What Are the IRS Dirty Dozen Tax Scams?

The Internal Revenue Service (IRS) annually releases its “Dirty Dozen” list to spotlight the most prevalent tax-related frauds and schemes. This compilation serves as a warning for taxpayers, tax professionals, and financial institutions, equipping individuals with the knowledge to recognize and avoid these scams. The list is a direct response to the evolving landscape of tax fraud, which adapts to new technologies and economic changes. Each year, the IRS analyzes data from tax filings and criminal investigations to identify the most significant threats and educate the public on how to safeguard their information.

Digital Scams Targeting Personal Information

A prominent category of scams on the IRS Dirty Dozen list involves digital tactics designed to steal personal information. These schemes exploit common communication channels like email, text messages, and social media to trick individuals into divulging sensitive data. Scammers often impersonate the IRS or other legitimate organizations to gain the trust of their targets and lure them into compromising their own security.

Phishing is one of the most common forms of these digital attacks. Criminals send unsolicited emails that appear to be from the IRS, a bank, or a tax software provider, often with urgent subject lines about a tax refund or problem. The message instructs the recipient to click a link or open an attachment, which leads to a fake website designed to capture login credentials, Social Security numbers (SSNs), and bank account details. The IRS does not initiate contact via email to request personal or financial information.

A similar threat, smishing, uses text messages instead of email. A smishing message might contain a link with a deceptive message, such as “Your IRS refund is ready to be claimed.” These links lead to malicious websites that mimic official portals to trick the user into entering personal data. The prevalence of smartphones makes smishing a particularly effective tool for scammers.

Spearfishing represents a more sophisticated and targeted version of these scams. Unlike broad campaigns, spearfishing attacks are customized for a specific individual or business. Scammers may gather information from social media or other public sources to make their fraudulent communications more believable, such as an email to a business owner that appears to be from a known vendor.

Deceptive Schemes and Impersonation Scams

Beyond digital theft, many scams rely on direct interaction and impersonation to defraud taxpayers. These schemes involve criminals posing as IRS officials or offering fraudulent services, preying on fear and confusion. The scams range from aggressive phone calls demanding immediate payment to deceptive offers of tax assistance from unqualified individuals.

One of the most common schemes involves IRS impersonation over the phone. A scammer calls a taxpayer claiming to be an IRS agent and aggressively demands payment for a supposed overdue tax bill. The caller often uses a threatening tone, warning of imminent arrest or deportation if the victim does not pay immediately. They instruct the taxpayer to pay using unconventional methods like gift cards, wire transfers, or cryptocurrency. The IRS initiates most contact through postal mail and never demands immediate payment over the phone.

Another prevalent issue is the rise of “ghost preparers.” These are individuals who prepare tax returns for a fee but refuse to sign the return or provide their Preparer Tax Identification Number (PTIN), as required by law. These preparers attract clients by promising inflated refunds, which they achieve by inventing deductions or claiming false credits. After preparing the fraudulent return and collecting their fee, they disappear, leaving the taxpayer to deal with the inaccurate return.

Offer in Compromise (OIC) “mills” represent another deceptive service. These companies aggressively market their ability to settle a taxpayer’s debt with the IRS for “pennies on the dollar” through the OIC program. While the OIC program is a legitimate option for some taxpayers, these mills charge hefty upfront fees for services that may not be necessary or for which the taxpayer does not qualify. They make misleading promises and can leave individuals in a worse financial position.

Aggressive and Abusive Tax Schemes

A distinct category of scams involves complex arrangements that the IRS deems abusive. These schemes are frequently marketed as sophisticated, legal tax avoidance strategies by promoters who exploit loopholes or misinterpret tax laws. The IRS actively identifies and challenges these schemes, warning taxpayers that they are ultimately responsible for the contents of their tax returns and may face significant penalties, back taxes, and interest.

One of the most prominent abusive schemes involves improper Employee Retention Credit (ERC) claims. The ERC is a legitimate tax credit designed to help businesses that kept employees on their payroll during the COVID-19 pandemic. However, aggressive promoters have encouraged ineligible employers to claim the credit by misrepresenting the eligibility requirements. These promoters frequently charge large upfront fees or a percentage of the anticipated refund, exposing the business to future repayment obligations and penalties.

Abusive trust arrangements are another area of focus. Scammers promote the use of certain trusts to improperly eliminate taxable income or hide assets from tax authorities. For example, promoters may advise taxpayers to transfer assets into a Charitable Remainder Annuity Trust (CRAT) with the false promise of reducing tax liability while the taxpayer retains control over the assets. These complex schemes rely on incorrect interpretations of tax law and can lead to civil or criminal penalties.

Fraudulent claims for the fuel tax credit are also a recurring problem. This credit is limited to taxpayers who use fuel for off-highway business purposes, such as in farming or construction. Scammers promote schemes encouraging taxpayers who do not qualify, like those who only operate vehicles on public highways, to claim the credit. They may convince filers to invent off-highway usage or misrepresent their activities to generate a bogus refund.

How to Report Tax Scams

When a taxpayer encounters a suspected tax scam, reporting it to the appropriate authorities is an important step. Reporting provides federal agencies with the information needed to track down criminals and prevent others from becoming victims. The IRS has established specific channels for reporting different types of fraudulent activity.

If you receive an unsolicited email claiming to be from the IRS, do not click any links, open attachments, or reply. You should forward the entire email as an attachment to the IRS at [email protected]. Similarly, suspicious text messages can be reported by taking a screenshot and emailing it to the same address.

Impersonation scams and other fraudulent activities should be reported to the Treasury Inspector General for Tax Administration (TIGTA). TIGTA is responsible for investigating attempts to impersonate IRS employees. Taxpayers can file a report on the TIGTA website or by calling their hotline. It is also recommended to report the incident to the Federal Trade Commission (FTC).

To report an abusive tax scheme or a fraudulent tax return preparer, the IRS provides specific forms. If you suspect a promoter is marketing an illegal tax avoidance scheme, you can use Form 14242, Report Suspected Abusive Tax Promotions or Preparers. If you have a complaint about a specific tax preparer, you should file Form 14157, Complaint: Tax Return Preparer. Both forms are available on the IRS website.