Some scams are complex, with sophisticated algorithms being used to steal identities. Other scams are as simple as picking up the telephone or sending a text or an email to trap unaware and unsuspecting taxpayers.

Each year, we share what the IRS calls its “Dirty Dozen” list of tax scams, which started in 2002. With the recent release of the IRS’ 2024 list, the service has confirmed that scammers continue to deploy tried and true as well as new and creative methods of social engineering in an attempt to obtain sensitive tax data, while the scammers simultaneously deploy even more sophisticated scams to dupe others. The scams on the 2024 IRS Dirty Dozen list can be encountered at any time during the year, but they peak during regular and extended tax seasons. With numerous tax changes continuously impacting taxpayers, tax scams continue to occur at an alarming rate and an increasing number of people fall prey. Don’t be one of them. Be super cautious when opening unsolicited emails and accessing texts, especially when they appear to be official.

Some scams are complex, with sophisticated algorithms being used to steal identities. Other scams are as simple as picking up the telephone or sending a text or an email to trap unaware and unsuspecting taxpayers. Not surprisingly, phishing and online scams as well as employee retention credit (ERC) scams are two of the most prevalent ways in which taxpayers have been victimized. As expected, as the country continues to recover from the effects of a global pandemic, some entries on this list continue to be associated with the impacts of COVID-19, such as ERC scams referenced above. 

New Threats Join Recurring Scams on the 2024 List

Many of same scams that appeared on the 2023 list also appear on the 2024 list (along with a variety of new scams, including schemes aimed at high-income filers). Old and new scams consistently, continuously and successfully trap unsuspecting victims. Phishing schemes once again appear near the top of the list, with new variations appearing annually.

1. Phishing and Smishing Scams

The IRS again includes a warning about phishing and smishing schemes where cybercriminals try to steal a taxpayer's information through scam emails or text messages. Scammers frequently use tax season as a way of fooling people. With people anxiously awaiting the latest information about a refund or other tax issues, scammers pose as the IRS, a state tax agency or others in the tax industry in emails and texts.

Taxpayers should be alert for fake communications posing as legitimate organizations in the tax and financial community, including the IRS and states. These messages arrive in the form of an unsolicited text or email to lure unsuspecting victims into providing valuable personal and financial information that can lead to identity theft. There are two main types:

• Phishing is an email sent by fraudsters claiming to come from the IRS or another legitimate organization, including state tax organizations or a financial firm. The email lures the victims into the scam by a variety of ruses such as enticing victims with a phony tax refund or frightening them with false legal/criminal charges for tax fraud.
• Smishing is a text or smartphone SMS message that uses the same technique as phishing. Scammers often use alarming language like, "Your account has now been put on hold," or "Unusual Activity Report" with a bogus "solutions" link to restore the recipient's account. Unexpected tax refunds are another potential target for scam artists. 

2. Abusive Employee Retention Credit Claims

At the head of the 2023 IRS Dirty Dozen list and moving to second position for 2024, the IRS once again spotlighted ERC promoters who con ineligible people into claiming the credit and lure eligible businesses into abusive claims that grossly overstate the available credit. Renewing several earlier alerts, the IRS highlighted schemes from promoters who have been blasting ads on the radio and the internet touting refunds involving ERCs. These promotions can be based on inaccurate information related to eligibility for and computation of the credit. As we reported previously, these types of schemes tend to increase during times of crisis. The IRS has confirmed that scammers continue to use the pandemic and natural disasters to steal money and personal information from taxpayers.

The IRS urges taxpayers to be wary of text messages, emails or random calls requesting that they click a link or voice verify data to provide any type of personal information. Taxpayers should also vigilantly check their mailbox if they expect to receive any such payments via direct mail. 

3. Third-Party Online Account Scams 

The IRS is warning taxpayers to watch out for scammers who try to sell or offer help setting up an online account on IRS.gov that puts their tax and financial information at risk of identity theft.

In this scam targeting individuals, swindlers pose as a "helpful" third party and offer to help create a taxpayer's IRS online account. People should remember they can set up these accounts themselves. Third parties making these offers will often try to steal a taxpayer's personal information under the guise of assistance in creating the account. Taxpayers can establish their own online account and should only do so through IRS.gov. These scammers often ask for the taxpayer's personal information including address, Social Security number or individual taxpayer identification number and photo identification. The criminal then sells this valuable information to other criminals. They can also use the sensitive information to file fraudulent tax returns, obtain loans and open credit accounts.

