GAO urges IRS to include abusive tax schemes, ways to report promoters, in Dirty Dozen list

January 21, 2023

One of the reasons to file early is to beat tax identity thieves to the punch. Even though the Internal Revenue Service has slowed such tax crimes a bit in recent years, they’re still out there.

In fact, I’ve been getting a lot of scam span in recent weeks, both texts and email, like the one below I got this morning.

Scam spam 092123

While this poorly faked attempt — a Gmail address for the U.S. Agency for International Development’s grant office; really? — isn’t a specific tax hack attempt, some of the information the crooks want from me could be used in a fraudulent filing.

But similar phishing schemes aren’t the only ploys used by con artists at tax time. Some are much more sophisticated.

Complex tax schemes, too: The Government Accountability Office (GAO) is asking the IRS to highlight such elaborate tax schemes once again in its annual listing of the Dirty Dozen tax scams.

In addition, the GAO report issued last week also wants the IRS to include in its list of the worst of the worst tax scams ways that taxpayers can report unscrupulous preparers or other promoters involved in abusive tax schemes.

Abusive tax schemes often involve complex, multi-layer transactions that attempt to conceal the true nature and ownership of taxable income or assets, notes the GAO report (and its video above).

Their intricacy is often used as a selling point. Don’t worry, the con artists say, they understand the tax issues involved and will handle everything.

That everything includes fleecing the tax victims and leaving them on the hook when the IRS disallows claims connected to the abusive schemes.

IRS is making progress, but could do more: The GAO did acknowledge that the IRS has taken steps to identify and stop such scheme promoters.

IRS investigations into promoters vary in complexity and may span across different organizational units within IRS, as shown in the GAO graphic below.

IRS divisions investigating abusive tax schemes_GAO report graphic

In addition, the IRS created the Office of Promoter Investigations in 2021 to specifically address abusive tax schemes and their promoters.

But the agency could add to it efforts by making it easier for taxpayers to report the schemes they are pitched.

Enlisting more public help to stop schemes: Currently, notes the report, the IRS is aware of more than 40 types of abusive tax schemes involving promoters. One method IRS uses to identify these promoters is information referrals from the public.

GAO found that the public can refer information to IRS on a number of forms, few of which can be submitted online. The government watchdog agency reiterated its previous recommendation that the agency develop a consolidated, online abusive tax scheme referral submission tool.

The GAO also would like the IRS to get the word out about that tool, once it is operational, and other ways to report promoters of suspected abusive tax schemes. The best way to do that, says the report, is to include such reporting information in the agency’s annual tax scam Dirty Dozen list.

“Adding instructions to the Dirty Dozen list about how to submit information on promoters may allow IRS to better leverage information from the public and increase its ability to identify and stop promoters of abusive tax schemes,” says the report.

I’ll let you read the rest of the GAO’s analysis of these schemes and ways it says the IRS can increase sanctioning of them in the full report, which gets this weekend’s Saturday Shout Out.

You also might find these items of interest:

 

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