IRS Demands iTunes Cards? Beware the Dirty Dozen!

In January of 2002 the Internal Revenue Service (“IRS”) issued a press release highlighting a dozen different tax scams and encouraged taxpayers to “maintain national vigilance.”[1] This list was dubbed the “Dirty Dozen,” and the IRS has continued to issue similar press releases containing updated lists of purported tax scams for taxpayers to be on the lookout for each year. The 2021 Dirty Dozen press release was separated into in four separate categories published from June 28 through July 1 of 2021.[2]

First Press Release – Pandemic-Related Scams[3]

Who do these scams primarily concern? Taxpayers

The first press release focused on laying out the categories of the future press releases and on those specific scams pertaining to the pandemic. According to IRS Commissioner Chuck Rettig, “We continue to see scam artists use the pandemic to steal money and information from honest taxpayers in a time of crisis.”[4]

  1. Economic Impact Payment Theft

A continuing threat to individuals is from identity thieves who try to steal Economic Impact Payments (“EIPs”), also known as stimulus payments. Taxpayers are warned to beware of the following tell-tale signs of a scam:

  • Any text messages, random incoming phone calls, or emails inquiring about bank account information or requesting recipients to click a link or verify data should be considered suspicious and deleted without opening.
  • Be alert to mailbox theft. Frequently check mail and report suspected mail losses to Postal Inspectors.
  • Do not fall for stimulus check scams. The IRS will not initiate contact by phone, email, text or social media asking for Social Security numbers or other personal or financial information related to Economic Impact Payments.
  1. Unemployment Fraud Leading to Inaccurate Taxpayer 1099-G’s

Because of the COVID-19 pandemic, many taxpayers lost their jobs and received unemployment compensation from their state. However, scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Payments made on these fraudulent claims went to the identity thieves.

Taxpayers are reminded to be on the lookout for receiving a Form 1099-G reporting unemployment compensation that they did not receive. For taxpayers in this situation, the IRS has urged them to contact their appropriate state agency for a corrected form. If a corrected form cannot be obtained so that a taxpayer can file a timely tax return, taxpayers should complete their return claiming only the unemployment compensation and other income they actually received.

Second Press Release – Personal Information Cons[5]

Who do these scams primarily concern? Taxpayers, Tax Professionals, Financial Institutions, Small Municipalities, and Healthcare Organizations

The second press release concerns personal information as it relates to taxpayers individually and as it relates to client information for tax professionals and other institutions. Financial institutions, small municipalities, and healthcare organizations would do well to review the section related to ransomware.

  1. Tax-Related Phishing Scams

Phishing scams are a tale as old as time and have only become more common with the rise of the internet. Some of us are fortunate enough to have learned our lesson early. I myself fell prey to a phishing email in the late 2000s which cost me access to a lower-value online account. Fortunately, I was able to get my account and associated belongings restored, but taxpayers are often not as lucky as I was.

Whether through a telephone call, text message, or email, the con artist tries to convince the recipient that they need to provide Social Security numbers, bank account or credit card information, or passwords. These attacks can target taxpayers directly or in some cases tax professionals. Once again taxpayers are reminded that the IRS will never initiate contact with taxpayers via email about a tax bill, refund, or EIPs. Taxpayers should not click on links claiming to be from the IRS and should be wary of emails and websites, as they may be nothing more than scams to steal personal information.

Tax professionals should be especially wary of phishing scams involving verification of Electronic Filing Identification Numbers (“EFIN”) and Centralized Authorization File (“CAF”) numbers. The IRS has seen an increase in these kinds of scams, along with offers to buy and sell EFINs and CAFs. This trend includes a recent scam email from the fictitious “IRS Tax E-Filing,” which should not be opened, nor should any attachments or links be downloaded or followed. Another recent phishing scam targeting tax professionals is the so called “New Client” scam, in which the fraudster often claims to have recently moved to the area and is requesting to be taken on as a client. The email usually contains two attachments, which are claimed to be an IRS notice and the prospective client’s prior-year tax return.

  1. Impersonator Phone Calls/Vishing

Similar to phishing, the IRS has seen an increase in voice-related phishing, or ‘vishing,’ particularly from scams related to federal tax liens. For those receiving phone calls out of the blue, security experts recommend asking questions of the caller but not providing any personal information. If in doubt, the taxpayer should hang up immediately. Taxpayers are reminded of the following:

  • The IRS generally first contacts people by mail, not by phone, about unpaid taxes.
  • The IRS may attempt to reach individuals by telephone but will not insist on payment using an iTunes card, gift card, prepaid debit card, money order, or wire transfer.
  • The IRS will never request personal or financial information by e-mail, text, or social media.
  1. Social Media Scams

Taxpayers should be aware of social media scams, which frequently use events like COVID-19 to try to trick taxpayers. Social media enables individuals with questionable motives to lurk on accounts and extract personal information to use against the taxpayer. These cons may send emails impersonating the taxpayer’s family, friends or co-workers. Social media scams have also led to tax-related identity theft. The basic element of social media scams is convincing a potential victim that he or she is dealing with a person close to them that they trust via email, text, or social media messaging.

