Tax Scams

Tax scams are common enough that the Internal Revenue Service issues a “Dirty Dozen” list of tax scams every year. And sadly, con artists are getting increasingly resourceful at finding ways to trick people and steal their information and money.

Tax scams come in many flavors, and the schemes involve everything from identity theft to preparer fraud to scam phone calls. The IRS encourages taxpayers to stay vigilant and be aware of these aggressive ruses, which can happen at any time but often increase in the months leading up to tax-filing season.

The good news is the IRS, states and the tax industry have taken aggressive steps in recent years to try and combat scams. There are also things you can do to minimize your risks, including learning how to recognize the common scams and taking steps to protect your data.

Tax-related identity theft affects hundreds of thousands of consumers every year and costs the country billions of dollars. Recovering from this sort of tax fraud is an onerous task, and it can take months or even years to get your life back on track.

In these situations, the fraudsters somehow get ahold of your personal information, fill out your 1040 and hijack your tax refund. Usually, the consumer doesn’t realize anything is wrong until they go to file their tax return, and it’s rejected. The IRS only accepts one return for every Social Security number.

While the IRS has managed to crack down on fraudulent returns in recent years, the problem is still significant. In 2018, con artists filed 649,000 fraudulent returns and attempted to get $3.1 billion in refunds. That’s a small uptick from the 597,000 fraudulent returns confirmed in 2017, according to the IRS, but still well below the 1.4 million in identity theft cases in 2015 and the 883,000 in 2016.

If you have fallen victim to identity theft, the IRS says you still need to pay your taxes and file a tax return. You may have to file paper returns by mail.

Phishing scams are just one of many ways con artists can try to get your Social Security number and other personal information. A phishing scam may be in the form of an unsolicited email, text message or a website posing as the IRS. Criminals will try to confuse you to get you to provide sensitive personal and financial information.

The IRS will never initiate contact with taxpayers via email, text or social media.

If you receive such a request, don’t reply to it or open any attachments or links. Doing so could infect your computer or phone with malware. Instead, forward the email to phishing@irs.gov and delete the original email.

IRS imposter scams don’t usually involve your tax returns. Instead, they play off peoples’ fears of the federal agency. The scams usually involve someone calling and claiming to be an IRS agent.

In many cases, the callers will threaten you with arrest, deportation and other harsh consequences unless you do what they demand. In some cases, the callers may ask for personal information, such as your Social Security numbers, PIN numbers and other sensitive financial data.

Other times, the callers may tell you that you owe debts to the IRS and instruct you to go to the store, purchase gift cards and provide them with the gift cards or prepaid debit cards to pay your debt. They may ask you to wire them money.

These imposters are often intimidating, threatening and abusive.

Consumers in North Carolina lost nearly $86,000 to this scam between 2017 and 2018, according to North Carolina Attorney General Josh Stein. The victims included a man who was tricked into buying $4,000 worth of iTunes gift cards. He was threatened with jail unless he complied. All told, Americans lost $488 million to imposter scams in 2018, according to the Federal Trade Commission.

Unscrupulous tax return preparers can also take advantage of people. In 2018, the FTC received 4,103 reports of tax preparer fraud.

Beware of a tax preparer who promises a big refund or asks you to sign a blank tax return. Preparers who charge you fees based on a percentage of your return are also probably up to no good. These hucksters will often use flyers and phony storefronts to recruit victims. You may also hear about them by word of mouth.

The IRS also urges consumers to beware of what it calls “ghost preparers,” or people who put your return together but don’t sign it themselves. Instead, they print it, and tell you to send it to the IRS. If they’re filing for you online, they may refuse to digitally sign your return.

It’s important to realize that you’re responsible for whatever is on your tax return, even if it’s prepared by someone else. And falling for scams like these can end up costing you money in the form of back taxes, with interest and penalties.

Your best bet is to choose a reputable tax preparer who you can trust. Remember, you’ll be giving them the most sensitive information about your life, including details about your spouse, income, children, and of course, your Social Security number.

Beware of those who make “frivolous tax arguments” to avoid paying taxes.

The promoters of these schemes often argue that paying taxes is voluntary, that wages and tips aren’t really income, or that you can refuse to pay taxes on religious grounds. Another common frivolous tax claim is that you can claim you’re a citizen of the state you live in, but you reject your United States citizenship. Some have even argued that the IRS is an illegitimate government agency that should not exist.

Don’t fall for any of these arguments. Such claims are outlandish and will accomplish little other than getting you in trouble with the IRS and costing you more money in the long run. The IRS will fine you $5,000 for filing a “frivolous return,” and you could end up facing other sorts of fines and criminal prosecution for attempting to evade paying taxes.

Fake charities can also leave unsuspecting taxpayers in a pickle. The charities may have names like other well-known charitable organizations, and they’ll promise you can deduct the funds you donate.

That’s why it’s important to do your due diligence. Before donating any cash, you can search the IRS’ exempt organization’s database.

If you or your business makes a lot of charitable contributions, you may also want to check GuideStar’s Charity Check search tool. For $75 a month, it will tell you whether a charity meets all five of the IRS’ requirements for tax-exempt status, and it will notify you if nonprofits you follow have their tax-exempt status revoked.

As always, prevention is your best protection. You can check out your tax preparer’s qualifications before hiring them through the IRS’ directory of federal tax return preparers. Also, filing your tax return early can lower your chances of falling prey to an identity theft scheme.