 Internal Revenue Service IRS Tax News. IRS opens 2023 dirty dozen with warning about employee retention credit claims. Increased scrutiny follows aggressive promoters making offers too good to be true. The dirty dozen. I'd like the badonkin dirty dozen, please. All right, donuts. Just when you thought you got 12 of those cinnamon sugar donuts, you realized they're just like dirt sprinkled over 12 used greasy o-rings or something. And even then, the IRS still wants like 40% of them. And after inflation, you're left with nothing. Nothing left. Nothing left. Oh, a sticky spot. I'm telling you. Yeah, okay, Phil. I am sorry for being pessimistic. But no, no, I can't, I can't see the glasses half full, Phil. Don't be a pessimist, Robin. Many of those who survived that tragedy did so by remaining calm and treading won't help arrive. But this is quicksand. Why? Because it's empty. It's empty, Phil. The glass is empty. It's not optimistic to say the glass is half full when it's actually empty. That's called, that's called hallucinating. What's going on? Illucinations. That's a common side effect of the mint. You know, like I don't want to just see the glasses half full. I'd like to actually drink something out of it from time to time for crying out loud. I mean, I mean, maybe it's just a cultural difference I'm experiencing over here. But for me, a glass is not decoration, but instead a utilitarian item used for holding life-giving fluid. Fluid, I plan on drinking at some point in the future, you know? Okay, Phil, I see. Although saying the glass is half full when it's actually empty is technically a lie, it's at least an optimistic lie. Ah, the noble lie. I do appreciate the sentiment, Phil. However, I must say I'm not a fan of the noble lie. I'm not a fan of the noble lie. I mean, I know the noble lie truly does make people feel better right up until the point they try to drink out of their half full cup, discovering it's actually empty, at which point they die of thirst and agony, exclaiming why I would have hiked down to the river a week ago had only I known. And I certainly would have eaten those bag of salted nuts just like an hour ago. Whatever. On to the news. IR 2023-49, March 20, 2023, Washington and a further warning to people and businesses, the Internal Revenue Service added widely circulating promoter claims involving employee retention credits as a new entry and the annual dirty dozen list of tax scams. There's a link to the dirty dozen list here. So for the start of the annual dirty dozen list of tax scams, the IRS spotlighted employee retention credits following blatant attempts by promoters to con ineligible people to claim the credit. So this actual scam might be a little bit more sophisticated than some of the scams on the dirty dozen list, noting that when we look at these tax scams, they kind of fall into two types of categories. One is like a shotgun type of approach, like the spamming of the emails, for example, which they're often going to have to highlight because they're so widespread, although the people that are that they're actually going to be netting from that type of scam is going to be a lot narrower to their scam funnel than the shotgunning of all the emails and they might not make as much money in that kind of scam per scam. Right? Because it's a shotgun type of approach where they're trying to have as wide a net that they're putting out there as possible. And then there's other types of scams where they're going to be more targeted to specific individuals or businesses, which of course takes more time on the scammer side of things, but likely they're shooting for more profits per scam would be the general concept there. And this one, notice they would have to be targeting people generally that have businesses of course and possibly employees. And obviously one of the things that allows these kinds of scams are the big changes to the tax laws that have been taking place with the coronavirus and the response to it and that kind of stuff where they try to put all these changes to the law, which obviously creates an environment where there's more money that's going out and there's new laws on the books, which obviously it takes a while to work out the kinks in the laws to get them properly implemented and see where the loopholes and what not are. And then of course when the environment is changing all the time, people legitimately don't really know what's going on as much because the environment is changing all the time. The government was putting a lot of money out there, so it's not unreasonable for someone to say, well maybe the government just want to just give me money for whatever reason, which is of course an environment ripe for scamming. So obviously we have to be more vigilant of that then. So renewing several earlier alerts, the IRS highlighted schemes from promoters who have been blasting ads and radio and the internet touting refunds involving employee retention credits, also known as ERCs. These promotions can be based on inaccurate information related to eligibility for and compute computation of the credit. So quote, the aggressive marketing of these credits is deeply troubling and a major concern for the IRS. End quote said IRS Commissioner Danny Warfell. Quote, businesses need to think twice before filing a claim for these credits. While the credit has provided a financial lifeline to millions of businesses, there are promoters misleading people and businesses into thinking they can claim these credits. There are very specific guidelines around these pandemic era credits. They are