Using personal information, a scammer may email a potential victim and include a link to something of interest to the recipient, but which contains malware intended to commit more crimes. Scammers also infiltrate their victim’s emails and cell phones to go after their friends and family with fake emails that appear to be real, and text messages soliciting, for example, small donations to fake charities that are appealing to the victims. Taxpayers should know that any of their information that is publicly shared on social media platforms can be collected and used against them. One way to circumvent these scams is to review privacy settings and limit data that is publicly shared.

  1. Ransomware

Yet another growing trend is the advent of ransomware, which is malware targeting human and technical weaknesses to infect a potential victim’s computer, network, or server. Malware is a form of invasive software that is often frequently inadvertently downloaded by the user. Once a system is infected, ransomware looks to block access by encrypting data or programs on information technology systems to extort ransom payments from victims in exchange for decrypting the information and restoring victims’ access to their systems or data. In some cases, in addition to the attack, the perpetrators threaten to publish sensitive files belonging to the victims or their clients.

Victims generally are not aware of the attack until they try to access their data, or they receive a ransom request in the form of a pop-up window. These criminals do not want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin. Financial institutions, small municipalities, and healthcare organizations in particular should be wary of ransomware, as The U.S. Treasury Financial Crimes Enforcement Network has noted that ransomware attacks continue to rise across those sectors.

Third Press Release – Ruses Focusing on Unsuspecting Victims[6]

Who do these scams primarily concern? Taxpayers, State Agencies, and Employers

The third press release addresses five more scams, some of which focus on those individuals which are particularly susceptible to tax-related schemes, while others potentially apply to everyone who files a tax return.

  1. Fake Charities

Taxpayers are advised to be on the lookout for scammers who set up fake organizations to take advantage of the public’s generosity. They especially take advantage of tragedies and disasters, such as the COVID-19 pandemic. Scams requesting donations for disaster relief efforts are especially common over the phone. Scammers may claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds. Taxpayers should always check out a charity before they donate, and they should not feel pressured to give immediately. To check the status of a charity, taxpayers can refer to the IRS Tax Exempt Organization Search tool or to IRS Publication 78 Data available here.

Here are some tips to remember about fake charity scams:

  • Individuals should never let any caller pressure them. A legitimate charity will be happy to get a donation at any time, so there is no rush. Donors are encouraged to take time to do the research.
  • Potential donors should ask the fundraiser for the charity’s exact name, employer identification number, web address, and mailing address, so it can be confirmed later. Some dishonest telemarketers use names that sound like large well-known charities to confuse people.
  • Be careful how a donation is paid. Donors should not work with charities that ask them to pay by gift card or by wiring money.
  1. Immigrant/Senior Fraud

IRS impersonators and other scammers are known to target groups with limited English proficiency as well as senior citizens. These scams are often threatening in nature. While it has diminished some recently, the IRS impersonation scam remains a common scam. This is where a taxpayer receives a telephone call threatening jail time, deportation, or revocation of a driver’s license from someone claiming to be with the IRS. Taxpayers who are recent immigrants often are the most vulnerable and should ignore these threats and not engage the scammers.

Taxpayers are reminded that the first contact with the IRS will usually be through mail, not over the phone. Legitimate IRS employees will not threaten to revoke licenses or have a person deported. These are scare tactics. As phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language, the IRS has added new features to help those who are more comfortable in a language other than English. The Schedule LEP allows a taxpayer to select in which language they wish to communicate. Once they complete and submit the schedule, they will receive future communications in that selected language preference.

  1. Offer in Compromise “Mills”

Taxpayers need to be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for “pennies on the dollar” through an Offer in Compromise (“OIC”) under Section 7122. Generally, the IRS will accept an OIC when it is unlikely that the tax liability can be collected in full, and the amount offered by the taxpayer reasonably reflects the taxpayer’s collection potential. The goal of an OIC is to collect what is potentially collectible at the earliest possible time and at the least cost to the government.

Some companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt. These scams are commonly called OIC “mills,” which cast a wide net for taxpayers, charge them pricey fees, and churn out applications for a program they are unlikely to qualify for. Although the OIC program helps thousands of taxpayers each year reduce their tax debt, not everyone qualifies for an OIC. Taxpayers should be especially wary of promoters who claim they can obtain larger offer settlements than others or who make misleading promises that the IRS will accept an offer for a small percentage. According to the IRS, companies advertising on TV or radio frequently cannot do anything for taxpayers that they cannot do for themselves by contacting the IRS directly. The IRS suggests taxpayers go to and review the Offer in Compromise Pre-Qualifier Tool to see if they qualify for an OIC.

