I’m back with an update on the 2024 dirty dozen: A list from the Internal Revenue Service (IRS) of the 12 dirtiest tax scams and schemes of this year’s tax season. From having your money — or more — stolen via phishing, phone, or social media scams to engaging in abusive tax arrangements, these schemes could leave you in hot water with the IRS. In fact, they could lead to a higher chance of being audited — or even fines and criminal charges.
Regina and I released a Money & Taxes from Bb to XYZ podcast episode on the topic earlier this year, spreading the word about the scams to avoid during the tax season. That’s because the IRS releases its “Dirty Dozen” list each year to highlight the worst of these tax scams. And while many of these top schemes remain on the list from year to year, the IRS made some changes for 2024.
We also have a minisode coming out tomorrow that recaps updates for 2024 that the IRS began releasing in the latter half of tax season. And if you’re someone who prefers the written word, this blog is for you! Let’s look at some of the tax schemes you should be aware of year-round.
2024’s Dirty Dozen
1. Phishing and Smishing
These two ruses have appeared on many a past dirty dozen list, but phishing and smishing made the number one spot on 2024. Phishing involves tricksters sending links to fake websites via email. Smishing is similar but via SMS texts. These attacks have also broadened to include fraudulent calendar appointments, social media posts, and more. If you smell something fishy — like the promise of a big refund or someone claiming to be an IRS officer requesting banking information or authorization — do your due diligence. Check to ensure the contact is from a legitimate source, avoid clicking links or opening attachments, and report the fraud to the IRS.
2. Questionable Employee Retention Credit Claims
The Employee Retention Credit (ERC) is a tax credit that arose from the pandemic as an incentive for employers to keep employees on their payrolls. The IRS paused new opportunities to claim the credit in September of 2023, but that didn’t stop the fraudsters come tax time. Misleading marketers have stepped up their efforts to “assist” business owners in claiming more of the credit than the amount they’re eligible for. And those questionable claims could lead to interest, penalties, and criminal cases for business owners. The bright side: The IRS is allowing business owners who think they’ve been misled to withdraw their ERC claims.
3. “Helpful” Online Account Assistance
If someone offers to assist you in setting up an IRS.gov account, it just might be a scam. That’s because your IRS Online Account offers access to your tax information, which is chock full of personal info, from your address to your social security number and more. It also includes your bank account information, and giving a scammer access to your IRS account gives them the opportunity to get their hands on your tax refund.
4. False Fuel Tax Credits
If you’re not a farmer and you don’t own an off-highway business, you might not have heard of the Fuel Tax Credit. That’s because it’s not a credit available to most taxpayers! A schemer might even create fake receipts or documents to substantiate fuel payments — and charge the taxpayers they’re scamming a hefty fee to do so. This not only harms taxpayers but also puts them on the IRS’s radar for lack of compliance.
5. Offer in Compromise “Mills”
For those with federal tax debts, the IRS may offer to compromise on amounts owed, allowing taxpayers to pay less than the full debt amount. While legitimate Offer in Compromise (OIC) assistance does exist, some fraudsters heavily advertise their services. They aim to mislead indebted taxpayers by charging exorbitant amounts while promising to help the taxpayers settle for far less than they owe the IRS. However, many of the taxpayers these scammers target won’t qualify for compromise — or the fraudsters will charge for services that the taxpayers don’t need and could accomplish themselves. If you think you might be eligible, check out the IRS’s free Offer in Compromise Pre-Qualifier tool.
6. Fake Charities
Considering donating to a charity … but it’s one you haven’t heard of before? Or maybe it sounds familiar, but you suspect that something’s off. Beware of solicitors from fake charities — even those with names that sound reputable. Scammers tend to use names similar to actual charities for their fakery, and they often prey on donors who want to assist victims of natural disasters. Don’t feel pressured to make your donation, and remember that you can check for legitimate charities using the IRS’s Tax-Exempt Organization Search.
7. Unscrupulous Tax Return Preparers
Some fraudsters make themselves out to be upstanding tax preparers — but they’re actually out to scam their clients. Some dishonestly lead their clients to take credits and deductions that they’re not entitled to so they can increase the fees they charge. Others won’t sign the tax returns they prepare or will direct their clients’ refunds to their own bank accounts and then “ghost” their clients. Remember, you’re legally responsible for the information included on your tax return — even if a tax preparer does your taxes for you — and the IRS requires paid preparers to provide a valid Preparer Tax Identification Number (PTIN).
8. Bad Tax Advice from Social Media
If you saw a hot tax tip on TikTok or Instagram, you might want to run it by your tax preparer. Social media is great for spreading excitement — and honest tax information is usually the opposite of thrilling. There’s no magic way to increase your tax refund or decrease your balance due. Using tax hacks can instead lead to civil and criminal penalties, so watch out for bad advice spreading on your favorite social media channels.
9. Spearfishing
Spearfishing is to tax preparers as phishing is to taxpayers. In cases of spearfishing, fraudsters pose as everyday taxpayers and reach out to tax preparers or businesses as “new clients.” These spearfishers attempt to initiate cyberattacks on these tax preparers and businesses to extort them or steal their clients’ data. I receive a lot of legitimate new client requests during tax season, and I’m always on the lookout for scams when I open emails from addresses with owners with whom I haven’t interacted in the past. I know that our security measures are robust, and I appreciate you following your tax preparation process as it helps protect you and your fellow FPFoCo clients.
10. Tax Schemes Aimed at High-Income Filers
If you’re a high-income earner, this one is for you. Certain fraudsters will try to target you with strategies to reduce your taxes. Work with your reputable tax preparer to avoid them as they can be especially tricky. These include:
- Improper art donation deductions
- Misusing a charitable remainder annuity trust (CRAT)
- Shady monetized installment sales
11. Bogus Tax Avoidance Strategies
The two items included in this section of the dirty dozen — syndicated conservation easements and micro-captive insurance arrangements — might not be as common as others higher on the list, but they’re definitely fraudulent.
12. Schemes with an International Element
This set includes Maltese retirement arrangements and unreported or misreported digital assets. In short, avoid contributing to retirement plans in other countries to skip out on U.S. taxes, and be sure to accurately report income from digital assets like cryptocurrency and non-fungible tokens (NFTs).
Protect Yourself from Scams
What can you do to avoid falling victim to a fraudster? The first step is to be aware of their malicious tactics — and keep an eye out for red flags.
It’s also important to remember that taxpayers pay amounts due to the “United States Treasury” — and nowhere else. And the IRS’s main method of contacting taxpayers is through the United States Postal Service. They won’t reach out to taxpayers via social media, email, phone, or text. If an IRS official does come knocking, they’ll show you two forms of ID to prove their identity so you know they’re not a scammer.
And remember, you don’t have to go it alone. As a comprehensive services client, your professionally filed tax return is included in your ongoing services fee. I keep an eye out for scams and schemes like these year-round so I can avoid them and help you do the same. When it comes to tax preparation, tax planning, and so much more, you can count on your financial planning team here at FPFoCo!
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