The dirtiest tax scams for 2022

June 14, 2022 9:52 AM

Trusts, insurance and such oldies but goodies as email scams highlight the new IRS Dirty Dozen of the worst tax-related scams.

This year’s list offers tax-debt schemes and a bevy of electronic shenanigans to plunder client and customer data from tax preparers and other businesses. Largely new to the Dozen are schemes for the well-heeled, from shady offshore stashes to good ol’ fashioned just not filing a tax return.

Here is a dozen of the dirtiest.

CRAT sleight of hand

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Appreciated property is transferred to a charitable remainder annuity trust and scammy taxpayers claim the transfer gives those assets a step up in basis to fair-market value. The CRAT sells the property but doesn’t recognize gain (due to the step up) and then uses the money to buy a single premium immediate annuity; the beneficiary reports as income only a small portion of the annuity received. The beneficiary treats the remaining payment as an excluded portion representing a return of investment with no tax due.

Maltese connection

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U.S. citizens or residents try to dodge taxes with contributions to foreign individual retirement arrangements in Malta (or other countries). The individual typically lacks a local connection, and local law allows contributions in a form other than cash or does not limit the amount of contributions. By improperly asserting the foreign arrangement is a “pension fund” for U.S. tax treaty purposes, the taxpayer improperly claims an exemption.

Puerto Rican captive insurance

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American owners of closely held entities enter a purported insurance arrangement with a Puerto Rican or other foreign corporation with cell arrangements or segregated asset plans. The U.S. interest claims deductions for the cost of “insurance coverage” by a fronting carrier, which reinsures the coverage with the foreign corporation.

Monetized installment sales

These involve inappropriate use of the installment sale rules under Sec. 453 by a seller who, in the year of a sale of property, effectively receives the sales proceeds through purported loans. Through a series of shady steps, the seller receives an amount equivalent to the sales price, less various transactional fees, in a purported loan that’s non-recourse and unsecured.

Pandemic-related rip-offs

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The IRS calls this entry “a sad reminder” that crooks still use COVID to steal money and identities with bogus emails, social media posts and phone calls. These scams take varied forms, including using unemployment information and fake job offers and charities, with the goal of filing phony returns or unemployment claims, among other scams.

Crooked preparers

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Tax companies (often offer-in-compromise mills) target debtors with claims of resolving unpaid taxes for pennies on the dollar. Usually taxpayers pay the mill to get the same deal they could have gotten on their own by working directly with the IRS. Along with this Dirty Dozen entry are warnings about ghost preparers and aggressive promises of fat refunds.

Bogus communications

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Texts, calls, emails: In all forms, the major message is to use tax threats to trick, surprise or scare a victim into responding before thinking. This year’s standouts are texts referencing COVID-19 or stimulus payments; ever-popular email phishing (see next entry); and phone threats complete with fake caller IDs.

Spear fear

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“Spear phishing” differs from other emailed attempts to steal info in that it targets computer system credentials of small businesses with client databases — including tax pros. The latest scams use the IRS logo and subject lines such as “Action Required: Your account has now been put on hold.” Similar sleazy emails claim to be from a “tax preparation application provider” or mention an “unusual activity report” and a coincidentally handy link to a solution.

Foreign affairs

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The annual Dirty Dozen’s wrap-up entries involve high-net-worth taxpayers, kicking off with stashing assets in offshore accounts and accounts holding cryptocurrency or other digital assets. Tax evaders then tap the money with debit or credit cards, wire transfers or other arrangements. Some scammers have also used foreign trusts, employee-leasing schemes, private annuities and structured transactions.

Wealthy non-filers

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The IRS continues to focus on those who simply don’t file a return — especially those individuals earning more than $100,000 a year. The failure-to-file penalty is initially much higher than the failure-to-pay penalty, the IRS notes (not that this is likely to sway any perps ...).

Abusive easements

In syndicated conservation easements, promoters twist the tax law with inflated appraisals of undeveloped land or the facades of historic buildings, using partnership arrangements devoid of a legitimate business purpose. These arrangements do nothing more than game the tax system with grossly inflated deductions and high fees for promoters.

Micro-captive insurance

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Promoters, accountants or wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes of insurance. Coverages may “insure” implausible risks, fail to match genuine business needs or duplicate the taxpayer's commercial coverages. Premiums under these arrangements are often excessive — and, always the point amid the Dirty Dozen, skirt tax law.