April 2024 - Monthly Newsletter

The IRS has just finished rolling out its annual 2024 “dirty dozen” list, which warns the general public about the latest and most dangerous tax schemes. The list generally consists of two types of schemes - those aimed at taxpayers and those aimed at the IRS.

As in past years, it is important for U.S. expats to stay informed and vigilant in order not to participate or fall prey to any of these scams.

1. Schemes with International Elements

These include:

Offshore accounts and digital assets - In this scam, assets are hidden in offshore accounts and accounts holding digital assets, such as cryptocurrency. Asset protection professionals and unscrupulous promoters continue to lure U.S. persons into placing their assets in offshore accounts and structures falsely claiming they are out of reach of the IRS.

Maltese (or Other Foreign) Pension Arrangements - In this scam, the U.S. taxpayer misconstrues the relevant treaty to improperly claim an exemption from U.S. income tax on earnings in, and distributions from, the foreign arrangement.

2. Unscrupulous tax return preparers

Taxpayers should be careful of shady tax professionals and watch for common warning signs, including charging a fee based on the size of the refund. A major red flag or bad sign is when the tax preparer is unwilling to sign the dotted line. Avoid these “ghost” preparers, who will prepare a tax return but refuse to sign or include their IRS Preparer Tax Identification Number (PTIN) as required by law. Taxpayers should never sign a blank or incomplete return.

3. Schemes aimed at high-income filers

These include:

Charitable Remainder Annuity Trusts (CRAT) - In this scam, trust and annuity laws are manipulated to eliminate taxable gain on the sale of appreciated property.

Monetized Installment Sales - These transactions involve the inappropriate use of the installment sale rules under IRC Section 453 by a seller who, in the year of a sale of property, effectively receives the sales proceeds through purported loans.

4. Employee Retention Credit Claims

Taxpayers should be aware of aggressive pitches from scammers who promote large refunds related to the Employee Retention Credit (ERC). These promotions can be based on inaccurate information related to eligibility for and computation of the credit. Additionally, some of these advertisements exist solely to collect the taxpayer’s personally identifiable information in exchange for false promises. The scammers then use the information to conduct identity theft.

5. Online account help from third-party scammers

Scammers pose as a third party and offer to help create an online account on theIRS.gov website. They will try to steal a taxpayer’s personal information this way.

6. Offer In Compromise (OIC) Mills

Those having trouble paying their taxes should avoid anyone claiming they can settle tax debt for pennies on the dollar, known as OIC mills.

7. Social media: Fraudulent form filing and bad advice

Social media can circulate inaccurate or misleading tax information, for instance involving common tax documents like Form W-2 or more obscure ones. These schemes encourage people to submit false, inaccurate information in hopes of getting a refund. Taxpayers should always remember that if something sounds too good to be true, it probably is.

8. Spear Phishing Attacks

Spear phishing is an email scam that attempts to steal a tax professional’s software preparation credentials, allowing the thieves to steal client data and tax preparers’ identities in an attempt to file fraudulent tax returns for refunds.

9. Phishing and Smishing

This involves fake communications from those posing as legitimate organizations in the tax and financial community, including the IRS and the states. Messages arrive in the form of an unsolicited text (smishing) or email (phishing) to lure unsuspecting victims to provide valuable personal and financial information that can lead to identity theft.

10. False Fuel Tax Credit Claims

The fuel tax credit is meant for off-highway business and farming use and, as such, is not available to most taxpayers. However, unscrupulous tax return preparers and promoters are enticing taxpayers to inflate their refunds by erroneously claiming the credit.

11. Fake Charities

Scammers set up fake organizations to take advantage of the public's generosity. They seek money and personal information, which can be used to further exploit victims through identity theft.

12. Bogus Tax Avoidance Strategies

These strategies include so-called syndicated conservation easements and micro-captive insurance arrangements.