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  • Dr. Mark Lee Levine, Professor

DIRTY DOZEN: SCAMS IDENTIFIED BY THE IRS—TOP FOR 2021



Americans urged to watch out for tax scams during the pandemic!

The IRS issues, yearly, its list of the top dozen scams that the IRS considers will cause the most concern to the public. For the 2021 part one of the Dirty Dozen, the focus is on Pandemic-related scams. (The number one scam from the Dirty Dozen is tied to Covid-19.)

Under IR-2021-135, distributed June 28, 2021, the IRS issued a list of key Dirty Dozen tax (and related) Scams. As mentioned, this updated list by the IRS has been delivered for many years.


I have commented on the Dirty Dozen in prior Tips. We have also covered many of these scams in our Real Estate Transactions text, issued annually.


(1) It is interesting to see those cons that have damaged the public over the years and which tricks have evolved, especially because of the use of technology.



This year, 2021, the IRS has decided to issue its warning list of the Dirty Dozen in a series of four parts.


(2) The Series, as announced by the IRS, includes the following groups:


1. Pandemic-related scams, like Economic Impact Payment theft, as the IRS calls it.

2. Personal information cons, including phishing, ransomware, and phone phishing.

3. Ruses focusing on unsuspecting victims like fake charities and senior/immigrant fraud; and

4. Schemes that promote abusive structures, such as syndicated conservation easements and other misrepresentations that try to encourage taxpayers to take improver actions on their returns.

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In IR-2021-137, issued 6/29/2021, the IRS, by the Release, warned taxpayers to watch out for schemes that involve emails, text, social media messages, and calls by phone.


The IRS warned that “unscrupulous individuals” try to gain personal information from innocent people and use the information to gain funds via tax-related identity theft. The actions may involve encouraging taxpayers to download malicious software that collects personal information about the taxpayer and uses it to defraud taxpayers, obtains their funds, or otherwise commit crimes to steal funds.


The Release also mentioned that this part of the Dirty Dozen may involve phishing scams to gain information-- to then steal from the taxpayer. The scam may look legitimate, as though a notice came from the IRS. Watch out, said the IRS, for emails and other messages looking to gather information that is personal to the taxpayer. The scam may also target professionals, such as tax return preparers. Do not open questionable emails and/or their attachments. You can report the scam to the Treasury. (See Treasury Inspector General for Tax Administration.)


In this Release, the IRS gave an example of an actual scam email sent to an innocent tax return preparer.

In the email, the scammer said:

“Hello. I got your contact details from Karen Wxxxx….”

Since she would be retiring, I would need your professional tax preparation service to help prepare my tax for 2020. Please send me an email with your requirements, detailed information of what you will need, and any important changes I might need to know.

I can send you a record of my last year tax, to proceed.

Please let me know if you would be interested in being my accountant….”


In other warnings, the IRS said that many of these criminals try to impersonate the IRS and go on phishing expeditions to gain your information.


The IRS further warned about social media scams being undertaken to trick people to give up key identity information.


Cybercriminals are also using ransomware against innocent parties. This is the position where the scammer has software that is designed to block access to the computer of the innocent person. The scammer states that if the sender/scammer is not paid a given “ransom,” they will destroy your information and/or prevent you from accessing your information and continuing your business with that information. A few major ransom cases in the area of oil production and in meat processing have been in the news in the US, very recently.


For more information and to report such fraudulent actions, the IRS referred taxpayers to: Tax Fraud Alerts and Tax Scams – How to Report Them.



In Release IR-2021-142, issued 6/30/2021, the IRS urged cautioned taxpayers to be alert as to tax-related scams involving fake charities, ghost preparers and other similar schemes.


The IRS was especially concerned in this area as to seniors and immigrants; such parties are especially vulnerable to these types of scams, said the IRS.

The IRS has cautioned that seniors and immigrants are often at a greater disadvantage than other taxpayers in trying to protect themselves from fraudsters.

“Several schemes involve fraudsters targeting groups like seniors or immigrants, posing as fake charities impersonating IRS authorities, charging excessive fees for Offers in Compromise, conducting unemployment insurance fraud and unscrupulously preparing tax returns.”


In this setting, the IRS noted Five of the top Dirty Dozen scams for 2021.

Fake charities

The fraud connected with charities can involve various situations. One such setting, noted by the IRS, is where the scammer sets up a fake charity to gain funds from those giving gifts to charities. The IRS cautioned taxpayers to watch closely for anyone soliciting funds for a charity that they do not know.


The IRS further suggested the following cautions:

“Individuals should never let any caller pressure them. A legitimate charity will be happy to get a donation at any time, so there’s no rush. Donors are encouraged to take the time to do the research.