The IRS urges people to watch out for these criminals pretending to be helpful. The only place individuals should go to create an IRS online account is IRS.gov. We do not recommend use of third-party assistance, other than the approved IRS authentication process through IRS.gov, to create an IRS online account. We believe taxpayers can and should establish their own online account.

4. False Fuel Credit Claims

The IRS is once again warning taxpayers to watch out for promoters pushing improper fuel tax credit claims that taxpayers are not qualified to receive. The fuel tax credit is not available for most taxpayers since it applies only to off-highway business and farming use. Taxpayers should be on the lookout out for erroneous fuel tax credit claims being promoted by scammers. Scammers will often charge a hefty fee for these bogus claims, and participants also face the possibility of identity theft. This is another example of the old adage that people should always remember: Be wary if a tax deal sounds too good to be true, as it likely is.

5. Offer in Compromise Mills

The IRS continues to see instances of heavily advertised promises offering to settle taxpayer debt at steep discounts. The IRS sees many situations where taxpayers do not meet the technical requirements for an offer, but they had to face excessive fees from promoters for information they could have easily obtained themselves.

Offers in compromise are an important program to help people who cannot pay to settle their federal tax debts. We are a proponent of this program and have helped hundreds, if not thousands, of taxpayers save significant tax dollars via this program. But “mills” can aggressively promote offers in compromise in misleading ways to people who clearly do not meet the qualifications, or oversell the potential savings, frequently costing taxpayers thousands of dollars.

6. Scammers Using Fake Charities

Whether earthquakes, storms or wildfires, good-natured taxpayers rally to help victims after an emergency or disaster by donating money. Unfortunately, scammers often try to prey on well-intentioned donors by posing as fake charities, hoping to steal not only money, but also personal and financial data that can be used in tax-related identity theft. Taxpayers who donate money or goods to a charity might be able to claim a deduction on their federal tax return if they itemize deductions, but charitable donations are only permissible if they go to a qualified tax-exempt organization recognized by the IRS.

7. Unscrupulous Tax Return Preparers

Taxpayers should be careful of shady tax professionals and watch for common warning signs, including charging a fee based on the size of the refund. Some “ghost” tax preparers refuse to sign the tax return, ask people to sign a blank return or refuse to provide or include their IRS preparer tax identification number as required by law. They also encourage taxpayers to take advantage of tax credits and benefits for which they do not qualify. These are all common warning signs, and people should always rely on a trusted tax professional.

8. Social Media Tax Advice

Just because it appears on TikTok, Facebook and similar social media outlets does not mean it’s authoritative. Often, it can be the opposite. Social media can circulate inaccurate or misleading tax information. In a nutshell, there are many schemes that encourage people to submit false, inaccurate information in hopes of getting a refund. Moreover, providing any personal information at any level through social media can subject taxpayers to identity theft.

9. Spearfishing - Suspicious Email Requests  

The IRS urges tax professionals and businesses to be on the lookout for a variety of suspicious email requests. Through these spearphishing emails, scammers try impersonating new clients to steal client data, tax software preparation credentials and tax preparer identities with the goal of getting fraudulent tax refunds. These are also sometimes referred to as “new client scams,” and the fraudulent requests can range from an email that looks like it’s from a potential new client to a request targeting payroll and human resources departments asking for sensitive Form W-2 information.

The IRS recommends, as do we, using a two-person review process when receiving these types of requests for Forms W-2. The IRS also recommends that businesses require that any requests for payroll be submitted through an official process, like the employer's human resources portal.

There are easy steps that tax pros and businesses can take to avoid being fooled by these common schemes, including extra caution when opening emails, clicking on links or sharing sensitive client data. Extra care can go a long way to protect tax professionals and businesses as well as their clients and customers.

10. Schemes Aimed at Wealthy Taxpayers and High-Income Filers

The IRS cautions taxpayers to resist questionable tax practitioners and independent promoters selling schemes aimed at wealthy taxpayers. They are tempting targets for a variety of schemes and aggressive and fraudulent tax strategies designed to reduce taxes. These potentially abusive arrangements involve things like charitable remainder annuity trusts, which permit individuals to donate assets to charity and draw annual income for life or for a specific time period, and monetized installment sales, where promoters find taxpayers seeking to defer the recognition of gain upon the sale of appreciated property. They facilitate a purported monetized installment sale for the taxpayer in exchange for a fee. These tools can be misused by promoters, who can advertise these schemes to attract clients. Promotors also peddle improper art donation deductions by encouraging taxpayers to buy art that they promise is worth significantly more than the purchase price. Promoters may suggest taxpayers donate art annually and allow them to buy a quantity of art that guarantees a specific deductible amount. Promoters may even arrange for certain charities to take the donations. The promoters misapply the rules and leave the filers vulnerable, not to mention subjecting taxpayers to significant penalties.

