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Micro-Captive Transactions Taken off Annual List of Tax Season Scams

If it wasn’t bad enough already that a deadly virus is sweeping the globe, turns out criminals and ne’erdowells alike are still trying to steal money from hardworking Americans. Luckily, the IRS has an excellent track record of catching criminals and ne’erdowells, just ask Al Capone.

Every year the IRS releases a list dubbed ever so quaintly as “The Dirty Dozen,” not to be confused with “Cheaper by the Dozen,” lovable Steve Martin family comedy which would have been a much better name for the list. The Dirty Dozen is a list of 12 scams that tend to pop up around tax season the average American, such as one of your customers, should be wary of as they traverse their day-to-day lives. This year’s list was released July 16, just after the July 15 income tax deadline set by the IRS after COVID-19 very rudely reared its ugly head, and it stands to reason that all or most of your clients are probably much more at risk. In disaster there is opportunity for those inclined to less-than-honest methods, much like looters during a hurricane. Your clients are more than likely a bit fearful to say the least and wondering how to protect themselves from would-be thieves during these unprecedented times.

A very notable change in this year’s lineup is the removal of micro captive transactions from the list for the first time since 2014. Micro Captives are small versions of the Captive Insurance Company tax planning strategy allowing more businesses the opportunity to pay premiums of less than $2.2 million while sharing the administrative cost, allowing taxpayers to still experience tax savings worth the costs of the administrator.  The IRS did note in the press release they would be releasing more information in the near future about micro-captive transactions, but it was deemed unworthy of its standing within the Dirty Dozen this year.  This, of course, is excellent news for tax planners and taxpayers who use captives to shift income to future years and recognize it as capital gains when the insurance company is no longer needed.

As for the list, some of the usual suspects made an appearance. Here is a complete breakdown of this year’s Dirty Dozen ways that no good scammers, scallywags, scoundrels and schemers use to cheat good people out of their lunch money. Please feel free to use the following information to distribute to your clients however you see fit:

Phishing – Phishing is when an email is sent to the intended victim with what can essentially be thought of as a baited hook wherein the victim enters personal information thinking the sender is some official entity, such as the IRS. The IRS, and most government institutions for that matter, will never contact you in an email to ask for personal information or demand money. Be especially wary this year of any emails promising COVID relief funds.

Fake Charities – Make sure if you’re donating money to a charity, do your due diligence to ensure the money is going to an actual charity. On that note, also make sure that even if it is a real charity, they’re using the funds appropriately. A list of IRS-approved charities can be found here.

Threatening Impersonator Phone Calls – Scammers will often call random numbers posing as the IRS demanding money immediately to avoid some god-awful consequence that the government would never actually threaten. The IRS will also never demand money immediately, they accept payment plans in many forms.

Social Media Scams – These can come in a variety of flavors, but they’re all centered around popular social media sites like Facebook, Twitter, Instagram etc. Often scammers will create fake profiles or hack existing profiles to find personal information and use it for malicious purposes.

EIP or Refund Theft – Whenever disaster strikes so do looters, thieves, and scammers and they strike both virtually and in-person. This largely comes in the form of false tax returns filed to steal disaster relief payments, like the stimulus checks for COVID-19 or FEMA checks for wildfire victims. Information on Economic Impact Payments can be found here.

Senior Fraud – The elderly fall prey to more and more scams every year it seems, and the IRS reminds senior citizens or those with senior citizens in their care to be diligent about any suspicious calls, letters, e-mails or texts and never give out personal information unless it is to a trustworthy source.

Scams targeting non-English speakers – These often take the form of a call from a robot intended to scare or extract information from anyone who doesn’t speak English or is new to the country. Recent immigrants or non-English speakers should simply ignore these calls and report them to the IRS.

Unscrupulous Return Preparers – Carefully vet whoever you entrust to file your tax returns. A common indicator of malicious intent is if your tax preparer asks you to sign and mail the returns to the IRS yourself, thus leaving no indication they actually played any role in the process and exposing the victims to all kinds of risks. As luck would have it, the IRS has a web page dedicated to helping you pick a tax return preparer and it can be found here.

Offer in Compromise Mills – Companies offering to settle your debt for some absurd percentage of what you owe are most often lying through their teeth. They file for what are called “Offers in Compromise,” which carry very specific criteria that most people simply do not meet. Sixty-six percent of OIC applications were denied in 2019 because of scammers making false promises to taxpayers.

Fake Payments with Repayment Demands – Scammers are now actually able to make fake payments appear in victim’s accounts only to call them posing as the IRS demanding the money back in the form of a gift card. The IRS will never in a million years demand payment from anyone in the form of gift cards and they have a very good reputation of not sending out unexpected refunds. If any suspicious money appears in your account, report it to your bank and to the IRS immediately.

Payroll and HR Scams – Two common examples of these are gift card and direct deposit scams. In a gift card scam, fake email names are created to look like legitimate businesses and send phishing emails for good deals on gift cards to common companies. In a direct deposit scam, it isn’t uncommon for scammers to hack accounts and reroute payroll checks to different accounts. Any reports of such behavior can be filed here.

Ransomware – Last but not least, ransomware is what people commonly think of as a “virus,” or malware inadvertently downloaded by the user which can do anything from tracking your activity to stealing your personal information, including tax and banking information. They can also steal sensitive documents and anonymously hold it for ransom. Frequently running anti-virus software on your personal and work computers can help easily prevent this as well as avoiding any unsecure websites. A common rule of thumb is if the URL starts in HTTP, it is unsecure whereas a URL beginning with HTTPS is considered secure.

The ways in which thieves do what they do is ever-evolving, as are the ways in which we safeguard ourselves. When in doubt, trust your gut. If it feels suspicious, it probably is. Always be extra diligent whenever you are giving your personal information to anyone and report any malicious activity to the proper authorities.

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