Tax Scams: Protect Your Business and Yourself from Becoming a Victim
Post #44: Learn about the IRS's "Dirty Dozen" Tax Scams.
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The Internal Revenue Service (IRS) has an entire website chock full of informative resources for small business owners, freelancers, independent contractors, and entrepreneurs.
📌 Go to IRS.gov and see for yourself!
In this newsletter, I’ll share the top 12 most common tax scams that small businesses and entrepreneurs experience and how to protect yourself from being a victim.
Including these topics:
A summary of the IRS’s “Dirty Dozen” tax scams, and what they are all about
How to protect yourself from becoming a victim of a tax scam
3 Bonus Scams to Watch For!
Why the website IRS.gov is your friend (don’t be scared)
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Bootstrap Your Business Workflow - a step-by-step guide with the links to all of the top daily posts that walk you through the process from scratch
BYB Book Recommendations - a collection of the best business books to help you on your entrepreneurial journey
BYB Alerts & News - urgent updates for self-employed and business owners - delivered to your inbox - so that you can be more prepared
BYB Documents - a repository of guidance for important business documents with instructions and guides to use them in your self-employment journey
The IRS’s “Dirty Dozen” Tax Scams
In order to help small business owners, the IRS releases a "Dirty Dozen" list of the most common tax scams that they have seen recently.
These are common scams that could cost you money or get you into legal trouble.
Here is a quick summary of the “Dirty Dozen”:
(1) Email & Text Phishing Scams
The Scam: Fraudsters send fake emails (phishing) or texts (smishing) pretending to be the IRS, tax agencies, or financial institutions. They claim you’re owed a refund or in legal trouble to trick you into clicking malicious links.
Protect Yourself: The IRS never contacts taxpayers via email or text. Don’t click links in unsolicited messages. Report scams to the IRS to help stop fraud.
(2) Social Media Tax Lies
The Scam: False tax advice is circulating on social media platforms like TikTok, leading taxpayers to misuse forms like W-2s or follow other incorrect strategies.
Protect Yourself: Avoid advice from untrusted sources online. Always consult the IRS or a reputable tax professionals for accurate information to avoid serious penalties.
💡 Tip: Go to the website IRS.gov. ← be sure that the URL is a .gov website.
(3) IRS Individual Online Account Help Scams
The Scam: Scammers pose as helpful third parties offering to assist in creating your IRS Individual Online Account. Their goal is to steal personal information and file fraudulent tax returns to claim refunds in your name.
Protect Yourself: The IRS provides clear instructions for setting up your account directly on IRS.gov (no third party is needed). Always be cautious about sharing personal details online.
(4) Fake Charities
The Scam: Scammers create fake charities, especially after crises or disasters, to take advantage of people's generosity. They seek donations and personal information for identity theft.
Protect Yourself: Only donate to IRS-recognized tax-exempt organizations if you want to claim deductions. Be cautious and verify the charity’s legitimacy before giving. Use the IRS Tax Exempt Organization Search tool to verify charities before giving money.
💡 Tip: Go to the IRS Tax Exempt Organization Search app.
(5) False Fuel Tax Credit Claims
The Scam: Taxpayers are being misled into claiming the Fuel Tax Credit, which is only available for off-highway business and farming use. Scammers, including social media influencers, encourage people to inflate their refunds by incorrectly using Form 4136.
Protect Yourself: Verify eligibility for the Fuel Tax Credit before filing. Only eligible businesses or farms can claim it. Be cautious of anyone promoting false credits.
💡 Tip: Learn more about how to prevent the spread of abusive tax schemes.
(6) Credits for Sick Leave and Family Leave
The Scam: Some taxpayers misuse Form 7202 to claim credits for sick and family leave, which were only available in 2020 and 2021 for self-employed individuals. Some mistakenly apply it based on income earned as an employee instead.
Protect Yourself: Ensure you're eligible for this credit and only claim it based on self-employment income from the correct years.
💡 Tip: Read more about this tax credit.
(7) Bogus Self-Employment Tax Credit
The Scam: Scammers promote a non-existent “Self-Employment Tax Credit” claiming self-employed and gig workers can receive payments up to $32,000 for the COVID-19 pandemic period. This is based on misleading advice and false claims.
