6 Tax Scams Guaranteed to Set off Alarm Bells With the IRS

6 Tax Scams Guaranteed to Set off Alarm Bells With the IRS

2 min read
Scott Smith

Scott Royal Smith is an asset protection attorney and long-time real estate investor. His law firm, Royal Legal Solutions, helps thousands of real estate investors and entrepreneurs in all 50 states protect more than $1.2 billion in assets. Since 2014, he has published over 1,000 posts and articles on BiggerPockets and has appeared on hundreds of podcasts.

Scott fell in love with real estate when his commercial property investment allowed him to graduate from Albany Law School debt-free. He immediately began practicing at the trial and appellate court with the district attorney, placing him in the top 1 percent of lawsuit attorneys in the county in terms of professional experiences. He also worked in private practice, suing insurance companies for denying valid claims (which is surprisingly common!).

After his friend lost $3 million in real estate from a single lawsuit, despite having ample insurance, Scott dedicated himself to educating real estate investors on the importance of affordable asset protection, specifically when it comes to folk knowledge and misconceptions that still exist in the investment and legal community. The solutions Scott recommends for his clients are the same ones he originally created for himself and has been refining on his mission to help people protect themselves from frivolous lawsuits.

Follow Scott as he deconstructs the litigation game and shows you how to free your time, protect your assets, and create wealth that lasts for generations.

Scott regularly appears on shows with folks like Grant Cardone, BiggerPockets, Entrepreneurs on Fire, Wheelbarrow Profits, and his own real estate investing podcast. He frequently interviews industry experts on his Facebook and YouTube accounts and has published thousands of posts and articles on BiggerPockets and his blog for real estate investors.

Scott graduated from Albany Law in 2014.

He has passed both the Texas and New York bar exams.

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What should you watch out for during this year’s tax season?

The IRS has released its scam watchlist, affectionately known as the “Dirty Dozen.” Compiled annually, the watchlist describes common scams that taxpayers may encounter during filing season as people prepare their returns or hire someone to help with their taxes. Don’t fall prey.

For a detailed description of each scam, check out the link above. In the meantime, see the brief descriptions below.

6 Tax Scams to Watch Out for in 2020

1. Illegal Use of Offshore Accounts

We aren’t talking about the legal use of offshore banking, which is safe. Unfortunately, anyone illegally convincing you to use offshore accounts to evade taxes is dragging you down a dark path. Should you follow, you’ll pay the price.

Related: The Ultimate Guide to Real Estate Taxes & Deductions

2. Phishing Attacks

Phishing is that scummy move where people send convincing-looking fake emails to steal your logins. For those unfamiliar with them, you’ll get an email that looks like it’s from, say, your bank. But it isn’t from them. It’s from some jerkface who wants you to believe he’s with your bank so you’ll unwittingly give him your credentials.

fishing hook pierced through credit card with blurred keyboard in background implying phishing scam

Watch emails closely. Unless you know someone personally, don’t take identities for granted online. An email from YourBank.com that’s consistent with other emails from your bank likely isn’t a phishing attack, and there’s nothing wrong with calling your bank (or whichever institution the caller claims to represent) to confirm.

Phishing preys on both the implicit trust we have in our institutions and your laziness. Phishers hope you don’t look closely at email. Awareness is your best defense.

3. The Bogus Tax Return (Preparer Fraud)

You can avoid this one simply by ensuring your tax preparation professional is qualified and ethical. CPAs usually won’t pull this move, but fake pros crop up every year, sadly.

Related: 7 Common Myths About Rental Property Taxation—Dispelled

4. Refund Scams

This type of preparer fraud involves shady characters claiming to be experts promising you absurdly high refunds. This should set off your BS detector. Vet the provider or switch if this offer isn’t the first red flag.


5. The BS Charity

We hope there’s a special place in the afterlife for people who invent fake charities. But hey, it’s their souls—just don’t donate to one or it’s your behind on the line. Uncle Sam can’t get your money back. Further, deductions toward fake charities don’t count, which leads us to…

6. Return Padding and False Deductions

Unethical tax preparers have been busted cooking books or creating laundry lists of bogus undeserved deductions to get you a huge refund, usually to “earn” themselves a cut. The scam and how the preparer profits may vary. Consider this your fourth consecutive warning to be careful whom you let do your taxes.

Including you. Many individual taxpayers have taken liberties with deductions and even outright invented false deductions.

There are times when ethical people are tempted to break the rules in life. But filling out a tax return should absolutely not be one of those times.

Save your rebellious side for the stage, the canvas, the negotiating table, the boardroom, the bedroom, or really anywhere that won’t get you into a hot mess with Uncle Sam. That’s not legal advice, by the way—that’s just good old-fashioned American common sense.

Have you ever been the victim of a tax scam? What happened?

Let us know in the comments below.