1. ERC Schemes- Have you received an email with a subject line along the lines of “Act fast for cash, before it’s too late! You may qualify for the Employee Retention Credit (ERC)”? It is more than likely a solicitation from an ERC mill, which are described as money-making schemes that aggressively urge you to claim the ERC, which under IRS audit, could put you on the hook to repay the credit, along with penalties and interest! Check out our blog, ERC Schemes: On the Radio, Through the Mail, In Your Inbox for an example of an ERC mill and tips on what to look out for.
2. Phishing/smishing schemes- The IRS warns that email and text scams are especially prevalent during tax season. If you receive an email from the “IRS” or state tax agency with information about your refund, be mindful that this is most likely a phishing scam. The IRS will never initiate contact with you via email regarding a bill or tax refund. There has also been an exponential increase in what’s known as “smishing” as of late. Smishing (SMS + phishing) is essentially phishing using text messages instead of email. Hackers will pose as someone from an organization you recognize (trusted companies, government agencies, charities, IRS and Treasury department) and request personal information from you via text message.
3. Third party online account scams- Did you receive an email offering help setting up your IRS online account? This is likely an identity theft attempt. While an IRS online account is a helpful tool for taxpayers, you don’t need help to set up an account. Scammers are attempting to obtain valuable and sensitive tax information through this scam.
4. False fuel tax credit claims- Be on the lookout for promoters pushing improper fuel tax credit claims that you are not qualified to receive. The fuel tax credit is not available to most taxpayers, being that it is meant for off-highway business and farming use. Be mindful of unscrupulous tax return preparers and promoters encouraging you to claim the credit to inflate your refund.
5. Fake charities that steal your money- Be wary of charities with names similar to nationally known organizations—they could be phony! Take a minute to ensure that you’re donating to a legitimate charity. IRS.gov has a search feature, Exempt Organizations Select Check that allows you to find legitimate, qualified charities to which donations may be tax-deductible. Scammers will often exploit national disasters and pandemics by setting up fake charities to steal your information.
6. Unscrupulous Tax Preparers- Make sure you take time to select the right return preparer. Dishonest preparers appear every filing season committing fraud and talking people into doing illegal things. Pay special mind to so called “ghost” preparers who digitally file returns and don’t sign the tax returns they prepare. Anyone who is paid to prepare returns must have a Preparer Tax Identification Number (PTIN) that they must include on the returns they prepare.
7. Social media schemes- The IRS is warning taxpayers of a surge in filing schemes circulating on social media platforms. Two recent schemes to be on the lookout for: Form 8944 fraud and Form w-2 fraud. The form 8944 scheme involves scammers encouraging taxpayers to file this form to receive a refund from the IRS. In reality, this form is for tax professional use only. The W-2 scheme encourages taxpayers to make up large income and withholding figures to get a big refund. Remember, taxpayers who knowingly file fraudulent tax forms face hefty penalties.
8. Spearfishing- This is an email scam where a criminal will attempt to steal a tax professional’s software preparation credentials in order to file fraudulent tax returns for refunds.
9. Offer in compromise mills- Taxpayers will also want to be wary of misleading tax debt resolution companies that can settle tax debts for “pennies on the dollar” through an “Offer in Compromise” or OIC. These offer taxpayers the chance to reduce their tax bill if they meet certain, very specific criteria. Unscrupulous companies will oversell the program to unqualified candidates so they can collect a fee from taxpayers who are already in debt. These scams cast a wide net for taxpayers, charge pricey fees and churn out applications for a program they are unlikely to be eligible for.
10. High income filer schemes
    - Charitable Remainder Annuity Trust (CRAT)- Thinking about making a major contribution to your favorite charity? A charitable remainder trust (CRT) might be just what you’re looking for. A CRAT is a type of CRT where a taxpayer transfers assets to the trust which then pays a fixed income to a designated noncharitable beneficiary. The scam comes in when a taxpayer transfers appreciated property to a CRAT and improperly claims that the transfer provides a stepped-up basis to fair market value (FMV), treating the transfer as a sale to the trust. The CRAT will then unlawfully sell the property while not recognizing gain (due to the claimed step up in basis). The CRAT will then buy a single premium immediate annuity (SPIA) with the proceeds from the unlawful sale. The beneficiary of the trust will report only a small portion of the annuity income, incorrectly treating the remainder as excluded return of investment. The IRS is keeping an eye on these scams!
    - Monetized Installment Sales- In this scam, a seller will receive an installment sale’s proceeds through purported loans. The seller will typically enter into a contract to sell appreciated property to a buyer for cash and then sell the same property to an intermediary (in return for an installment note). After that, the intermediary will then sell the property to the buyer and receive the cash purchase price.
11. Bogus Tax Avoidance Strategies
    - Micro-captive insurance arrangements- In this scam, promoters, accountants and wealth planners persuade owners of closely held entities to become involved in schemes that fail to match genuine business needs or duplicate the taxpayer’s commercial coverages.
    - Syndicated conservation easements- The IRS is warning taxpayers to avoid syndicated conservation easements. In this scam, promoters take a provision of the tax law allowing for conservation easements and use inflated appraisals of undeveloped land to inflate tax deductions.
12. International schemes
    - Concealing assets in offshore accounts/improper reporting of digital assets- Scammers avoid taxes by hiding money or assets in unreported offshore accounts. They will then access the funds through debit cards, credit cards, wire transfers or other arrangements. U.S. taxpayers are required to report income from offshore funds and other foreign holdings. Additionally, some taxpayers are not reporting digital assets properly—there is an incorrect assumption that digital asset accounts are “undetectable by tax authorities”. The IRS urges taxpayers to not conceal their digital asset holdings.
    - Maltese (or other Foreign) pension arrangements misusing treaty- This scam involves U.S. citizens or U.S. residents trying to avoid U.S. tax by contributing to foreign individual retirement account in Malta or other foreign countries. An individual using this unlawful strategy will claim that the foreign arrangement is a pension fund for U.S.-Malta treaty purposes, and therefore exempt from U.S. income tax on earnings in and distributions from the arrangement.
    - Puerto Rican and Other Foreign Captive Insurance- This scam involves U.S. owners of closely held entities getting involved in purported insurance arrangements with a Puerto Rican or other foreign corporation, specifically with cell arrangements or segregated asset plans that the U.S. owner has a financial interest in.

Wondering if something is a scam? We can help. Recently, we have seen an uptick in electronic invoice scams. The most recent version of this scam comes from Geek Squad—watch out for any emails that say you will be charged hundreds of dollars for an annual subscription that is about to auto-renew. The email may include a PDF version of the invoice and a number for you to call if you want to cancel the subscription. If you receive such an email—DO NOT call the number listed or respond to the email. Be wary of any communication that insists you act immediately without investigating the claim. A legitimate change in banking would never be communicated through an invoice.

Questions? Contact us.