Taxpayers Must Be Alert to a Proliferation of Tax Scams this Year by Joel G. Young, JD, LLM
Posted on August 23, 2021
The IRS recently released its annual list of the “Dirty Dozen” top tax scams for 2021, which unsurprisingly include schemes relating to the COVID pandemic. With the extended tax deadlines right around the corner, individuals and businesses must remain on high alert to identify the tell-tale signs of these fraudulent activities and take action to protect themselves and their loved ones.
Economic Impact Payment Theft
Criminals have taken advantage of the economic impact payments (EIPs) the government has provided to qualifying taxpayers throughout the pandemic by intercepting them and stealing taxpayers’ identities. To protect yourself from these schemes, remember that the IRS will never initiate contact with taxpayers by phone, email, text or social media nor will it use these platforms to ask taxpayers to provide personal and financial information, such as a Social Security number or bank account information. Therefore, avoid responding to text messages, random phone calls or emails asking you to provide your bank account information and do not click on links asking you to verify your personal data.
Criminals have also taken advantage of the extended unemployment benefits granted to taxpayers during the pandemic by stealing taxpayers’ identities and cashing in claims filed fraudulently on behalf of victims. If you receive from your state or local government IRS Form 1099-G reporting unemployment compensation that you neither applied for nor received, contact the appropriate state agency to request a corrected form indicating the actual unemployment compensation you received, if any.
The pandemic and its interruption to normal business activities did little to slow down the overwhelming number of phishing scams committed via email, text messages, websites and social media by criminals posing as legitimate organizations, such as the IRS or Social Security Administration. Thieves will go to great lengths to create messages and websites that look legitimate, only to collect recipients’ personal information, steal their identities and/or to infect their digital devices with malicious programs. The best way to protect yourself from falling victim to these schemes is to avoid clicking on links, opening attachments or divulging personal information in response to unsolicited emails. This rule also applies to emails that appear to come from people or organizations you know and trust.
Impersonator Telephone Calls / Vishing Scams
Most of the phone call scams have been initiated by criminals posing as IRS agents warning taxpayers about fake federal tax liens and demanding immediate payment. Again, it is important to remember that the IRS will not contact taxpayers via telephone, and it will never insist on payment using an iTunes card, gift card, prepaid debit card, money order or wire transfer. In these situations, your best bet is to hang up and refrain from giving out any of your personal information.
Social Media Scams
Unscrupulous individuals will often use social media to extract users’ personal information and then use that intelligence against the victims. For example, criminals may impersonate victims’ family members, friends or co-workers to make victims’ feel safe enough to disclose personal information or to click on a link of interest that contains malware. Be aware that the information you share on social media platforms can be collected and used against you. One way to avoid these scams is to review privacy settings and limit data that you share publicly.
Over the past year, there has been a precipitous increase in ransomware attacks in which criminals trick email recipients into opening attachments or clicking on links containing malicious software that essentially hijack recipients’ computer systems or data. For victims to regain access to their systems and avoid leaks of personal information, criminals will demand ramson payments. The best defense against these attacks is to protect computers, networks, data centers and mobile devices with firewalls, anti-spam and anti-virus software, and educate employees to identify these scams.
Falling victim to fake charities has always been an issue for taxpayers. However, with the COVID-19 pandemic, scammers appear to be working overtime setting up bogus charities and calling or emailing victims to request donations that end up in criminals’ pockets. Before writing checks or providing credit-card information over the phone or on the web, do your research. Ask for the name, address and website of the non-profit and check its status on the IRS’s website or on Charity Navigator to confirm it is a bona fide tax-exempt organization for which you may be able to claim a tax deduction on your tax returns. In addition, avoid giving donations to any organization that insists you pay with a gift card.
Immigrant and Senior Citizen Fraud
Criminals are continuing to take advantage of vulnerable populations by posing as government officials and demanding senior citizens and immigrants make payments and disclose personal identifying information or face risks of deportation, revocation of driver’s licenses and even jail time. The IRS reminds taxpayers that their first contact with the IRS will usually come through the mail, and at no time will a legitimate IRS employees use scare tactics to threaten taxpayers. Moreover, if English is not your first language, work with a CPA firm that is also proficient in your native language to avoid miscommunications and ensure you fully understand all the information that is communicated to you.
Offer in Compromise “mills”
Schemers are taking advantage of the IRS’s Offer in Compromise (OIC) program, claiming that their services, which come with exorbitant fees, can help taxpayers’ settle outstanding tax liabilities with the IRS for “pennies on the dollar,” even when the taxpayer will not qualify for such relief. Truth be told, the only way taxpayers can come to an offer in compromise with the IRS and resolve their tax debts (often for less than they actually owe) without any additional fees, is to speak with a CPA or tax attorney or visit the IRS’s OIC program website.
Unscrupulous tax return preparers
Choose your tax preparer carefully, ensuring they have valid Preparer Tax Identification Numbers (PTINs) and that they sign the tax returns they prepare for you. After all, you are legally responsible for the information contained on your tax return even if it is prepared by someone else. Be wary of tax preparers who promise a big refund or charge fees based on the size of a refund as well as anyone who requires cash payments or directs taxpayers’ refunds into their own bank accounts. The IRS has an online directory of all tax preparers with a valid PTIN, which will also provide you with their address and credential (CPA, attorney, etc.) This directory can be accessed at https://irs.treasury.gov/rpo/rpo.jsf.
Unemployment Insurance Fraud
Unemployment fraud often occurs when individuals act in coordination with or against employers and financial institutions to get state and local assistance to which they are not entitled. These illegal scams can also involve identity theft, collusion between employers and employees and misrepresentations of income.
Schemes Peddled by Tax Promoters
Underhanded promoters will often peddle false hopes of large tax deductions from legal tax strategies that they abuse to essentially cheat the system, including syndicated conservation easements using inflated appraisals to generate unwarranted tax deductions; micro-captive insurance arrangements that lack any attributes of insurance; abusive use of the U.S.-Malta tax treaty to evade taxes on appreciated property; improper claims of business credits, including those for research and development; and improperly monetized installment sales. To avoid falling victim to these schemes, always get a second opinion from your trusted tax advisor and remember the old adage: if it appears is too good to be true, it probably is.
About the Author, Joel G. Young, JD, LLM, is a senior manager of Tax Services with Berkowitz Pollack Brant Advisors + CPAs where he provides income and estate-tax planning and compliance services to high-net-worth families and closely held businesses with international operations. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or email@example.com.