IRS warns of “Dirty Dozen” 2021 tax scams

Tax scams are nothing new and this season has its own challenges. The IRS recently warned taxpayers of 2021’s “Dirty Dozen” tax scams, several of which are related to the COVID-19 pandemic. These scams must be recognized, avoided, and reported.

The IRS divided the 12 into four categories:

1. Pandemic-related scams.
2. Personal information cons including phishing, ransomware and phone "vishing.”
3. Ruses focusing on unsuspecting victims like fake charities and senior/immigrant fraud.
4. Schemes that persuade taxpayers into unscrupulous actions.

And here they are:

• Attempting to steal COVID-19-inspired Economic Impact Payments (EIP, or stimulus checks). The IRS denotes two principal methods: electronic and old-fashioned physical pilfering.

In the EIP case, but also broadly across all communications pretending to be from the IRS, are any electronic communications or phone calls seeking bank account information or directing people to click on a financial data verification link. The IRS says to delete any electronic communications without opening - and don’t give out personal financial information over the phone, regardless of how insistent or official-sounding the caller. The IRS never contacts people via phone, texts, social media, or email about personal financial information.

Thieves are also becoming brazen about stealing people’s mail in the hope of finding something valuable – such as stimulus or other checks, or money. There are also identity theft considerations. It’s best to not let mail sit in the box, and report suspected theft to the U.S. Postal Service postal inspectors.

• Unemployment fraud is a big (dirty) business. After stealing someone’s identify, scammers file bogus unemployment compensation claims using the stolen personal information and checks get delivered to the thieves. Then the identify theft victim – on record as having received the money - will get a Form 1099-G to report the income they didn’t actually receive.

• Tax-related “phishing trips”: These tactics are increasingly sophisticated and official-looking. Again, the IRS will not contact taxpayers about tax issues via e-mail, text messages, or social media. The same goes for phone calls. Don’t respond, regardless of whether it promises a big refund, or threatens to send you to jail if you don’t answer. These can target not only taxpayers, but tax preparation professionals. No one can let down their guard. 

• Voice-related “vishing”: Unexpected calls seeking financial information, often scams concerning federal tax liens. The IRS says there were 400 vishing schemes discovered in 2020. If someone calls claiming to be from the government and starts asking financial questions, hang up.

• Social media scams: Typically, this involves the thief sending an innocent-looking message impersonating a scam victim’s family or friends, for example, forwarding a link of interest or a suggestion to contribute to a (fake) charity. The victim either gives away personal information— the link has done the job by collecting information from the computer— or the person donated to the crooks, not a charity. 

• Ransomware: This has been much in the news, with the ransomware shutdown of a major U.S. oil pipeline. Ransomware thieves demand a ransom to give access back to the individual or business, or they may download critical information and hold it for ransom. When in doubt, don’t click on a link sent to you by anyone. Check first with the purported source first to make sure it’s legitimate. 

• Fake charities: These “charities” aren’t charities and are more than willing to steal your money. The IRS says, “Scams requesting donations for disaster relief efforts are especially common on the phone. Taxpayers should always check out a charity before they donate, and they should not feel pressured to give immediately.” 

• Fraud against immigrants and seniors: Immigrants, particularly those with limited English language proficiency, are considered good extortion targets by criminals impersonating government employees. The contacts are often threatening in nature. The IRS has expanded its ability to communicate in languages other than English. Older taxpayers are also a consistent target of scams. The IRS urges older taxpayers to use the IRS website as the best source of information. These taxpayers should also follow the recommendations about caution in communicating through computers and cell phones, or on any phone. 

• Offer in Compromise “mills”: An Offer in Compromise (OIC) is a negotiated agreement between taxpayers and the IRS to settle on taxes the government says are owed by a taxpayer. Unfortunately, an industry has sprung up, OIC mills, that claim they can settle an IRS claim for a small amount of money in comparison to the taxes owed. The IRS says that taxpayers are paying fees to these mills even though the people running them know the taxpayer won’t qualify. Furthermore, the mills can’t do anything taxpayers can’t do for themselves.

• Unscrupulous tax return preparers: If someone who prepares your return won’t sign it as the preparer, there’s a reason, and it can’t be a good one. Sometimes it’s because the preparer – knowing they shouldn’t be preparing the form – wants payment in advance, or in cash, while refusing to sign the return. Sometimes the preparer and the taxpayer collude to provide false information in hope of receiving bigger refund or tax deduction. Ultimately, the taxpayer is responsible for what’s on their form – and whatever comes with filing one that’s false.

• Unemployment insurance fraud: These include identity-related fraud, employer-employee collusion fraud, misrepresentation of income fraud, fictitious employer-employee fraud, and insider fraud. 

• Abusive arrangements: Similar to Offers in Compromise, abusive arrangements involve fraudsters who market themselves as having ways to beat the tax system, sure-fire ways to get bigger deductions, or schemes to conspire with employers to game the system. Among the scams identified by the IRS are syndicated conservation easements, abusive micro-captive arrangements, potentially abusive use of the U.S.-Malta tax treaty, Improper claims of business credits, and improper monetized installment sales.

Every situation is different, but we are here to help. If you have questions or concerns about tax scams, contact your Rodefer Moss tax advisor today.