IRS Dirty Dozen – Taking Tax Advice from Social Media

Poor tax advice is rampant, particularly in the vast, unregulated expanses of social media.

With the rise of “financial influencers,” the landscape of online tax advice has become increasingly perilous. This issue has escalated to such an extent that the IRS has recently included tax advice found on social media in their annual “Dirty Dozen” list of tax scams. This list highlights the most egregious sources of fraudulent and misleading tax information.

Expressing their concerns, the IRS explicitly warned against the reliability of tax advice shared on platforms like TikTok, where users often disseminate grossly incorrect tax guidance. Despite their popularity, such platforms are fraught with misinformation that can lead taxpayers astray.

The allure of social media is undeniable, but it’s crucial to recognize its limitations, especially when obtaining legal or financial advice. While some social media personalities may be well-intentioned, their advice often lacks the rigor and expertise necessary to safely navigate the complex tax landscape.

Moreover, even among certified public accountants (CPAs), the knowledge and expertise in legally and ethically reducing tax liabilities can vary significantly. Not all CPAs specialize in tax planning, which requires a meticulous understanding of the IRS’s extensive and complex tax code, spanning over 70,000 pages.

Consulting with a qualified tax professional is advisable for those serious about managing their tax obligations responsibly. A tax strategist or planner can provide tailored advice that complies with the law and optimizes one’s financial outcomes. Tax planning is an intricate process that demands experience and keen attention to detail to ensure effective and ethical strategies.

What is the IRS Dirty Dozen?

The IRS Dirty Dozen is an annual list compiled by the Internal Revenue Service (IRS) that identifies the twelve most common tax scams and schemes targeting taxpayers. This list serves several critical purposes:

• Public Awareness: The primary goal is to raise public awareness about prevalent tax-related scams and frauds. By informing taxpayers about these risks, the IRS aims to protect them from falling victim to these schemes.
• Prevention: By highlighting these scams, the IRS provides taxpayers with the knowledge they need to avoid making costly mistakes on their tax returns or getting involved in illegal activities.
• Enforcement: The list also warns would-be scammers that the IRS is actively monitoring these activities and is committed to enforcing tax laws.

History

The concept of the Dirty Dozen was introduced by the IRS to combat the rising trend of tax fraud and to educate taxpayers about potential threats. Over the years, the list has evolved to include a wide range of schemes, from identity theft and phishing scams to more sophisticated forms of tax evasion and abusive tax shelters. Each year, the IRS updates the list to reflect new trends in tax scams and to address emerging threats.

How It Helps Taxpayers

• Educating the Public: By detailing specific scams, the IRS Dirty Dozen helps taxpayers recognize and avoid fraudulent schemes.
• Providing Guidance: The list often includes tips and advice on how to protect oneself from these scams, such as verifying the legitimacy of tax preparers and being cautious of unsolicited communications claiming to be from the IRS.
• Encouraging Reporting: By publicizing these scams, the IRS encourages taxpayers to report suspicious activities, which can help the IRS track down and prosecute offenders.

Annual Update

The IRS updates the Dirty Dozen list annually to ensure that it remains relevant and addresses the latest tactics used by scammers. This annual update is significant for several reasons:

• Reflects Current Trends: Scammers’ tactics evolve constantly. The annual update ensures the list reflects the most current and pressing threats.
• Timely Warnings: The IRS releases the list each year, typically at the beginning of the tax season, to provide timely warnings to taxpayers preparing their tax returns.
• Reinforces Vigilance: The yearly release serves as a regular reminder for taxpayers to stay vigilant and informed about potential scams.

The Rise of Social Media Tax Advice

The Popularity of Social Media for Advice

Social media platforms have become an integral part of daily life for millions of people worldwide. These platforms are not just for socializing; they have evolved into significant sources of information on a wide range of topics, including personal finance and taxes. The reasons for this shift include:

• Accessibility: Social media is easily accessible to a broad audience, making it a convenient source for quick information.
• Variety of Perspectives: Users can also find a wide range of perspectives and tips from different people, from everyday individuals sharing personal experiences to professionals offering expert advice.
• Interactive Engagement: Platforms like Facebook, Twitter, Instagram, and TikTok allow for interactive engagement, where users can ask questions, share opinions, and get instant feedback.

