Each year, the IRS publishes its “Dirty Dozen” list, highlighting the most common tax scams and mistakes that all taxpayers, particularly small business owners, should be aware of.

While some of these issues are new, many recur annually, catching business owners off guard and potentially leading to costly penalties, interest, and lost opportunities.

This year’s list is especially important for small businesses, which may lack the resources that larger companies have to navigate the complex tax landscape.

In this guide, we’ll break down each of the twelve items on the IRS’s 2024 list, offering practical advice to help you avoid these common mistakes and keep your business on track.

If you need further clarification or assistance with understanding the IRS 2024 “Dirty Dozen” list, don’t hesitate to reach out to doola’s tax and bookkeeping experts.

They’re ready to help clear up any doubts and keep you safe from tax-related nightmares.

#1 Bogus Tax Avoidance Strategies

Bogus Tax Avoidance Strategies fall under the category of illegal schemes that promise substantial tax savings but actually violate tax laws. 

Here’s a deeper dive into some of these strategies:

Syndicated Conservation Easements

A conservation easement is a restriction placed on a piece of real property to protect its conservation values. Taxpayers can claim a charitable contribution deduction for the fair market value of a conservation easement donated to a qualified organization. 

However, abusive syndicated conservation easements involve promoters inflating the value of the easement far beyond its actual worth, allowing investors to claim large tax deductions that significantly exceed their investment. These inflated deductions are a red flag for the IRS.

Example: Suppose an investor buys into a syndicated conservation easement for $50,000. The promoters claim that the fair market value of the easement is $200,000, allowing the investor to claim a $200,000 deduction on their tax return.

This scheme generates substantial fees for the promoters but leaves the investor at risk of an IRS audit and significant penalties.

Foreign Retirement Arrangements

Some taxpayers use foreign retirement accounts or pension funds to improperly claim tax exemptions. These schemes often involve contributing non-cash assets to foreign retirement arrangements in countries with favorable tax treaties, falsely claiming that gains and distributions are exempt from U.S. taxes.

Digital Asset Schemes

Digital assets, such as cryptocurrencies, are often promoted as being untraceable and beyond the reach of the IRS. Promoters might encourage taxpayers to underreport income from digital asset transactions, falsely claiming that these transactions are anonymous and untraceable.

What to Do:

Consult a Tax Professional: Always seek advice from a qualified tax advisor before engaging in complex or unfamiliar tax strategies.

Verify Claims: Be skeptical of strategies that promise large, guaranteed tax savings. If it sounds too good to be true, it probably is.

Understand the Law: Ensure that any deductions or credits claimed are legitimate and comply with IRS regulations.

Avoid Promoters: Steer clear of anyone who suggests hiding income or inflating deductions. Stick to legal and transparent tax practices.

Report Suspicious Activity: If you suspect a scheme is illegal, report it to the IRS to avoid being implicated in tax fraud.

#2 Fraudulent Offshore Schemes

These schemes involve hiding income or assets in offshore accounts to avoid U.S. taxes.

Promoters may claim that offshore accounts are beyond the reach of the IRS, but the Foreign Account Tax Compliance Act (FATCA) requires reporting of these accounts. Failure to comply can result in severe tax penalties.

Example: A taxpayer is advised to transfer money to an offshore bank in a country with strict secrecy laws, under the false belief that the IRS cannot detect these accounts. The taxpayer fails to report the account, leading to significant penalties under FATCA when the IRS discovers it.

What to Do:

Report All Offshore Accounts: Ensure compliance with FATCA by disclosing all foreign business accounts and assets.

Consult a Tax Professional: Seek advice from a specialist in international tax law.

Avoid Schemes Promising Tax Evasion: Any strategy that claims to hide assets from the IRS is illegal and risky.

Stay Informed: Regularly review IRS guidelines on international tax compliance.

#3 High-Income Filers Vulnerable to Illegal Tax Schemes

High-income taxpayers are often targeted with complex schemes promising large tax savings through fraudulent means, such as hiding income or creating artificial losses. These schemes can lead to significant penalties and legal issues.

Example: A wealthy individual invests in a partnership that generates artificial losses to offset income. The IRS disallows these losses, leading to a hefty tax bill and penalties.

What to Do:

Consult a Tax Professional: Seek advice on any complex tax strategies.

Verify Legitimacy: Ensure all strategies have a clear business purpose and comply with IRS laws.

Avoid Aggressive Schemes: Be skeptical of strategies that promise large, guaranteed tax savings.

A must read for you: What Happens if You Don’t File Taxes?

#4 Spear Phishing Attacks: Surge in “New Client” Scams

Spear Phishing scams are increasingly targeting professionals with “new client” scams, where scammers pose as potential clients to steal sensitive information. These targeted attacks often involve fraudulent emails or links that lead to malware.

Example: A tax preparer receives an email from a “new client” requesting assistance. The email contains a link to a malicious website designed to steal credentials.

What to Do:

Verify Client Identity: Always confirm the legitimacy of new clients through secure channels.

Avoid Clicking Unknown Links: Don’t click on links or download attachments from unsolicited emails.

Use Security Software: Implement email filtering and cybersecurity measures to protect against phishing.

#5 Tax Advice on Social Media

Misinformation about tax laws is rampant on social media, where users share incorrect or misleading tax advice that can lead to penalties or audits.

Example: A viral post incorrectly claims that anyone can deduct their rent as a business expense, leading many to falsely claim the deduction.

What to Do:

Verify with Professionals: Always cross-check tax advice from social media with a trusted tax professional.