11. Abusive Tax Avoidance Schemes

The IRS is warning taxpayers to beware of promoters peddling bogus tax schemes aimed at reducing taxes or avoiding them altogether. These schemes can take many shapes, ranging from abusive deals involving syndicated conservation easements to microcaptive insurance arrangements. They can also involve an international component, such as hiding cash and digital assets offshore or using Maltese foreign individual retirement accounts (see 12 below) or foreign captive insurance, a type of insurance company whose owners elect to be taxed on the captive's investment income only and often lack many attributes of legitimate insurance.

12. Schemes Involving International Elements―Maltese Individual Retirement Arrangements, Offshore Accounts and Digital Assets

International tax compliance remains a high priority for the IRS. The IRS continues to scrutinize taxpayers attempting to hide assets in offshore accounts and accounts holding digital assets, such as cryptocurrency. U.S. persons are subject to tax on their worldwide income, unless they can establish there is a statutory or treaty exemption.

A newer international scheme involves U.S. citizens or residents attempting to avoid U.S. tax by contributing to foreign individual retirement arrangements in Malta or another country. These countries allow for contributions in a form other than cash and do not limit the amount of contributions by reference to employment or self-employment activities. By improperly asserting this as a "pension fund" for U.S. tax treaty purposes, the U.S. taxpayer improperly claims an exemption from U.S. income tax on gains and earnings in, and distributions from, the foreign individual retirement arrangement.

The IRS continues to aggressively identify individuals who attempt to conceal income in offshore banks, brokerage accounts, digital asset accounts and nominee entities. The IRS scrutinizes structured transactions, private annuities, employee leasing schemes, foreign trusts, the use of nominee ownership and other arrangements used to conceal taxable income, beneficial owners and assets. To complement its enforcement investigations, the IRS requires individuals holding foreign assets and third parties to report to the IRS on foreign assets, foreign accounts, foreign entities and digital assets. Reporting requirements carry substantial penalties for failure to file. 

Asset protection professionals and unscrupulous promoters continue to lure U.S. persons into placing their assets in offshore accounts and structures, saying they are out of reach of the IRS. Similarly, unscrupulous promoters recommend digital assets as being untraceable and undiscoverable by the IRS. These assertions are not true. The IRS can identify and track anonymous transactions of foreign financial accounts as well as digital assets.

Many of these schemes are promoted and advertised online, but all these schemes have one thing in common: They promise tax savings that are too good to be true and will likely cause legal harm to taxpayers.

The 2024 vs. 2023 Dirty Dozen Comparison 

Reminder of Seven Things the IRS Will Never Do

• The IRS will never call you to demand immediate payment.
• The IRS will never demand a specific method of payment (prepaid debit card, gift card, wire transfer, etc.).
• The IRS will never call about taxes owed without first having mailed you a bill.
• The IRS will never demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• The IRS will never ask you for credit or debit card numbers over the phone.
• The IRS will never threaten to bring in local police or other law enforcement groups to have you arrested for not paying.
• The IRS will never call you to discuss an unexpected refund.

TAG's Perspective

As we have been cautioning our clients and friends for years now, never respond to an unsolicited email, text or phone call from someone you do not know. That is, if you did not initiate the discussion, whether an email, text or phone call, etc.―don't proceed, do not respond. Just hang up or delete it. This simple approach avoids potentially ugly consequences. These words of caution are more poignant than ever due to the uncertain economic conditions and an increasing number of fraudulent actors, because fear and uncertainty may make taxpayers more susceptible to scams and more business is being conducted remotely, which leads to a greater risk of fraudulent emails (phishing) and fake texts (smishing) schemes. Additionally, ongoing tax law changes may make taxpayers more likely to believe fraudulent IRS correspondence.

For More Information

If you would like more information about this topic or your own unique situation, please contact John I. Frederick, Michael A. Gillen, Steven M. Packer or any of the practitioners in the Tax Accounting Group. For information about other pertinent tax topics, please visit our publications page.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.