As we enter another tax season, we must remain alert to the numerous pitfalls that can trap the unwary taxpayer. As a Certified Public Accountant. I’ve seen firsthand the consequences of falling prey to tax scams and fraudulent schemes. An essential tool in our defense arsenal is the IRS “Dirty Dozen” list. This annually updated list is a collection of the most common scams that taxpayers may encounter. Understanding these threats is the first step in safeguarding against them. 

The IRS “Dirty Dozen” list serves as a beacon, warning taxpayers and professionals alike of the deceptive tactics used by fraudsters. It covers a range of illicit activities, from identity theft to sophisticated tax evasion schemes. By familiarizing ourselves with these scams, we can better protect our finances and personal information. This article will address the list’s highlights published by the IRS in 2023. 

One of the most pervasive threats in today’s digital world is phishing. These are deceptive emails or websites posing as legitimate entities to steal sensitive information. Often, these emails appear to be from the IRS or related organizations. It’s vital to remember that the IRS does not initiate contact with taxpayers via email to request personal or financial information. If you receive such an email, do not click on any links or provide any information. Instead, report it to the IRS. The IRS will only contact you with paper correspondence delivered to your mailing address. 

Phone scams are another common tactic. These calls typically involve scammers impersonating IRS agents with fake badge numbers and altered caller ID information. They often threaten arrest, deportation, or license revocation. It’s crucial to understand that the IRS will first mail a bill to any taxpayer who owes taxes, or a notice if they have a question. Furthermore, the IRS does not demand immediate payment over the phone, nor will they threaten immediate law enforcement action. 

Identity theft, especially around tax time, is a significant concern. Criminals use stolen personal information to file fraudulent tax returns and claim refunds. To minimize this risk, protect your Social Security number, regularly review your credit report, and file your tax return as early as possible. You can also apply for an IRS Identity Protection PIN that increases your tax return filing security. The IRS has randomly issued PINs to taxpayers, but you can call and request one if you desire. Only with that PIN can your return be filed electronically. 

Return preparer fraud involves dishonest tax preparers who aim to steal client refunds, charge inflated fees, or promise guaranteed or unusually high refunds. It’s imperative to choose a reputable tax preparer. Ensure they have an IRS Preparer Tax Identification Number (PTIN) and check their history with the Better Business Bureau or state boards of accountancy for any disciplinary actions. 

Some preparers may claim they can secure larger-than-life refunds by inflating your income or deductions or directing part of your refund into their accounts. Remember, you are ultimately responsible for the accuracy of your tax return, regardless of who prepares it. 

Charity fraud tends to rise during tax season. Scammers set up fake charities to exploit taxpayers’ generosity and desire for a tax deduction. Research a charity before donating and use tools like the IRS’s Tax-Exempt Organization Search to verify its legitimacy. 

Businesses are not immune to tax season scams. Be wary of inflated claims for business credits like the Research and Development Credit, which can be complex and subject to stringent qualification criteria. Padding deductions or falsely inflating expenses can lead to significant penalties and interest. Recently, the IRS halted processing all Employee Retention Credits (ERC) due to rampant fraud and abuse of the program. They also launched an amnesty program that allows taxpayers to come forward and return the money received from fraudulent and questionable applications. I was personally involved in a situation where an out-of-state ERC mill was harassing one of our clients to file what I deemed to be ineligible ERC claims. The representatives were aggressive and relentless; their fee would have been 25% of the tax credit received. That is an exorbitant fee if you aren’t aware. If the credit were incorrectly calculated, the taxpayer would generally be on the hook for any resulting penalties. Fraudulent ERC claims were at the top of the list of the 2023 tax scams. 

Creating fake income to claim tax credits, using abusive tax shelters, or engaging in frivolous tax arguments are all schemes that can lead to severe legal and financial repercussions. Offshore tax evasion, which involves hiding assets or income in foreign accounts, is another serious crime the IRS is aggressively pursuing. 

Technology’s role in committing and preventing tax fraud is significant in today’s digital age. On the one hand, scammers use sophisticated methods to deceive taxpayers. On the other hand, the IRS and tax professionals increasingly rely on advanced software and analytics to detect and prevent fraud. As a CPA, I leverage the latest technology to ensure accurate and secure tax filings for my clients. This includes using secure portals for encrypted document exchange, two-factor authentication when available, extremely complex passwords that are routinely updated, employing software that flags potential errors or inconsistencies, and staying abreast of the latest digital trends in tax preparation and fraud prevention. 

We recently saw massive data breaches with Ceasars Palace and MGM properties a few months ago. I’ve heard more incidents of property crimes, theft, and financial fraud than I can remember in the past. I recommend taking every precaution, such as monitoring your credit report, regularly changing your most critical passwords such as email and banking, utilizing two-factor authentication such as Google Authenticator, shredding sensitive documents, encrypting your hard drives, using a VPN for your online activities, and using a password manager. 

In conclusion, while the tax season can be fraught with potential pitfalls, awareness of the IRS ‘Dirty Dozen” scams and seeking professional advice can significantly mitigate these risks. Remember, vigilance and knowledge are your best defenses in the world of taxes. You can navigate this season successfully and with peace of mind with the right approach and guidance. 

Donovan Thiessen, CPA is the founder and owner of The Accountant, LLC. Our mission is to help business owners make better decisions by providing timely and accurate financial and tax analysis. You may reach Donovan at donovan@theaccountantcpa.com, www.theaccountant.cpa and 702.389.2727.