In prior Tips,[1] we have examined the Dirty Dozen of Tax Scams that have been issued by the IRS.
We have also addressed this topic in Chapter 40 of Real Estate Transactions, Tax Planning.[2] This chapter examines the importance of tax motive in tax court decisions, the Tax Code, and other tax authorities. Sometimes the motive of a taxpayer is very important, such as the intent to hold a property for investment or trade or business use. This might be relevant when applying Code[3] Section 1231 and looking to tax treatment for Federal Income Tax purposes, when considering if a property will qualify for business use treatment, such as claiming depreciation under Code Sections 167 and 168[4]. This Chapter also addresses how sometimes taxpayers attempt to disguise their motive in holding property when the intent issue might impact the tax treatment of property. This might arise when a property is sold and is being classified as dealer property or non-dealer property. This determination in turn impacts the possible application of the lower capital gains tax rate..
Sometimes scammers attempt to improperly entice taxpayers into scams or other tax positions that are improper under the law. Taxpayers are sometimes receptive to proposals that save the taxpayer a large amount of tax, result in tax refunds, tax credits, or other attractive results. Many of these proposals by scam artists are illegal, but many taxpayers are not aware of the illegality of a given tax structure.
What the IRS is now seeing, based on a recent Service release, IR-2022-36, is that tax professionals might also be a target of these con artists.
In the document noted above, IR-2022-36, the IRS said that scams are being perpetrated against professionals, tax professionals, to steal the client data and tax preparers’ identities. They in turn use this information to file fraudulent tax returns, especially those that generate tax refunds from the Federal government.
Thus, it is not only non-tax trained taxpayers that must be aware of potential scams connected with tax returns and related issues, but even the trained tax professional, the tax return preparer, the CPA, the tax attorney, and others must recognize that they, too, are targets for fraudulent cons. As IRS Commissioner Chuck Rettig said as to this issue:
“Tax professionals must remain vigilant in identifying and staying clear of these IRS impersonation emails. A little extra care can protect the tax professionals and their clients.”[5]
How do these thieves using the internet and tax knowledge gain this confidential information to create these scams? There are many approaches that are employed. We addressed some of these in the earlier referred to article on Dirty Dozen, noted above. One of the more recent approaches, however, to gain this information to prepare the fraudulent scheme is by issuing emails to the tax professional that might say, for example: “Your account has been put on hold.” This email might, allegedly, be issued by the software company that the tax professional uses. In turn, the tax professional often replies to the email and, often discloses key information that the scammer uses to defraud the tax professional. Malware is also employed by scammers, trying to place the software on the computer of the tax professional.
An example of one message that the IRS has noted that has been a bogus message sent to tax professionals stated the following:
“Your account has now been put on hold
ALL preparers are required to apply security feature to their Tax Pro account towards 2021 Tax Returns processing. You have failed to apply new update before the expiry date You are restore and update your account immediately. Please Click Here to update your account now. Important Failure to update your account within the next 24hours will lead to your account being terminated and be barred from filing tax returns claims for 2021 tax season Your access will be restored once you have updated your details.
Sincerely, IRS.gov eServices[6]”
Again, once a tax professional acts on this message, the thief may gain the information needed to defraud the tax professionals and many clients of the tax professional.
This is a good time, with tax season present, to think about being even more careful to avoid these types of scams and other phishing ploys. For more on this issue as to professionals, see the authorities in this footnote.[7]
By Dr. Mark Lee Levine, Professor, University of Denver
[1] See the Tips by Levine contained in the blog at https://www.markleelevine.com/ See also the Levine Newsletter as referenced in these Tips. [2] See Levine, Mark Lee and Segev, Libbi Levine, Real Estate Transactions, Tax Planning, Thomson/Reuters/West (2022). [3] See the 26 USCA 1231, 1986, as amended; herein referred to as the Code. [4] See the Code as referred to, supra Footnote 3.
[7] For additional information and help, tax professionals should review Publication 4557, Safeguarding Taxpayer Data and Identity Theft Information for Tax Professionals