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As business owners, it’s crucial to stay vigilant against tax scams that could potentially cost you thousands of dollars and put your personal information at risk. The IRS recently released its annual “Dirty Dozen” list, highlighting the most prevalent tax scams to watch out for. Here’s a breakdown of these scams and how you can protect your business.
Phishing and Smishing
Scammers often use phishing emails or smishing (text messages) that appear to be from legitimate sources, such as the IRS or financial institutions. These messages may threaten legal action or promise tax refunds, but their ultimate goal is to trick you into revealing sensitive information or downloading malware. Never click on links or provide personal details unless you’re absolutely certain of the source’s legitimacy.
Employee Retention Credit (ERC) Scams
The ERC was a pandemic-era tax credit designed to help businesses retain employees during the COVID-19 crisis. However, some unscrupulous individuals are promoting fraudulent ERC claims, exaggerating eligibility requirements or charging excessive fees. Be cautious of aggressive pitches promising large refunds related to the ERC, as eligibility is limited.
Online Account Scams
Beware of third parties offering to help you create an IRS online account. This is a ploy to obtain your personal information, including your Social Security number, which can be used for identity theft. Always create your online accounts directly through official IRS channels.
Fuel Tax Credit Scams
The Fuel Tax Credit is intended for off-highway business and farming use. However, scammers may try to convince you that you qualify for this credit, even if your business doesn’t meet the eligibility criteria. Avoid falling for these schemes, as they could lead to inflated refunds and potential legal consequences.
Offer-in-Compromise Mills
The IRS’s Offer-in-Compromise (OIC) program allows taxpayers who cannot pay their tax debts to settle for a reduced amount. However, some unscrupulous individuals operate “OIC mills,” aggressively promoting OICs to people who don’t qualify, often charging exorbitant fees. Be wary of such offers and seek professional advice before pursuing an OIC.
Fake Charities
After natural disasters or tragedies, scammers may exploit your generosity by soliciting donations for fake charities. Always research and verify the legitimacy of any organization before making charitable contributions. Remember, only donations to qualified tax-exempt organizations are tax-deductible.
Unscrupulous Tax Return Preparers
While most tax professionals are legitimate, some individuals may pose as tax preparers to file fraudulent returns, charge excessive fees, or steal your refunds. Always verify the credentials and reputation of any tax preparer you work with, and never sign blank tax forms.
Social Media Tax Advice
Social media platforms are rife with inaccurate or misleading tax advice. Avoid following or implementing any tax strategies promoted on these platforms, as they could lead to legal consequences or financial losses. Seek guidance from qualified tax professionals or consult official IRS publications.
Spearphishing Scams
Spearphishing is a targeted form of phishing that aims to deceive specific individuals or businesses. Scammers may pose as new clients or associates to gain access to sensitive information, which they then use to file fraudulent tax returns. Be cautious of unsolicited requests for personal or financial details, even if they appear legitimate.
Fraudulent Art Deductions
While donations of artwork to qualified charities can be tax-deductible, be wary of promoters who offer to sell you art at a discounted price, claiming you can donate it and deduct a higher amount. This practice is illegal and could result in penalties.
Abusive Tax Avoidance Schemes
Certain tax avoidance schemes, such as those involving syndicated conservation easements or micro-captive insurance arrangements, may be abusive and illegal. If a tax strategy seems too good to be true, it likely is. Consult with a reputable tax professional before engaging in any complex tax planning strategies.
International Tax Schemes
Tax scams can also have international elements, such as hiding assets offshore, using foreign retirement accounts, or engaging in foreign captive insurance arrangements. The IRS closely monitors these schemes and may impose severe penalties for non-compliance.
As business owners, it’s essential to remain vigilant and seek professional guidance when navigating the complex world of taxes. By being aware of these “Dirty Dozen” scams and taking proactive measures to protect your business, you can avoid falling victim to costly and potentially illegal schemes.