  1. Unscrupulous Tax Return Preparers

Selecting the right return preparer is important. They are entrusted with a taxpayer’s sensitive personal data. Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things they regret later.

Taxpayers should avoid so-called “ghost” preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds. Ghost preparers do not sign the tax returns they prepare. They may print the tax return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost preparer will prepare but not digitally sign as the paid preparer. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a Preparer Tax Identification Number (PTIN).[7] Paid preparers must sign and include their PTIN on returns.[8]

Unscrupulous tax return preparers may also:

  • Require payment in cash only and will not provide a receipt.
  • Invent income to qualify their clients for tax credits.
  • Claim fake deductions to boost the size of the refund.
  • Direct refunds into their bank account, not the taxpayer’s account.
  • Promise a big refund before looking at the taxpayer’s records.
  • Charge fees based on a percentage of the refund.

Taxpayers should remember that they are legally responsible for what is on their tax return even if it is prepared by someone else and can help protect themselves by choosing a reputable tax preparer.[9] The tax preparer should be willing to sign the return.

  1. Unemployment Insurance Fraud

Unemployment fraud often involves individuals acting in coordination with or against employers and financial institutions to get state and local assistance to which they are not entitled. These scams can pose problems that can adversely affect taxpayers in the long run.

States, employers, and financial institutions need to be aware of the following scams related to unemployment insurance:

  • Identity-related fraud: Filers submit applications for unemployment payments using stolen or fake identification information to perpetrate an account takeover.
  • Employer-employee collusion fraud: The employee receives unemployment insurance payments while the employer continues to pay the employee reduced, unreported wages.
  • Misrepresentation of income fraud: An individual returns to work and fails to report the income to continue receiving unemployment insurance payments, or in an effort to receive higher unemployment payments, applicants claim higher wages than they actually earned.
  • Fictitious employer-employee fraud: Filers falsely claim they work for a legitimate company, or create a fictitious company, and supply fictitious employee and wage records to apply for unemployment insurance payments.
  • Insider fraud: State employees use credentials to inappropriately access or change unemployment claims, resulting in the approval of unqualified applications, improper payment amounts, or movement of unemployment funds to accounts that are not on the application.

The IRS also provided a short list of financial red flag indicators of unemployment fraud:

  • Unemployment payments are coming from a state other than the state in which the customer reportedly resides or has previously worked.
  • Multiple state unemployment payments are made within the same disbursement timeframe.
  • Unemployment payments are made in the name of a person other than the account holder or in the names of multiple unemployment payment recipients.
  • Numerous deposits or electronic funds transfers are made that indicate they are unemployment payments from one or more states to people other than the account holder(s).
  • A higher amount of unemployment payments is seen in the same timeframe compared to similar customers and the amount they received.

Fourth Press Release – Schemes that Persuade Taxpayers into Unscrupulous Actions[10]

Who do these scams primarily concern? Taxpayers

In the fourth and final press release, the IRS reminds taxpayers of the old adage, if something sounds too good to be true, it probably is. The entire press release only discusses what the IRS deems “aggressively marketed abusive arrangements,” which appears to constitute the final of the 2021 Dirty Dozen. The IRS lists five separate arrangements, all of which it cautions taxpayers to avoid, instead of “play[ing] the audit lottery.”

The IRS continues to pursue actions against promoters of these schemes as well as the taxpayers who participate in them. “We are stepping up our enforcement against abusive arrangements,” said IRS Commissioner Chuck Rettig. “Don’t be lulled into these shady deals. The IRS recommends that anyone who participated in one of these abusive arrangements should consult independent counsel about coming into compliance.”[11]

  1. Potentially Abusive Arrangements
A. Syndicated Conservation Easements

According to the IRS, in syndicated conservation easements promoters take a provision of tax law for conservation easements and twist it through using inflated appraisals of undeveloped land and partnerships. Once again per the IRS, these abusive arrangements are designed to game the system and generate inflated and unwarranted tax deductions, often by using inflated appraisals of undeveloped land and partnerships devoid of a legitimate business purpose. For more information regarding the IRS’s stance on conservation easements, see Josh Sage’s articles discussing recent conservation easement attacks by the IRS and the December 2019 Tax Court case TOT Property Holdings LLC v. Comm’r.[12]

B. Micro-Captive Arrangements

Per the IRS, in abusive “micro-captive” structures, promoters, accountants, or wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes of insurance. For example, coverages may “insure” implausible risks, fail to match genuine business needs, or duplicate the taxpayer’s commercial coverages. But the “premiums” paid under these arrangements are often excessive and used to skirt tax law.[13] Recently, the IRS has stepped up enforcement against a variation using potentially abusive offshore captive insurance companies domiciled in Puerto Rico and elsewhere.