Rely on Credible Sources: Refer to official IRS resources or consult a certified advisor for accurate information.

Be Skeptical of Viral Claims: Avoid implementing tax strategies based solely on social media advice.

#6 “Ghost” Tax Preparers

“Ghost” tax preparers are fraudulent individuals who prepare tax returns for a fee but don’t sign the return or provide a Preparer Tax Identification Number (PTIN), leaving the taxpayer liable for any errors or fraudulent claims.

Example: A taxpayer hires a preparer who promises a large refund but doesn’t sign the return. The IRS flags the return for audit, and the taxpayer is held responsible for inaccuracies.

What to Do:

Use Certified Preparers: Ensure your tax preparer signs your return and provides a valid PTIN.

Review Your Return: Carefully review your tax return before submission.

Avoid Red Flags: Steer clear of preparers who base fees on the size of your refund or refuse to sign your return.

#7 Fake Charities Exploiting Taxpayer Generosity

Scammers often set up fake charities, especially after disasters, to exploit people’s generosity. Donations to these fake charities do not qualify for tax deductions, and the money is pocketed by the scammers.

Example: After a natural disaster, a taxpayer donates to a fraudulent charity, believing it to be legitimate. The taxpayer later finds out they cannot claim a deduction and has been scammed.

What to Do:

Verify Charities: Use the IRS’s Tax Exempt Organization Search tool to confirm a charity’s legitimacy before donating.

Avoid Unsolicited Requests: Be wary of donation requests via phone or email from unfamiliar organizations.

Donate Directly: Prefer donating through well-known and established channels.

#8 Compromise “Mills” That Falsely Claim Their Services Are Necessary to Resolve IRS Debt

Compromise “mills” are companies that falsely claim they can settle your tax debt for a fraction of what you owe, often charging exorbitant fees for services they cannot deliver.

Example: A taxpayer with tax debt hires a company that promises to settle the debt for pennies on the dollar. After paying high fees, the taxpayer finds that no actual work was done, and the debt remains.

What to Do:

Work Directly with the IRS: Contact the IRS or a reputable tax professional to explore legitimate debt resolution options.

Avoid Upfront Fees: Be cautious of companies requiring large upfront payments for debt relief services.

Verify Promises: Ensure any promised debt resolution is based on a clear, legal process.

#9 False Fuel Credit Claims

The fuel tax credit is intended for businesses using fuel for off-highway purposes, such as farming. However, some taxpayers falsely claim this credit without qualifying, which can lead to audits and penalties.

Example: A taxpayer claims the fuel tax credit for vehicles used on public roads, which do not qualify. The IRS audits the return, disallows the credit, and imposes penalties.

What to Do:

Understand Eligibility: Only claim the fuel tax credit if you legitimately qualify.

Keep Detailed Records: Maintain thorough documentation of fuel use to support your claim.

Consult a Tax Professional: Get proper advice to ensure you’re correctly applying for the credit.

#10 “Helpful” Scammers Offering to Set Up an Online Account

Scammers offer to help taxpayers set up online IRS accounts, only to steal personal information for identity theft. These scams often target those unfamiliar with the process.

Example: A taxpayer receives a call from someone offering to help set up an IRS account. The scammer collects personal information and uses it to commit fraud.

What to Do:

Set Up Accounts Yourself: Create your IRS account directly through the official IRS website.

Protect Personal Information: Never share sensitive information over the phone or through unsolicited emails.

Verify Calls: Contact the IRS directly to verify any communication.

#11 Aggressive ERTC Promoters

Some promoters aggressively push businesses to claim the Employee Retention Tax Credit (ERTC), even if they don’t qualify, promising large refunds. This can lead to audits and penalties if the IRS disallows the credit.

Example: A business is encouraged by a promoter to claim the ERTC without meeting the required revenue decline criteria. The IRS later audits the business and disallows the credit, resulting in penalties.

What to Do:

Verify Eligibility: Consult a tax professional to determine if you truly qualify for the ERTC.

Document Claims: Keep detailed records to support any ERTC claims.

Be Wary of Promoters: Avoid companies that promise large refunds without thoroughly assessing your situation.

#12 Phishing and Smishing Scams

Phishing (via email) and smishing (via text) scams are designed to steal personal and financial information. These scams often impersonate the IRS or other trusted institutions.

Example: A taxpayer receives a text claiming they owe taxes and must provide payment details. The link leads to a fake IRS site where the taxpayer’s information is stolen.

What to Do:

Avoid Unsolicited Messages: The IRS does not initiate contact through email or text. Don’t click on links or provide personal information.

Report Scams: Forward phishing emails to phishing@irs.gov and report smishing scams to the IRS.

Use Security Measures: Implement multi-factor authentication and regularly monitor your accounts for suspicious activity.

How doola Keeps Your Business Safe from the IRS’s “Dirty Dozen”

Navigating the IRS’s 2024 “Dirty Dozen” tax traps can feel overwhelming, especially for small business owners juggling countless responsibilities. These common scams and mistakes are costly, but with the right guidance, they’re easily avoidable.

That’s where having a trusted partner like doola plays a key role. doola isn’t just another tax management platform — we’re your ally.

We proactively keep you informed, optimize your tax savings, and protect your business from pitfalls like those on the “Dirty Dozen” list.

With doola, you’re not alone during tax season; you have a partner looking out for your best interests, ensuring you’re informed, prepared, and protected.

Whether it’s staying updated on the latest IRS alerts or finding every legitimate deduction you qualify for, we’ve got your back.

Book a free consultation with us today and breeze through tax season with confidence.