The Internal Revenue Service (IRS) releases a list of its top tax-related scams annually, dubbed the “Dirty Dozen”. The 2021 edition of the list was recently released and warns taxpayers of the most popular scams being circulated over the past year. Given the fact 2020 was a year famous for the COVID-19 pandemic, scammers were given many new opportunities to prey upon the uncertainty of Americans. In IR-2021-135, the IRS breaks its 2021 list out into four categories, including:

  • Pandemic-related scams, like Economic Impact Payment (EIP) theft
  • Personal information cons, including phishing, ransomware and phone “vishing”
  • Ruses focusing on unsuspecting victims, like fake charities and senior/immigrant fraud
  • Schemes persuading taxpayers into unscrupulous actions

Pandemic-Related Scams

EIP (or stimulus payment) scams are still popular, as their unprecedented nature raised many questions from taxpayers. It is important to know EIPs will only ever come from the IRS and the IRS will never call, text, email or reach out via social media with information regarding EIPs. Never click suspicious links asking to verify any financial information, and be sure to check the mail frequently if you are expecting an EIP and have not received it via direct deposit.

Another pandemic-related scam taxpayers should be vigilant of is unemployment fraud. Since the pandemic caused an overwhelming number of Americans to lose their jobs, scammers stole the personal information of individuals who had not filed claims and had the unemployment money sent to the scammers. Taxpayers should be on alert if they receive a Form 1099-G in the mail to report compensation they did not receive. In this event, the IRS urges taxpayers to contact their appropriate state agency.

Personal Information Cons

It’s no secret that fraudulent emails, texts and social media messages continue to be on the rise every tax season. However, scammers are continuing their attacks long after individuals file their returns, and they’re getting sneakier. For example, common scams involve scammers posing as close contacts of the recipient, which baits the individual into thinking they’re communicating with a family member, friend or business associate and sharing sensitive information. If you receive a suspicious attachment or link, no matter who it is from, do not click on it.

Another devious tactic scammers use is voice-related phishing, or “vishing”, where recipients will receive phone calls about a potential tax lien. As a reminder, the IRS typically uses the mail as its first mode of communication, but if you do receive a call from the IRS, it will never insist on payment using a money order, wire transfers or gift cards.

Fake Charities and Senior/Immigrant Fraud

In a bid to take advantage of the public’s generosity, the IRS advises taxpayers to be aware of scammers creating fake charities. Notably, the pandemic and recent natural disasters are huge selling points for criminals, who know victims will donate. These scams typically occur over the phone by pushy criminals, but taxpayers should do their due diligence and research the cause before they choose to donate.

The IRS has also been made aware of scammers targeting senior citizens and groups with limited English proficiency, and the nature of the scams is typically threatening. For example, a scammer may call a victim and threaten deportation, jail time or revocation of their driver’s license unless they pay up. Immigrant taxpayers and senior citizens alike have recently fallen victim to these scams, and as a reminder, the IRS will usually reach out via mail. In the event the IRS does call, it will not use scare tactics or threats.

An Offer in Compromise (OIC) is an agreement between the IRS and a taxpayer resolving the taxpayer’s tax debt. Unfortunately, OIC “mills” have grown in popularity, duping taxpayers into settling their debts for “pennies on the dollar” even if they know the taxpayer will not qualify. In turn, taxpayers are left paying up to thousands of dollars to dissolve a debt that wasn’t approved by the IRS, digging them more into debt in the long run.

Persuasive Schemes

Rounding out the Dirty Dozen are tax schemes marketed by tax promoters. These include:

Syndicated Conservation Easements: Promoters take a provision of tax law for conservation easements and game the system to generate inflated and unnecessary tax deductions.

Abusive Micro-Captive Arrangements: Promoters convince owners of closely held entities to take part in scams lacking many attributes of insurance, such as not providing sufficient coverage or duplicating the taxpayer’s existing coverage.

Potentially Abusive Use of the U.S.-Malta Tax Treaty: Certain taxpayers use an interpretation of the U.S.-Malta Income Tax Treaty to state they may contribute appreciated property tax-free to certain Maltese pension plans without tax consequence when the plan sells the assets and distributes proceeds to the U.S. taxpayer. The IRS is currently evaluating this arrangement.

Improper Claims of Business Credits: Research and experimentation (R&E) credits are being improperly claimed by taxpayers failing to substantiate requirements needed to qualify the expenses. Taxpayers should review their studies to confirm their activities are accurately being represented to claim the R&E credit.

Improper Monetized Installment Sales: Promoters target individuals looking to defer the recognition of gain upon the sale of appreciated property and create an abusive shelter through selling them monetized installment sales.

Protect Yourself with the Identity Protection PIN Opt-In Program

As an additional measure of protection, the IRS has recently made its Identity Protection PIN (IP PIN) program available for all taxpayers, not just victims of ID theft.

An IP PIN is a six-digit number that prevents someone else from filing a tax return using your Social Security number. The IP PIN is known only to you and the IRS, which helps the IRS verify your identity when you file your electronic or paper tax return.

To obtain an IP PIN, taxpayers can register on the IRS’ website. Taxpayers must validate their identities through a secure access authentication process. Click here to learn more about the process.

If you believe you’ve fallen victim to a scam, you should contact the IRS immediately. As always, Doeren Mayhew’s tax advisors stand ready to help meet your business and personal tax needs.