not available to just anyone. People should remember the IRS is actively auditing and conducting criminal investigations related to these false claims. We urge honest taxpayers not to be caught up in these schemes end quote. So again, you can see what is basically happening here. And obviously when the pandemic was going and the IRS was basically trying to put money out there, it legitimately did feel like they were trying to give money almost to just about, they were trying to get money into the economy. So they were basically just shooting money out there. And it seemed like they basically wanted to give money away to certain people. They were given stimulus payments out for crying out loud. So you can see why the environment would be such where people are like, well, maybe the IRS, this is how it works. They're just going to give money out there. And obviously, I think they were probably less aggressive on restricting the flow of money and whatnot during that time period. And now of course we're in an inflationary period with an overheating economy. And now they've got to pull back on all this stuff and say and enforced the rules once again and try not to, the point is now if you're in inflationary time, you don't want to be shooting money out randomly into the economy because that could cause more inflation generally from an economic standpoint. So I think they actually were a little bit looser during that time period when they kind of wanted money out there and now they're going to tighten their belts and they're warning people to be more cautious about these things. Obviously from a scamming perspective, you got to be careful about the scammers because these types of things are things where it might actually work to do the scam but then you're still on the statute of limitations so they could come back and audit you at some future point in which case you'd be hit with not only the tax but the penalties and the interest and the person who scammed the person into doing this might be gone by that point in time. So as the taxpayer, you're the one that's going to be held responsible for it. So the IRS is stepping up enforcement action involving these ERC claims and people considering filing for these claims only valid during the pandemic for a limited group of businesses should be aware they are ultimately responsible for the accuracy of the information on their tax return. The IRS Small Business Self-Employed Division has trained auditors examining these types of claims and the IRS Criminal Investigation Division is on the lookout for promoters of fraudulent claims for credits. Abusive ERC Promotions highlight day one of the IRS annual dirty dozen campaign so they're leading off the list with this one. So a list of 12 scams and schemes that put taxpayers and the tax professional community at risk of losing money, personal information, data and more. This annual list of schemes and scams is aimed at helping raise awareness to protect honest taxpayers from aggressive promoters and con artists. These schemes put people at financial risk and increase the chances people could become victims of identity theft. Some items on the dirty dozen list are new and some make a return visit. So while the list is not a legal document or a formal listing of agency enforcement priorities, it is intended to alert taxpayers and the tax professional community about various scams and schemes at large. Quote, businesses should be aware of advertised schemes and direct solicitations promoting tax services that are too good to be true. In quote, Warfield said anything that someone's promoting that's too good to be true is usually obviously too good to be true. Yes, lion scammers. Anyways, quote, they should listen to the advice of their trusted tax professional. Taxpayers should remember that they are always responsible for the information reported on their tax returns. Importantly, claiming these credits could result in taxpayers having to repay the credits along with potential penalties and interest. Not to mention the fact that you probably paid the scammer and a significant amount of money who's skipped town by this point, right? So when properly claim the ERC is a refundable tax credit designed for businesses that continue paying employees will shut down due to the COVID-19 pandemic or that had a significant decline in gross receipts during the eligibility period, the credit is not available to individuals. Beware of ERC promotions while many eligible employers claimed and have already received the ERC. Some third parties continue to widely advertise their services targeting taxpayers who may not be eligible for the ERC. Unfortunately, these advertisements, along with the increased prevalence of websites touting how easy it is to qualify for the ERC, lend an air of legitimacy to abusive claims for refund. Tax professionals have reported receiving undue pressure from clients to participate and claim the ERC even when the tax professional believes the client is not entitled to the credit. So again, this is kind of, you know, we're kind of blaming this on the obviously scammers and liars and people taking advantage of the environment that is set up is wrong. But it's also kind of the fact that the environment was ripe for this kind of thing to happen. Pressures will be put on people if they start seeing everybody like money being shot out everywhere for weird reasons. And they start thinking that the government that they can just fill out a form or something and get money because money seems to be flowing quite liberally, quite freely from the