As a result of the winter storms earlier this year, the IRS and Franchise Tax Board extended the deadline for Californians to file and pay their 2022 taxes.
The Oct. 16 deadline is quickly approaching. Along with our responsibility to pay the government, we must be vigilant against tax scams that could jeopardize our financial well-being.
The IRS recently released its annual Dirty Dozen list of tax scams, highlighting the ongoing threat of fraudsters.
While the IRS website provides valuable information about these scams, here are the most relevant issues, warning signs to watch out for, and practical steps to protect your family and finances.
Ads for scam services
You may have heard ads on the radio offering a sizable ERC (Employee Retention Credit) refund.
The ERC is a refundable COVID-era tax credit designed for employers that kept paying employees while they experienced a decline in gross receipts because of COVID-19. According to the IRS, many ads wildly misrepresent and exaggerate who can qualify for the credit.
Here are some warning signs that the ad is a scam: Statements that it is an “easy application process” and that they can determine eligibility within minutes, hefty upfront fees, and requests for a lot of personal and business information over the phone.
How to protect yourself: If you think you might qualify for the ERC credit, you should carefully review the specific eligibility at irs.gov/newsroom/employee-retention-credit-eligibility-checklist-help-understanding-this-complex-credit.
Contact your accountant or tax professional if you think you might be eligible for any tax break or program, especially if you heard about it on social media or the radio.
You received an unsolicited email (phishing) or text (smishing) from organizations like the IRS.
Warning signs: The email or text requests personal financial and identifying information, like bank account numbers or your social security number. The IRS and other tax agencies will not contact you by email or text.
How to protect yourself: According to the IRS, don’t reply, don’t open any attachments, and don’t click on any links. Files and links can contain malicious code that may infect your computer or mobile phone. Go to irs.gov/privacy-disclosure/report-phishing for instructions on how to report the communication with the IRS. If you have disclosed your personal information, go to irs.gov/identity-theft-central to learn what you can do.
Avoid third parties offering assistance with creating an IRS Online Account. You can establish your account directly at www.irs.gov/.
Bad tax preparer
Warning Signs: Your tax preparer gives advice you have not heard of before, like writing off your business suits or Sunday dinner with your family. They want to charge fees based on the size of your refund, or they tell you they cannot e-file your return and insist that you mail it without their signature.
How to protect yourself: If their advice sounds too good to be true, obtain a second opinion. Make sure your tax preparer is who they say they are and is licensed. The IRS maintains a directory- irs.treasury.gov/rpo/rpo.jsf. The directory also has a page describing the qualifications of different preparers and their ability to represent you if you are audited.
You clicked on a link on Facebook to help fire or earthquake victims, but you are unsure if they are legitimate.
We cannot rely on the IRS in this example. A New York Times Article in July 2022 reported that 76 fake charities shared the same post office box, and the IRS approved all of them.
Warning Signs: The charity has a recognizable but slightly different name. In the article example, The United Way of Ohio was unrelated to the United Way.
How to protect yourself: Give to charities you recognize (and be careful with the name). Use sites like Charity Navigator to check out charities before you give.
The IRS includes various tax avoidance strategies in its Dirty Dozen list. Most are targeted at high-income taxpayers, like captive insurance arrangements and offshore accounts that are unavailable to most of us.
Some of what they refer to as schemes can be legitimate tax savings vehicles, like charitable remainder annuity trusts or conservation easements. However, some advisors and clients misused legitimate tax planning vehicles to reduce their tax bills illegally.
Surprisingly, missing from the list this year were tax protestors. Some have devised many of what the IRS terms “frivolous” arguments about why the federal income tax is illegal and need not be paid.
Warning signs: If someone says that paying income tax is voluntary or that federal income tax laws are unconstitutional, run.
How to protect yourself: There’s a meme where a treasury agent tells a celebrity they’ve committed tax fraud, and the celebrity replies, ‘I didn’t commit tax fraud; my accountant said I didn’t pay any taxes!’ The meme reminds us that anyone can fall victim to a tax scam. So, stay vigilant, seek guidance from trusted tax professionals, and report any suspicious activity.
These precautions can safeguard you and your finances during tax season and beyond. Happy filing!
Michelle C. Herting is a CPA, an Accredited Business Valuator, and an Accredited Estate Planner. She specializes in succession planning, business valuations, and settling trusts.
https://www.ocregister.com/2023/10/01/how-to-protect-yourself-from-the-dirty-dozen-of-irs-scammers/ How to protect yourself from the ‘Dirty Dozen’ of IRS scammers – Orange County Register