Dirty Dozen tax scams for 2018; Taxpayers to remain vigilant

The IRS has issued its list of the Dirty Dozen tax scams for 2018, warning taxpayers to remain vigilant. The scams are aggressive and evolving throughout the entire year, not merely at filing season. So what are the Dirty Dozen tax scams? The Dirty Dozen tax scams are: Phishing: Phone Scams: Identity Theft: Return Preparer Fraud: Fake Charities: Inflated Refund Claims: Excessive Claims for Business Credits: Falsely Padding Deductions on Returns: Falsifying Income to Claim Credits: Frivolous Tax Arguments: Abusive Tax Shelters; and Offshore Tax Avoidance.

IR-2018-66, March 21, 2018

WASHINGTON — The Internal Revenue Service today concluded its annual “Dirty Dozen” list of tax scams with a warning to taxpayers to remain vigilant about these aggressive and evolving schemes throughout the year.

This year’s “Dirty Dozen” list highlights a wide variety of schemes that taxpayers may encounter throughout the year, many of which peak during tax-filing season. The schemes can run the gamut from simple refund inflation scams to technical tax shelter deals. A common theme throughout these: Scams put taxpayers at risk.

Taxpayers need to guard against ploys to steal their personal information. And they should be wary of shady promoters trying to scam them out of money or talk them into engaging in questionable tax schemes.

The IRS highlighted the “Dirty Dozen” scam list in separate news releases across 12 days. Taxpayers are encouraged to review the list in a special section on IRS.gov and be on the lookout for these con games throughout the year.

The IRS reminds people that participating in illegal schemes can lead to significant fines and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

Taxpayers should always keep in mind that they are legally responsible for what is on their tax return even if it is prepared by someone else. Consumers can help protect themselves by choosing a reputable tax preparer. For more see the Choosing a Tax Professional page.

Here is a recap of this year’s “Dirty Dozen” scams:

Phishing: Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or tax refund. Don’t click on one claiming to be from the IRS. Be wary of emails and websites that may be nothing more than scams to steal personal information. (IR-2018-39)

Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things. (IR-2018-40)

Identity Theft: Taxpayers should be alert to tactics aimed at stealing their identities, not just during the tax filing season, but all year long. The IRS, working in the Security Summit partnership with the states and the tax industry, has made major improvements in detecting tax return related identity theft during the last two years. But the agency reminds taxpayers that they can help in preventing this crime. The IRS continues to aggressively pursue criminals that file fraudulent tax returns using someone else’s Social Security number. (IR-2018-42)

Return Preparer Fraud: Be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest, high-quality service. There are some dishonest preparers who operate each filing season to scam clients, perpetuating refund fraud, identity theft and other scams that hurt taxpayers. (IR-2018-45)

Fake Charities: Groups masquerading as charitable organizations solicit donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally-known organizations. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. (IR-2018-47)

Inflated Refund Claims: Taxpayers should take note of anyone promising inflated tax refunds. Those preparers who ask clients to sign a blank return, promise a big refund before looking at taxpayer records or charge fees based on a percentage of the refund are probably up to no good. To find victims, fraudsters may use flyers, phony storefronts or word of mouth via community groups where trust is high. (IR-2018-48)

Excessive Claims for Business Credits: Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities or satisfy the requirements related to qualified research expenses. (IR-2018-49)

Falsely Padding Deductions on Returns: Taxpayers should avoid the temptation to falsely inflate deductions or expenses on their tax returns to pay less than what they owe or potentially receive larger refunds. Think twice before overstating deductions, such as charitable contributions and business expenses, or improperly claiming credits, such as the Earned Income Tax Credit or Child Tax Credit. (IR-2018-54)

Falsifying Income to Claim Credits: Con artists may convince unsuspecting taxpayers to invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers should file the most accurate tax return possible because they are legally responsible for what is on their return. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties. (IR-2018-55)

Frivolous Tax Arguments: Frivolous tax arguments may be used to avoid paying tax. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes despite being repeatedly thrown out in court. The penalty for filing a frivolous tax return is $5,000. (IR-2018-58)

Abusive Tax Shelters: Abusive tax structures are sometimes used to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2018-62)

Offshore Tax Avoidance: Successful enforcement actions against offshore cheating show it’s a bad bet to hide money and income offshore. People involved in offshore tax avoidance are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. (IR-2018-64)


Taxpayers and tax professionals should be vigilant as to the Dirty Dozen tax scams for 2018.

Unpaid Employment taxes: Trust Fund liability, Criminal Prosecution

Unpaid employment taxes can subject you to criminal prosecution.  Additionally, you can be subjected to the Trust Fund Recovery Penalty (which is your personal liability for the trust fund portion of the unpaid employment taxes).