In the context of tax advice, social media has become a popular resource because it provides:

• Real-Time Updates: Users can get the latest information about tax laws, filing deadlines, and IRS announcements.
• Peer Experiences: Individuals often share their tax experiences, providing relatable advice and tips that others may find helpful.
• Convenience: Short posts, videos, and infographics can simplify complex tax topics, making them easier to understand for the average person.

Influencers and Viral Content

Influencers and viral content play a significant role in spreading tax advice on social media. Here’s how:

• Influencers: These individuals have amassed large followings on social media platforms. They often share content on various topics, including taxes. Influencers can range from celebrities and public figures to financial experts and everyday people who have gained credibility among their followers.
  • Credibility and Trust: Influencers often build trust with their audience through consistent, engaging content. When they share tax advice, their followers are more likely to consider it credible.
  • Reach and Impact: Influencers can spread information quickly and widely with their large audiences, making their tax advice highly impactful.
• Viral Posts: Content that goes viral reaches many people quickly. This can happen with tax advice posts due to:
  • Relatability: Tax tips and hacks that resonate with a broad audience will likely be widely shared.
  • Simplicity and Humor: Content that simplifies complex tax concepts or presents them humorously can quickly gain traction.
  • Urgency and Relevance: Posts about tax deadlines, refunds, and deductions often get shared because they address timely and relevant issues.

Common Tax Scams on Social Media

Phishing Scams

Phishing scams are a prevalent threat on social media, often disguised as legitimate tax advice or services. Here’s how these scams typically work:

• Masquerading as Official Sources: Scammers create fake profiles or pages resembling official IRS accounts or reputable tax preparation services. They post links to what appears to be helpful tax advice or important updates.
• Deceptive Links: These posts often contain links leading to fraudulent websites that steal personal information. The sites may prompt users to enter sensitive data such as Social Security numbers, bank account details, or login credentials while verifying their identity or checking their refund status.
• Urgent Messaging: Phishing scams often use urgent or alarming messages to prompt immediate action, such as “Act now to avoid penalties!” or “Verify your information to receive your refund!”

How to Protect Yourself:

• Always verify the source of the information before clicking on links.
• Look for tell-tale signs of phishing, such as poor grammar, spelling errors, or suspicious URLs.
• Remember that the IRS will never initiate contact via social media to request personal or financial information.

Fake Tax Preparers

The prevalence of fake tax preparers on social media is a significant concern. These scammers pose as legitimate tax professionals to gain the trust of unsuspecting taxpayers.

• Promotional Tactics: Fake tax preparers often advertise their services on social media, offering low fees, fast refunds, or special expertise in maximizing deductions.
• Professional Appearance: They may use official-looking logos, credentials, and endorsements to appear legitimate. Some even set up fake websites and social media profiles with positive reviews and testimonials.
• Gathering Information: Once they have gained a taxpayer’s trust, these scammers collect personal and financial information under the pretense of preparing a tax return. They might file fraudulent returns on behalf of the taxpayer to claim inflated refunds, or simply steal the taxpayer’s identity and financial data for other fraudulent activities.

How to Protect Yourself:

• Verify the credentials of any tax preparer you are considering using. The IRS provides a directory of credentialed preparers.
• Look for reviews and feedback from multiple sources to ensure authenticity.
• Be wary of preparers who promise unusually large refunds or charge fees based on the size of the refund.

Pitfalls of Inflated Refund Claims

• IRS Scrutiny: The IRS uses sophisticated systems to detect fraud. Taxpayers who file returns with inflated claims are likely to be audited.
• Financial Liability: Taxpayers must repay any excess refund amounts received due to fraudulent claims, which can be financially devastating.
• Legal Consequences: Engaging in fraudulent tax activities, even unknowingly, can result in severe penalties, including fines and criminal charges.

