The IRS’ annual “Dirty Dozen” list informs taxpayers about current tax scams, schemes, and dodges that could put their money, personal data, and security at risk. The purpose of the IRS’ Dirty Dozen is to warn taxpayers away from tax traps designed for them by corrupt promoters and shifty tax practitioners.
What schemes made the list for 2024? Here are some areas of impropriety that the IRS wants you to know about:
Social media: Not the ideal place for solid tax advice
Want some bad tax advice? There’s a lot to be found on social media. Scouring social media for answers to your tax problems could lead to identity theft and onerous tax debts.
Two of the recent schemes circulating online relate to the misuse of your W-2 wage information. One scheme involves encouraging people to use Form 7202 (Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals) to claim a credit based on income earned as an employee and not as a self-employed individual. This credit was valid for Covid years 2020 and 2021 but is no longer operative. The second scheme encourages the invention of fictional household employees and the filing of Schedule H’s (Form 1040), Household Employment Taxes, to claim a refund based on false sick and family medical leave wages that they never paid. The IRS is on the lookout for these deceptions and will work with payroll companies, employers, and the Social Security Administration to verify W-2 information.
Beware of ghost preparers
“Ghost preparers” are a common scourge that emerges during tax season. These are unqualified, and sometimes unscrupulous preparers, without valid preparer tax identification numbers (PTINs), who offer filing services. They will often encourage taxpayers to take advantage of tax credits and benefits for which they do not qualify.
“By trying to make a fast buck, these scammers prey on seniors and underserved communities, enticing them with bigger refunds by including bogus tax credit claims or making up income or deductions,” says IRS Commissioner Danny Werfel. “But after the tax return is filed, these ghost preparers disappear, leaving the taxpayer to deal with consequences ranging from a stolen refund to follow-up action from the IRS.”
The IRS encourages taxpayers to check their tax preparer’s credentials and qualifications. A qualified preparer will always ask for the taxpayer’s receipts, records, and tax forms to determine his or her total income, and proper deductions and tax credits. Stay on top of your own data; an unethical tax preparer may try to boost your refund by taking false deductions or creating bogus income to claim more tax credits. E-filing a tax return using a pay stub instead of a Form W-2 is against IRS e-file rules and should serve as a bright red flag to the taxpayer.
The IRS warns taxpayers to beware of preparers that utilize shady payment terms like ‘cash-only’ payments or fees based on a percentage of the taxpayer’s refund. Taxpayers should also be suspicious if a tax preparer encourages them to have their refund deposited with them, instead of depositing it directly into their own personal bank account.
Beware of offer in compromise “mills”
Internal Revenue Service also renewed its warning to taxpayers regarding Offer in Compromise (OIC) “mills”. These are the unscrupulous preparers you’ve heard all over the media promising to make your tax debts disappear.
“These mills try to pull in steep fees while raising false expectations and exploiting vulnerable individuals with promises that tax debt can magically disappear,” says IRS Commissioner Danny Werfel.
The IRS’ Offer in Compromise is a viable option for the taxpayer who can’t meet his tax obligations, provided that he is able to justify financial hardship. The IRS evaluates every OIC application on a case-by-case basis and considers each taxpayer’s unique circumstances, factoring in the taxpayer’s income, expenses, asset equity, future earning potential and ability to pay. Taxpayers must be able to support and document their claim and pay an application fee to start the process. To confirm eligibility and prepare a preliminary proposal, taxpayers can use the IRS’ online OIC Pre-Qualifier Tool found here: https://irs.treasury.gov/oic_pre_qualifier/
While the OIC offers a chance for negotiation with the IRS, allowing taxpayers to present reasons for their inability to pay their full tax debt, it is a complex and time-consuming procedure governed by IRS guidelines. Aggressively marketed OIC mills that promise to resolve outstanding tax debts for pennies on the dollar are deceptive. Taxpayers who fall victim to these schemes may find themselves in even worse financial situations, facing increased debt and legal repercussions.
If you need to reduce your tax liability, reach out to your accounting professional and steer clear of predatory OIC mills.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
