of transactions and impose penalties. The IRS Criminal Investigation Division is always on the lookout for promoters and participants of these types of schemes.” Before you begin to participate in any of the above, get a second opinion and/or consult a “Big 4” CPA Firm.
12) Help Stop Fraud and Scams
The IRS encourages people “to report individuals who promote improper and abusive tax schemes” and “send the information to the IRS Whistleblower Office for possible monetary reward.” Therefore, it is strongly suggested you maintain a low profile, keeping your financial and tax affairs to yourself; and be careful what you discuss in public or at a restaurant or bar.
It is strongly suggested that you avoid any direct contact with the IRS; only communicate via certified mail, extend all your tax returns, and do not file returns electronically, except payroll returns. For further explanation, you and your Tax Return Preparer may want to read: HOW TO PREPARE FOR, CONTROL, AND SUCCESSFULLY SURVIVE AN IRS AUDIT eBook : Beard Jr., Robert G.: Kindle Store.
If you receive a phone call from someone purportedly from the IRS or your State department of revenue, respectfully request that they put any request in writing. If they want you to confirm any information over the phone, including your name, address, phone number or social security number, DO NOT DO SO, politely say, put your request in writing and hang up.
In addition, take a look at our April 4th blog, TAX DAY – THE DAY WE WAIVE OUR RIGHTS — Jeffersonian Group | Financial Planning & independence. Once you read this blog, you will understand why we need to get rid of the income tax and abolish the IRS!
Dum Spiro Spero—While I breathe, I hope.
Slainte mhath,
Robert G. Beard Jr., C.P.A., C.G.M.A., J.D., LL.M.