The IRS “Dirty Dozen” Tax Scams for 2021

7.27.2021 | The IRS recently released its annual “Dirty Dozen” list of tax scams and urges taxpayers, tax professionals, and financial institutions to be on the lookout for the following 12 nefarious tactics.

This year, the IRS divided them into four categories: pandemic-related scams, personal information cons, ruses focusing on unsuspecting victims, and schemes that persuade taxpayers into unscrupulous actions.

PANDEMIC-RELATED SCAMS

1) Economic Impact Payment Theft

This year criminals took advantage of Americans who were anxiously awaiting stimulus checks. Identity thieves tried to steal personal information and stimulus funds through a variety of methods. The IRS reminds people that it will never request bank account information, or social security numbers, through social media, phone calls, text, or email. If you receive a suspicious message with a link, never click it.

2) Unemployment Fraud Leading to Inaccurate Taxpayer 1099-Gs

While many Americans were unemployed, scammers were hard at work filing fraudulent unemployment claims using stolen personal information from those who had not filed claims. Be on the lookout for Form 1099-G reporting unemployment compensation that you did not receive.

PERSONAL INFORMATION CONS

3) Tax-Related Phishing Scams

Phishers continue to use fake emails and websites to trick taxpayers into sharing financial information. However, they are now casting a wider net and going after tax professionals. In fact, there’s a “New Client” scam wherein tax professionals receive an email that reads along the lines of, “I just moved here and I’m hoping you can help me with my taxes and that you’re taking new clients.” It includes attachments identified as IRS notices and/or tax returns. Never, the IRS warns, open attachments from unknown contacts.

4) Impersonator Phone Calls/Vishing

The IRS has seen an increase in voice-related phishing, or “vishing,” particularly related to federal tax liens. Last year, nearly 400 vishing scams were reported, a 14% increase from 2019, and 25% were tied to scammers who tried to use fake tax lien information. Remember, the IRS generally first contacts individuals by mail – not by phone – regarding unpaid taxes. They will never insist on payments via money order, wire transfer, or gift cards.

5) Social Media Scams

Unscrupulous individuals often leverage social media to extract personal information. They may even impersonate friends, family members, or co-workers when sending messages. They can also infiltrate a person’s email and cell phone to go after contacts with fake emails that appear to be real, and ask for small donations to fake charities. The agency advises people to review their social media privacy settings and limit data that is publicly shared.

6) Ransomware

The U.S. Treasury Financial Crimes Enforcement Network (FINCEN) has noted that ransomware attacks continue to rise across various sectors, particularly across governmental entities as well as financial, educational, and healthcare institutions. The IRS recommends proactive prevention through effective cyber hygiene, cybersecurity controls, and other best practices.

RUSES FOCUSING ON UNSUSPECTING VICTIMS

7) Fake Charities

Tragedies and disasters offer scammers a unique opportunity to set up fake charities and solicit donations, especially over the phone. Taxpayers should always vet a charity before donating to it and should never feel pressured to donate immediately. Also, to qualify for a tax deduction, donations must be made to a qualified charity.

8) Immigrant/Senior Fraud

Senior citizens and people who speak limited English have been long-standing targets for scams. While the IRS notes that this targeting has recently diminished, it continues to be an issue and individuals should remain vigilant.

9) Offer In Compromise “Mills”

“We’re increasingly concerned that people having trouble paying their taxes are being duped into misleading claims about settling their tax debts for ‘pennies on the dollar,” said IRS Commissioner Chuck Rettig.

An Offer in Compromise (OIC) is an agreement between the taxpayer and the IRS that resolves a person’s tax debt. However, some promoters inappropriately advise indebted taxpayers to file an OIC application, even though they know the individual will not qualify. In the process, they charge excessive fees, often thousands of dollars. Taxpayers can work directly with the IRS to receive an OIC and can start by using the agency’s Offer in Compromise Pre-Qualifier Tool.

10) Unscrupulous Tax Return Preparers

Taxpayers are legally responsible for what is on their tax return – even if it’s prepared by someone else. Unreputable tax preparers will refuse to sign the return and are referred to as “ghost preparers.” These people may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund. Anyone who is paid to prepare, or assist in preparing, federal tax returns must sign the tax return and include a valid Preparer Tax Identification Number (PTIN).

11) Unemployment Insurance Fraud

This scam often involves individuals who coordinate with or against employers and financial institutions to get local and state assistance to which they are not entitled.

States, employers, and financial institutions need to be aware of the following scams related to unemployment insurance:

  • Identity-related fraud: Filers submit applications for unemployment payments using stolen or fake identification information to perpetrate an account takeover.
  • Employer-employee collusion fraud: The employee receives unemployment insurance payments while the employer continues to pay the employee reduced, unreported wages.
  • Misrepresentation of income fraud: An individual returns to work and fails to report the income to continue receiving unemployment insurance payments, or in an effort to receive higher unemployment payments, applicants claim higher wages than they actually earned.
  • Fictitious employer-employee fraud: Filers falsely claim they work for a legitimate company, or create a fictitious company, and supply fictitious employee and wage records to apply for unemployment insurance payments.
  • Insider fraud: State employees use credentials to inappropriately access or change unemployment claims, resulting in the approval of unqualified applications, improper payment amounts, or movement of unemployment funds to accounts that are not on the application.

SCHEMES THAT PERSUADE TAXPAYERS INTO UNSCRUPULOUS ACTIONS

12) Promoted Abusive Arrangements

In its final warning, the IRS urges taxpayers to be on the lookout for promoters who peddle false hopes of large tax deductions from abusive “deals” i.e., improper claims of business credits. These scammers attempt to cheat the system through a variety of ways and make false claims about their legitimacy while charging high fees.

To combat the evolving variety of these abusive arrangements, the agency recently created the Office of Promoter Investigations (OPI) to coordinate service-wide enforcement activities. According to the IRS, a taxpayer’s best defense when approached by a promoter is to exhibit caution. In other words, if it sounds too good to be true, it probably is.

See the IRS site for complete information on the 2021 Dirty Dozen.

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