The IRS issues a “dirty dozen” list each year. The list is comprised of twelve common scams the IRS wants to warn the public about. This year’s list includes:
- Hidden offshore accounts and digital assets
The U.S. requires its citizens to report income from any source world-wide. Placing income generating assets outside the U.S. does not shield the income from U.S. tax. Similarly, digital assets such as Crypto currency may provide a degree of secrecy for the owner, but digital assets are not free from taxation.
- High income non-filers
The IRS is active in seeking out those with high incomes who attempt to skirt their tax obligation by not filing and making frivolous arguments that filing is not required by law.
- Syndicated conservation easements
Contribution of a conservation easement is a legitimate means to obtain tax savings. However, not when the value of the contributed easement is artificially inflated.
- Micro captive insurance arrangements
As the old saying goes, “if sounds too good to be true, it probably is.” The IRS is aggressively pursuing taxpayers who utilize micro captive insurance schemes. The result of these examinations can be a large tax bill with large penalties on top.
- Using Charitable Remainder Annuity Trusts (CRAT)
An improper step-up in basis is claimed on contributed property. That property is sold and then funds are used to purchase an annuity reporting only a portion of the annuity income.
- Foreign pension arrangements
Taxpayers attempt to avoid U.S. tax by setting up retirement accounts and then claiming a tax exemption for a foreign pension. Overly aggressive tax planning often creates problems and ends up costing more. Always consult a qualified tax advisor. If it sounds to good to be true, seek a second opinion.
- Monetized installment sales
The installment sales rules under IRC section 453 are technical and unscrupulous taxpayers have developed schemes to defer tax when selling an asset by creating the appearance of an installment sale through a series of steps when in substance there is not true installment sale.
- Phishing schemes
Scammers prey on unsuspecting taxpayers using official looking correspondence. It is important to review all correspondence very carefully to avoid fraudsters.
- Economic impact payment and refund scams
Text messages and other forms of communication are used to steal a person’s identity and in-turn steal refunds and economic impact payments. The IRS will never initiate communication by text or email, and very rarely will it initiate contact by phone. Taxpayers should be wary of purported IRS contacts received in this manner.
- Unemployment fraud and fake charities
Scammers using stolen identities to file fraudulent claims for unemployment benefits. It is as important as ever for individuals to protect personal information. Multiple forms of tax scams relate in some way to identity theft. According to the IRS, scammers stealing money by posing as a charity increase during times of crisis such as the pandemic. You can verify an organization’s non-profit status with the IRS Tax Exempt Organization search tool found on the IRS website.
- Offer in compromise mills
Last but not least, is the offer in compromise mills. These companies are usually the late-night advertiser promising to reach settlement with the IRS for pennies on the dollar. While the offer in compromise is a legitimate IRS program, be sure to consult with a qualified tax professional. Too many unscrupulous companies will pray on the taxpayer struggling to pay a tax debt with the promise of a settlement even when it is clear they do not qualify.