Tax Scams Warning: Part II

This is the second part of a two-part series on tax scams. For part one of this series, please refer to Tax Scams Warning: Part I. The IRS compiles an annual list of common tax scams that many individuals/business entities may encounter throughout the year. Below is a summary of several additional common scams and how to be aware of them.‍

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1.       Untrustworthy Tax Preparers

While many tax preparers are credible and honest, there are tax preparers who are scamming taxpayers, encouraging taxpayers to file false tax returns and stealing their personal information. These tax preparers are known as “ghost preparers” because they do not sign the tax returns that they prepare, and they do not have or provide trustworthy credentials.

Taxpayers are ultimately responsible for the information on their tax returns. It is important for taxpayers to always check the tax preparer’s credentials and qualifications before hiring them to prepare tax returns. The IRS also provides a directory of federal tax return preparers to help choose a qualified tax preparer. To access the directory, click here.[1]‍

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2.       Social Media Misinformation

Social media is a major source of false information and bad advice, especially tax and legal advice. Social media platforms will urge taxpayers to submit false, inaccurate information to the IRS to get a large refund. Many platforms post for selfish gain (to gain attention and boost their platforms) but circulate fraudulent information in the process.[2]

Taxpayers should obtain tax advice from trusted sources only. Intentionally filing forms with false or fraudulent information can result in civil and criminal penalties. If a taxpayer is unsure about tax advice, he should contact a trusted tax professional.‍

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3.       Spearphishing Attacks

Spearphishing is specifically targeted at tax professionals. Through this scam, identity thieves pose as potential clients using fake emails to get sensitive data or gain access to client information from the tax professionals’ computer systems. They typically do this through malicious emails.

The IRS gives several tips to avoid being a victim of spearphishing:

- Never click suspicious links or download attachments from unknown senders, including potential clients.

- Call the potential client to confirm the email is from them.

- Send only password-protected and encrypted documents through email.

- Protect email accounts with strong passwords and two-factor authentication.

- Use security software products with anti-phishing tools.

- Be vigilant year-round, not just during tax filing season.[3]

Being on guard against this type of scam can protect both tax professionals and their clients.‍

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4.       Illegal Tax Schemes

Many scammers target wealthy individuals with aggressive tax strategies to reduce taxes, but many of these strategies are fraudulent. One example of an illegal tax scheme is improper art donation deductions. Through this scheme, promoters target taxpayers through dishonest art sales – selling art that is “discounted” and then encouraging the taxpayer to hold the art for a year, donate the artwork, and then claim a tax deduction for the fair market value. Many times, the artwork is not worth more than the price that was paid for it.[4]

Other schemes include misuse of both charitable remainder annuity trusts and monetized installment sales, as well as other bogus tax avoidance strategies (for more information, click here). If a scheme seems too good to be true, it probably is fraudulent. For reliable tax advice, always seek a trusted tax professional.‍

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Conclusion

While this is not a comprehensive list of all tax scams, these are common examples of which all taxpayers should be aware. Taxpayers should always be alert and proactive to avoid falling into scams where confidential information can be stolen. For more information on how to report abusive tax schemes and abusive tax return preparers, click here.

Contact Provident Legal Counsel today to discuss your case and legal options. Schedule a Consultation or call (214) 432-6100.

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[1] See Dirty Dozen: IRS Urges Taxpayers To Not Fall Prey To Untrustworthy Tax Preparers; "Ghost Preparers" Can Disappear With Taxpayer Cash, Information, IRS, available at https://www.irs.gov/newsroom/dirty-dozen-irs-urges-taxpayers-to-not-fall-prey-to-untrustworthy-tax-preparers-ghost-preparers-can-disappear-with-taxpayer-cash-information.

[2] See Dirty Dozen: Taking Tax Advice On Social Media Can Be Bad News For Taxpayers; Inaccurate Or Misleading Tax Information Circulating, IRS, available at https://www.irs.gov/newsroom/dirty-dozen-taking-tax-advice-on-social-media-can-be-bad-news-for-taxpayers-inaccurate-or-misleading-tax-information-circulating.

[3] See Dirty Dozen: IRS Warns Tax Pros, Businesses To Be Cautious Of Ongoing Spearphishing Attacks To Gain Sensitive Information; Warns of Surge In “New Client” Scams, IRS, available at https://www.irs.gov/newsroom/dirty-dozen-irs-warns-tax-pros-businesses-to-be-cautious-of-ongoing-spearphishing-attacks-to-gain-sensitive-information-warns-of-surge-in-new-client-scams.

[4] See Dirty Dozen: High-Income Filers Vulnerable To Illegal Tax Schemes; Face Risk From Improper Art Donation Deductions, Charitable Remainder Annuity Trusts, Monetized Installment Sales, IRS, available at https://www.irs.gov/newsroom/dirty-dozen-high-income-filers-vulnerable-to-illegal-tax-schemes-face-risk-from-improper-art-donation-deductions-charitable-remainder-annuity-trusts-monetized-installment-sales.