C. Use of the US-Malta Tax Treaty

Some U.S. citizens and residents are relying on an interpretation of the U.S.-Malta Income Tax Treaty (“Treaty”) to take the position that they may contribute appreciated property tax free to certain Maltese pension plans and that there are also no tax consequences when the plan sells the assets and distributes proceeds to the U.S. taxpayer. Ordinarily gain would be recognized upon disposition of the plan’s assets and distributions of the proceeds. The IRS is evaluating the issue to determine the validity of these arrangements and whether Treaty benefits should be available in such instances and may challenge the associated tax treatment.

D. Improper Business Credits

The IRS explains that improper claims for the research and experimentation credit generally involve failures to participate in, or substantiate, qualified research activities and/or satisfy the requirements related to qualified research expenses. To claim a research credit, taxpayers must evaluate and appropriately document their research activities over a period of time to establish the amount of qualified research expenses paid for each qualified research activity.[14] Taxpayers should carefully review reports or studies to ensure they accurately reflect the taxpayer’s activities.

E. Monetized Installment Sales

By the IRS’s reckoning, promoters find taxpayers seeking to defer the recognition of gain upon the sale of appreciated property and organize an abusive shelter through selling them monetized installment sales. These transactions occur when an intermediary purchases appreciated property from a seller in exchange for an installment note, which typically provides for payments of interest only, with principal being paid at the end of the term. In these arrangements, the seller gets the lion’s share of the proceeds but improperly delays the gain recognition on the appreciated property until the final payment on the installment note, often slated for many years later.

Installment sales is a topic which we have discussed in great detail, see Charles Allen’s installment method crash course.[15] More specifically, Gray Edmondson recently discussed the structure of and the IRS’s arguments against monetized installment sales here.[16]


As Petyr Baelish (or “Littlefinger”) said, “Knowledge is power” (although immediately after he was confronted with the undoubtably very persuasive argument by Cersei Lannister that “power is power”). Most of these scams are premised on a lack of knowledge by their intended victims. The most important step taxpayers can take is to know which scams are out there, to better recognize and thereafter, evaluate the circumstances surrounding a questionable situation. Some situations may seem obvious, such as when the IRS calls and demands you transfer $500 worth of iTunes Gift Cards to them, yet are still effectively perpetrated. Others, a taxpayer might only know to look out for because they have had personal experience with such or were informed what to look for. The IRS’s Dirty Dozen is an annual installment of schemes the IRS is most concerned with and should certainly be reviewed by taxpayers.

Beyond staying informed, taxpayers should also consider taking additional steps to protect their information, such as by adding multi-factor authentication to their online tax software products or by following the online process to receive an Identity Protection PIN (a program that was previously only available to victims of ID theft or taxpayers in certain states, but is available to all taxpayers as of 2021).

[1] IR-2002-12, January 31, 2002,

[2] IR-2021-135, June 28, 2021,; IR-2021-137, June 29, 2021,; IR-2021-141, June 30, 2021,; and IR-2021-144, July 1, 2021,

[3] IR-2021-135, June 28, 2021,

[4] Id.

[5] IR-2021-137, June 29, 2021,

[6] IR-2021-141, June 30, 2021,

[7] Reg. § 1.6109-2(d). This requirement of PTINs became effective at the beginning of 2011.

[8] IRC § 6109(a)(4) and Reg. §§ 1.6109-2(a)(1), 1.6109-2(a)(2)(ii), 1.6695-1(c)(1).

[9] See J.L. Lewis (1955) TC Memo 1955-93, PH TC Memo ¶55,093; George M. Brown (1992) TC Memo 1992-15, TC Memo ¶92,015; and Ali Mustafa (1965) TC Memo 1965-67, PH TC Memo ¶65,067.

[10] 2021-144, July 1, 2021,

[11] Id.

[12] Josh W. Sage, “Recent Conservation Easement Attacks by the IRS”, March 5, 2020,; Josh W. Sage, “Deny It Like It’s TOT – Conservation Easement Denial Upheld”, July 29, 2021,

[13] See IR-2019-157, September 16, 2019, IRS offers settlement for micro-captive insurance schemes; letters being mailed to groups under audit,

[14] See IRC §§ 38, 41, and 174.

[15] Charles J. Allen, “Installment Method of Income Recognition – The Basics,” March 16, 2021,; Charles J. Allen, “The Installment Method of Income Tax Reporting: Interest on Large Installment Obligations,” June 29, 2021,; Charles J. Allen, “Disposition of Installment Obligations Where Income Reported Under Installment Method”, August 30, 2021,

[16] Gray Edmondson, “Monetized Installment Sale: Cash Today, Tax Today?”, June 17, 2021,


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