How to Protect Yourself:

• Be skeptical of anyone promising unusually large refunds.
• Always review your tax return carefully before filing, ensuring all information is accurate and honest.
• Use reputable tax preparation services and consult directly with qualified tax professionals.

How to Verify Tax Advice

Consulting Official Sources

One of the most reliable ways to verify tax advice is to consult official sources. The IRS provides a wealth of information that is accurate and up-to-date.

• IRS Website: The official IRS website (irs.gov) is a comprehensive resource for tax information. It includes sections on filing taxes, understanding deductions and credits, recent tax law changes, and detailed FAQs.
• IRS Publications: The IRS publishes various guides and instructions, such as Publication 17 (Your Federal Income Tax), which provides detailed information on individual tax filing, and Publication 334 (Tax Guide for Small Business).
• IRS Newsroom: The IRS Newsroom offers the latest updates, news releases, and alerts on tax-related matters. This can help you stay informed about new scams and other critical issues.
• Interactive Tools: The IRS website offers interactive tools and calculators that can help you determine your eligibility for certain deductions and credits and estimate your tax liability.

Seeking Professional Help

While official sources are crucial, sometimes the complexity of tax issues requires personalized assistance from a professional.

• Certified Public Accountants (CPAs): CPAs are licensed and highly trained in accounting and tax matters. They can provide expert advice tailored to your specific situation.
• Enrolled Agents (EAs): EAs are federally authorized tax practitioners who have passed a comprehensive IRS exam covering individual and business tax returns. They are qualified to represent taxpayers before the IRS.
• Tax Attorneys: Tax attorneys specialize in the legal aspects of tax issues and can guide on complex tax matters, including disputes with the IRS.
• Verified Tax Preparation Services: When using a tax preparer, ensure they have valid credentials and a Preparer Tax Identification Number (PTIN). You can verify their credentials through the IRS’s Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

Red Flags to Watch For

When evaluating tax advice, especially from social media or unofficial sources, be on the lookout for these red flags that indicate the advice may be questionable or fraudulent:

• Promises of Large Refunds: Be cautious of anyone guaranteeing unusually large refunds without understanding your specific financial situation.
• Unsolicited Advice: Advice that comes unsolicited, especially through emails, direct messages, or comments on social media, should be viewed with skepticism.
• Requests for Personal Information: Never provide personal information such as your Social Security number, bank account details, or other sensitive data through social media or unsecured channels.
• Pressure Tactics: Scammers often use high-pressure tactics to create a sense of urgency. Legitimate tax professionals will not rush you into making hasty decisions.
• Lack of Credentials: Verify the credentials of anyone offering tax advice. Beware of those who cannot provide proof of their qualifications or use vague titles without clear credentials.
• Complex Schemes: Be wary of advice that involves complex, obscure schemes or loopholes. Legitimate tax strategies are typically straightforward and based on established tax laws.
• No Written Documentation: Reliable tax advice should be supported by written documentation, such as IRS publications or legal precedents. Avoid advice that lacks this backing.
• Poor Reviews or Complaints: Check reviews and look for any complaints against the advisor or service. Consistent negative feedback or unresolved complaints are strong indicators to avoid them.

Conclusion

In summary, navigating tax advice, especially from social media, requires vigilance and verification to avoid scams and misinformation. The IRS Dirty Dozen list serves as a crucial resource, highlighting common tax scams such as phishing, fake tax preparers, and inflated refund schemes. Social media’s popularity as an advice platform underscores the need for caution, given the influence of viral content and unverified sources. To ensure the accuracy of tax advice, always consult official IRS resources, seek guidance from certified professionals, and be alert to red flags indicating dubious advice. By prioritizing reliable sources and professional help, you can safeguard your financial well-being and compliance with tax laws.