government for some weird incentive structures during that time period. That's partially what needs to be fixed at this point in time is the whole incentive structure needs to be tightened back down. And at some point that probably will happen, which means the government at some point is going to be looking for examples to be made of. Meaning they're going to hit some people hard, I would think, at some time to try to reign things back in. So the IRS encourages the tax professional community to continue to advertise clients not to file ERC claims when the tax professional believes they do not qualify. The IRS has been warning about these schemes since last fall, but there continue to be attempts to claim the ERC during the 2023 tax filing season. The IRS Office of Professional Responsibility send a special bulletin to tax professionals on March 7th outlining core responsibilities for ERC claims under Circular 230. Third-party promoters of the ERC often don't accurately explain eligibility for and computation of the credit. They may make broad arguments suggesting that all employers are eligible without evaluating an employer's individual circumstances. Now note, I don't have any experience with this credit in particular, but I do know the other thing that they used to kind of be worried about was the people that were looking for the offer and compromise kind of thing. And I know in those circumstances that oftentimes there's full advertising campaigns that aren't actually tax professionals that actually put out these advertisements and then funnel in the leads to the people, the actual tax professionals. So you don't even, if you're responding to an advertisement, you may not even be responding to an actual firm, but just an ad agency that's then trying to create leads to go somewhere else. Any time, again, the government is kind of putting programs out there which could potentially result in people receiving money to the point where it could be advantageous or profitable for professionals to try to specialize in that location, a whole industry could pop up. Not just the tax professionals, but whole advertising industries that create sales funnels in order to funnel the leads, in order to pay for all that kind of stuff, you've got to imagine that there's a lot of money that's being involved in it. So, for example, only recovery startup businesses are eligible for ERC in the fourth quarter of 2021, but these third party promoters fail to explain this limitation. In addition, some third parties do not inform employers that they cannot claim the ERC on wages that were reported as payroll costs and obtaining paycheck protection program loan forgiveness. There's the other weird one. Additionally, some of these advertisements exist solely to collect taxpayers personally identified information in exchange for false promises. The scammers then use the information to conduct identity theft. So the IRS reminds all taxpayers that the willful filing of false information and fraudulent tax forms can lead to serious civil and criminal penalties. And it looks like they're looking to crack down on some, someone's going to get cracked down on at some point here, used as an example, you would think. So, properly claiming the ERC, eligible taxpayers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020 and December 31, 2021. However, to be eligible, employers must have sensitive sustained a full or partial suspension of operations due to orders from the appropriate governmental authority. There's a link to that here. Reporting commerce travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021 experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021 or qualify as a recovery startup business for the third or fourth quarter 2021. Reporting tax related fraud and scams. Employers should report instances of fraud and IRS related phishing attempts to the IRS and there's an email here, Treasury Inspector General for taxpayer administration and a phone number you can check out in the link in the description besides the promotion of ERC claims to employers who are not eligible for the credit. There are many other scams and schemes. The iris is warning individuals business and tax professionals about in this year's annual dirty dozen campaign. So you're not going to want to miss that one. As part of the dirty dozen awareness effort, the IRS encourages people to report tax related illegal activities related to ERC claims as well as individuals who promote improper and abusive tax schemes and tax return. People should mail or fax completed form 14242 reports suspected abuse of tax promotions or preparers. There's a link to that here and any supporting material to the IRS lead development center in the office of promoter investigation. There's an email address, I mean, an actual mailing address if you want to check that out in the link in the description here. Alternatively, taxpayers and tax practitioners may send the information to the IRS whistleblower office for possible monetary reward so you can get rewarded for that. That's interesting. So for more information, see abusive tax schemes and abusive tax return preparers. The dirty dozen is a collaboration with the security summit initiative, the security summit. There's a link to that here. Working together as security summit, the IRS State 8 tax agencies in the nation's tax industry have taken numerous steps over the last seven years to warn people to watch out for common scams and schemes during tax season. So there's a link to that stuff here. There'll be a link to this in the description.