Protect Yourself: The correct credit is the Credits for Sick Leave and Family Leave, and it only applies to those who meet specific criteria. The IRS is closely reviewing these claims, so be cautious before filing.
💡 Tip: Read more about this self-employment tax credit scam.
(8) Improper Household Employment Taxes
The Scam: Unscrupulous taxpayers create fake employees who work in their household and then attempt to claim a refund on sick and family medical leave wages that they never paid. The IRS is cracking down on this fraud.
Protect Yourself: If you have a household employee, be sure to keep good records and run payroll the right way to avoid being mistaken for a scammer.
(9) Overstated Withholding Scam
The Scam: Fraudsters encourage people to file fake tax returns with made-up income and withholding amounts, hoping for a big refund. Some even invent employers to make it look legitimate.
Protect Yourself: Always use accurate income and withholding information from real tax forms (like W-2s or 1099s). The IRS verifies all tax return details. If they can’t confirm your withholding, your refund will be delayed or denied.
(10) Misleading Offer in Compromise Scams
The Scam: Some companies aggressively advertise that they can reduce or eliminate your tax debt through an IRS Offer in Compromise (OIC), even if you don’t qualify. They charge high fees but rarely deliver results.
Protect Yourself: Before paying anyone, check if you qualify for an OIC using the free IRS Offer in Compromise Pre-Qualifier tool on IRS.gov. If you need help, work directly with the IRS or a trusted tax professional.
💡 Tip: Learn more about Offer in Compromise and whether you may be eligible.
(11) Ghost Tax Return Preparers
The Scam: Some shady tax preparers—known as "ghost" preparers—charge high fees but refuse to sign your return or include their IRS Preparer Tax Identification Number (PTIN), which is required by law.
Protect Yourself: Avoid preparers who base their fee on your refund amount or ask you to sign a blank return. Always use a trusted, registered tax professional who provides full transparency.
(12) New Client Scams & Spear Phishing
The Scam: Cybercriminals pose as potential clients to trick tax professionals into opening malicious links or attachments, allowing hackers to steal sensitive client data.
Protect Yourself: Be cautious with unexpected emails, especially those with poor grammar or unusual requests. Never click on unknown links or attachments. Verify new clients independently before sharing information.
Bonus Scams to Watch For!
In addition to the Dirty Dozen, here are a few more Tax Scams to watch out for:
(13) IRS Impersonation Scams
The Scam: Scammers impersonate IRS agents and call, email, or send texts demanding immediate payment for unpaid taxes. They may threaten arrest or legal action if you don't comply right away.
Protect Yourself: The IRS will never demand immediate payment or threaten you by phone or email. Always verify any IRS communication by visiting the official IRS website or calling their verified number. Never share sensitive information without confirming its legitimacy.
(14) AI-Generated Scams
The Scam: Scammers are now using AI to generate convincing fake IRS notices, refund offers, or tax-related emails to trick individuals into sharing personal or financial information. These fake messages may look just like the real thing, making it difficult for taxpayers to spot the scam.
Protect Yourself: Always verify the authenticity of IRS communications. If you receive a suspicious email or letter, double-check it by visiting the IRS website or calling the IRS directly to confirm its legitimacy.
💡 Tip: Get the IRS phone number directly from IRS.gov. I won’t even type it here.
(15) Senior & Immigrant Fraud
The Scam: Scammers often target older taxpayers and non-English speakers, calling them with fake IRS threats demanding immediate payment. They may claim overdue taxes and intimidate victims with threats of arrest or deportation.
Protect Yourself: The IRS will never demand immediate payment or threaten arrest over the phone. If you receive such a call, hang up and report it. Always verify any IRS-related matter by contacting the IRS directly using the contact information on their official website.
💡 Tip: Don’t forget to help your elderly parents or family members, if you can.
Don’t be afraid of the IRS if you are doing the right thing, and always be sure to double-check the website to verify something that doesn’t seem right.
The IRS.gov website is your friend!
💡 Tip: The “Dirty Dozen” list was provided directly by the IRS and summarized for your convenience. Read more here: the IRS’s Dirty Dozen Tax Scams.