The Department of Justice (press release 18-914 – July 12, 2018)  reports that a business man plead guilty to $5 Million Employment Tax Fraud. The business man faces a statutory maximum sentence of 10 years in prison, a period of supervised release, restitution, and monetary penalties.  The business man owned and operated a Discount Pharmacy (a corporation) with multiple locations. As owner, he was determined to be responsible for collecting and paying over the company unpaid employment taxes. However, during the period from 1998 through 2014 the corporation accrued employment tax liabilities of more than $5 million. The taxes were withheld from the employee’s wages; however, the taxes were not paid to the IRS. In over 15 years, only one employment tax return was filed.

The crime was for unpaid employment taxes. The business man / owner used the employment tax funds for such matters as:  wiring over $1 million to his personal bank account, making in excess of $500,000 in stock market investments, spent over $100,000 on his son’s pharmacy school tuition, and purchased over $370,000 of real property in Virginia and North Carolina.  He also used part of the money to purchase a Jeep Grand Cherokee and a jet ski.

The significance of these criminal tax prosecutions is that they are not solely aimed at the specific criminal defendant. The government pursues them to send a message to all taxpayers. If you ignore the message (in this case,  unpaid employment taxes can result in criminal prosecution and jail time), you may become the next target of criminal prosecution. The incentive for the government to prosecute is obvious. At stake are the tens of billions of dollars in lost revenue to the U.S. Treasury. It’s about the money!

Unpaid employment taxes – will not be tolerated

As stated by the Principal Deputy Assistant Attorney General: “Today’s guilty plea sends a clear message that this type of conduct will not be tolerated,”… “Employment tax violations represent tens of billions of dollars in lost revenue to the U.S. Treasury and the Justice Department is committed to prosecuting individuals involved in these tax frauds.”

If you have a business, unpaid employment taxes may subject you to the Trust Fund Recovery Penalty (personal liability). Additionally, you may face Criminal prosecution.   In connection with the unpaid employment taxes, the IRS will request an “interview”.  This “interview” is a very serious matter. Here is why.

Trust Fund Penalty and the  Interview – (copy of form 4180)

In these situations, the IRS will request targeted taxpayer’s, as well as other potential witnesses, to complete an interview form (form 4180). The purpose of the questions is to determine liability (an element of which is “willfulness”). Experience has shown that persons do not understand nor appreciate the significance of their responses.

The IRS representative is not your friend. He or she is there to achieve the objective of targeting as many persons for the liability as possible.  These forms should never be filled out without the aid and assistance of legal counsel.  There is potential criminal exposure.


The serious nature of unpaid employment taxes and the Responsible Person “Interview” (form 4180), is that there exists not only civil liability exposure for the Trust Fund Recover Penalty, but also the potential for criminal prosecution.

As stated by in the U.S. Department of Justice Criminal Tax Manual (copy here 5/2017):

“the primary focus of § 7202 [criminal prosecution] is on taxes required to be withheld from the gross wages paid to employees”.

This is the same subject as the Trust Fund Recovery Penalty (civil liability).

The Criminal Statute, 26 U.S. Code § 7202 – Willful failure to collect or pay over tax, provides:

“Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.”

Now, let’s look at  26 U.S. Code § 6672 – Failure to collect and pay over tax, or attempt to evade or defeat tax (The Trust Fund Recovery Penalty – civil liability provision):

“ (a) General rule “Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over….” (you can read more here)

The use of the same terminology in both the Civil statute and Criminal statute, is cause for concern.

The Trust Fund Interview – a gateway to Civil and Criminal liability

What about your admissions, or making statements, during an interview concerning the Trust Fund Recovery Penalty (civil liability)?  How does the U.S. government view such?  The Department of Justice advises its prosecutors to review form 4180 (interview form) because it “may contain relevant admissions or statements by the defendant” for criminal prosecution.

Alright, you are thinking that the defendant in the above case (18-914) deserved what he got (he used the money for personal gain).

Maybe you are thinking, “My case is different.  I have unpaid employment taxes, but my business is struggling. I am only using the money to keep the business running, keep the doors open, and to help keep the families of my employees in their homes. The government surely wouldn’t go after me for that. Or, would they?” A reality check is in order.

Here is what the Department of Justice Criminal Tax Manual states about your “good faith”:

“A defendant may argue that she was using the withheld tax to pay current expenses so she could keep the company operating and eventually pay the delinquent tax in the future. Although such facts may affect jury appeal and perhaps how the judge views sentencing, if the government proves the defendant voluntarily and intentionally used unencumbered funds to pay creditors other than the United States, the jury may properly convict even if the intentional non-payment of the known trust fund tax liability was motivated by a desire to keep the business afloat. … (in a § 6672 case, the court held that “[i]t is no excuse that, as a matter of sound business judgment, the money was paid to suppliers and for wages in order to keep the corporation operating as a going concern—the government cannot be made an unwilling partner in a floundering business.”).

If you your business has unpaid employment taxes,  consult legal counsel.