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 common scams and how to be aware of them.

1.       Phishing And Smishing Scams

Generally, phishing is when scammers send fraudulent emails claiming to come from a different sender (e.g., the IRS). In the federal tax context, phishing emails state that the recipients have a tax refund, or the emails threaten recipients with tax fraud charges or collection efforts. Smishing is similar – scammers send fraudulent text messages claiming to come from the IRS. The text messages use alarming language like, “Unusual Activity Report.”

Never click on the links in these emails or text messages. Doing so could put malware or ransomware on your computer/phone. The primary way the IRS contacts taxpayers is through regular mail, and will never initiate contact by email, text, or social media concerning a tax bill or tax refund.[1]

For more information on phishing and smishing, click here.

2.       Questionable ERC Claims

Over the past few years, many aggressive promoters have enticed taxpayers to submit Employee Retention Credit (“ERC”) claims with the IRS. The ERC is a refundable tax credit for certain eligible businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. While making an ERC can be financially beneficial for a business, making false ERC claims puts businesses and individuals at the risk of penalties and even criminal prosecution for claiming the ERC when they do not qualify or are not entitled to it.[2]

Before making any ERC claims, make sure to review the ERC guidelines; do not fall prey to marketing tactics of dishonest promoters of the ERC. To review the ERC guidelines and more information on the ERC, click here.

3.       Online Account Setup Scam

Third-party scammers may advertise to “help” taxpayers create an online account on the IRS website. These scammers present the process of setting up an online account as very complicated and that taxpayers need their assistance in this process. However, when the scammers obtain a taxpayer’s confidential information, they can sell the information or use the information to file fraudulent tax returns, obtain loans, and open credit accounts.[3]

Setting up an online account through the IRS is not complicated, and it should be done solely by the taxpayer. The only place individuals should go to create an IRS online account is at www.IRS.gov.

4.       False Fuel Tax Credit Claims

There are many scammers who try to lure taxpayers into questionable tax schemes concerning the Fuel Tax Credit. Scammers mislead taxpayers by preparing their returns and claiming this credit, creating fake documents and fuel receipts in the process and charging the taxpayers inflated fees. However, taxpayers should realize the IRS has heightened scrutiny of this scam, and taxpayers claiming it improperly risk future compliance action by the IRS.[4]

Taxpayers should exercise caution when filing their tax returns – only claiming credits they know they are entitled to.

For more information on the Fuel Tax Credit, click here.

5.       Offers In Compromise Mills

An Offer in Compromise (“OIC”) is a legitimate IRS program that taxpayers can use to settle debts with the IRS – paying a lesser amount than what is fully owed. (For more information on OICs, check out Five Things Taxpayers Should Know Regarding OICs). However, many companies that run OIC mills “aggressively mislead taxpayers into thinking their tax debts can disappear.”[5] Throughout this process, taxpayers end up paying excessive fees, and in the end may not even be eligible for the IRS’s OIC Program.[6]

Avoid falling into the traps that these companies who run OIC mills make. To see if you qualify for the IRS’s OIC Program, click here.

6.       Fake Charity Scams

Many taxpayers also fall prey to fake charity scams. Scammers use fake charities to obtain donations and personal/financial information from unsuspecting victims. The scammers receive money under false pretenses and then turn around and make more money by selling the taxpayer’s sensitive information.[7]‍

To avoid falling for this scam, make sure the charity you are donating to is authentic. You can click this link to verify if the organization is a real tax-exempt charity according to the IRS.

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Conclusion

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

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[1] See IRS Kicks Off Annual Dirty Dozen With Warning About Phishing And Smishing Scams, IRS, available at https://www.irs.gov/newsroom/irs-kicks-off-annual-dirty-dozen-with-warning-about-phishing-and-smishing-scams.

[2] See Dirty Dozen: Beware Of Aggressive Promoters Who Dupe Taxpayers Into Making Questionable Employee Retention Credit Claims; Risks Continue For Small Businesses, Special Withdrawal Program Remains Available, IRS, available at https://www.irs.gov/newsroom/dirty-dozen-beware-of-aggressive-promoters-who-dupe-taxpayers-into-making-questionable-employee-retention-credit-claims-risks-continue-for-small-businesses-special-withdrawal-program-remains-available.

[3] See Dirty Dozen: IRS Warns Taxpayers To Stay Away From "Helpful" Scammers Offering To Set Up An Online Account, IRS, available at https://www.irs.gov/newsroom/dirty-dozen-irs-warns-taxpayers-to-stay-away-from-helpful-scammers-offering-to-set-up-an-online-account.

[4] See Dirty Dozen: IRS Warns About False Fuel Tax Credit Claims; Taxpayers Should Be Wary Of Scammers, Heightened Review, IRS, available at https://www.irs.gov/newsroom/dirty-dozen-irs-warns-about-false-fuel-tax-credit-claims-taxpayers-should-be-wary-of-scammers-heightened-review.

[5] See Dirty Dozen: Beware of Offer In Compromise "Mills" That Falsely Claim Their Services Are Necessary To Resolve IRS Debt, IRS, available at https://www.irs.gov/newsroom/dirty-dozen-beware-of-offer-in-compromise-mills-that-falsely-claim-their-services-are-necessary-to-resolve-irs-debt.

[6] Id.

[7] See Dirty Dozen: IRS Warns About Fake Charities Exploiting Taxpayer Generosity, IRS, available at https://www.irs.gov/newsroom/dirty-dozen-irs-warns-about-fake-charities-exploiting-taxpayer-generosity.

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