Potential donors should ask the fundraiser for the charity’s exact name, web address, and mailing address, so it can be confirmed later. Some dishonest telemarketers use names that sound like large well-known charities to confuse people.


Be careful how a donation is paid. Donors should not work with charities that ask them to pay by giving numbers from a gift card or by wiring money. That’s how scammers ask people to pay. It's safest to pay by credit card or check — and only after having done some research on the charity.”


Because this charity fraud is such a big area, the IRS also suggested that for more information, contact the Federal Trade Commission website.


Immigrant/senior fraud

Because many immigrants are not familiar with the procedures with the IRS and tax collection, some immigrant taxpayers are fooled into thinking that someone calling or writing them is from the IRS. A lack of English proficiency is also a problem for some immigrants. Scammers also sometimes threaten the innocent taxpayer with a warrant, arrest, penalty, or other sanction, if the taxpayer does not “cooperate” quickly with the agent. Do not fall for this pressure, warns the IRS. The IRS also reminded taxpayers that:

“… the first contact with the IRS will usually be through mail, not over the phone. Legitimate IRS employees will not threaten to revoke licenses or have a person deported. These are scare tactics.” For more information in this area, see IRS Publication 17 and IRS.gov.

Unscrupulous tax return preparers

Most tax return preparers are honest and work hard to prepare proper tax returns as required under the law. However, some scammers use this guise to defraud individuals. The IRS noted that some such scammers might, regarding the tax return work:


“Require payment in cash only and will not provide a receipt.

Invent income to qualify their clients for tax credits.

Claim fake deductions to boost the size of the refund.

Direct refunds into their bank account, not the taxpayer's account.”


The IRS noted that it is important for taxpayers to be careful in selecting the professional that will help them on their returns. The Taxpayer is responsible for what is on their return, even if someone else was hired to help with the preparation of the return.


For guidance in this area, the IRS noted: Choosing a Tax Professional and IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

Unemployment insurance fraud

Another area of schemes for this list of the Dirty Dozen deals with unemployment fraud. This can often involve individuals acting in coordination with or against employers and financial institutions to improperly gain financial benefit for the taxpayer, which the taxpayer often is encouraged to share with the scammer. (The taxpayer is often not aware that he or she is not entitled to such benefits.)


Some of the frauds in the Release mentioned in this area by the IRS include:

  • “Identity-related fraud: Filers submit applications for unemployment payments using stolen or fake identification information to perpetrate an account takeover.

  • Employer-employee collusion fraud: The employee receives unemployment insurance payments while the employer continues to pay the employee reduced, unreported wages.

  • Misrepresentation of income fraud: An individual returns to work and fails to report the income, to continue receiving unemployment insurance payments, or in an effort to receive higher unemployment payments, applicants claim higher wages than they actually earned.

  • Fictitious employer-employee fraud: Filers falsely claim they work for a legitimate company, or create a fictitious company, and supply fictitious employee and wage records to apply for unemployment insurance payments.

  • Insider fraud: State employees use credentials to inappropriately access or change unemployment claims, resulting in the approval of unqualified applications, improper payment amounts, or movement of unemployment funds to accounts that are not on the application.”

On 7/1/2021, the IRS issued its last group of the Dirty Dozen for 2021. This group of scams in the top dozen is found in IR-2021-144.


This part of the Dirty Dozen warns taxpayers to watch out for syndicated conservation easements, abusive micro-captive insurance arrangements, and other abusive arrangements.


The micro-captive structures often involve entities or items not familiar to most taxpayers. For example, they may involve a company in the US that owns an insurance company that is located outside of the US. This offshore company may be used to try to improperly generate large deductions to be used on the US tax return.


Other abuses may be attempts by businesses to claim credits, as directed by the fraudster, where the company is not entitled to the credit.


Another business-related fraud, often encouraged by the scammer, is to try and have a taxpayer generate larger deductions or credits that are not allowed by law. With these deductions or credits, a business might reduce its taxes. In turn, the fraudster tries to gain part of the savings as payment for their guidance, even though the guidance is illegal.

This Release suggested additional materials available to taxpayers to try and avoid these fraudsters. See, for example, this site: here.


There are many more scams than the Dirty Dozen highlighted by the IRS for 2021.


Hopefully, with these warnings by the IRS, taxpayers will be more cautious and will avoid many of these scammers.


For more information on these and other scams, see the IRS site: IRS.gov/Dirty-Dozen.

By

Dr. Mark Lee Levine



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[1] See Levine, Mark Lee and Segev, Libbi Levine, Real Estate Transactions, Tax Planning, Thomson West (2021). [2] See IRS Newswire release, “Dirty Dozen,” June 25, 2021. For a list of prior Dirty Dozens from the IRS, see https://www.irs.gov/newsroom/dirty-dozen

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