In 2018, the IRS had 649,000 confirmed cases of fraudulent tax returns from scammers trying to steal over $3 billion in tax refunds.
There are a lot of new and old ways being used to trick taxpayers and tax preparers alike. Like fake emails and phone calls, or even holding important documents they’ve stolen up for ransom. But the IRS is doing everything they can to protect taxpayer’s personal information and weed out scammers.
Protecting your information and important documents is the key to avoiding tax scams. Knowing a thing or two about what tax scammers are doing and how they’re doing it can also help you spot a scammer before you get taken advantage of.
Explore this Article
- What are Tax Scams?
- How to Tell if Something is a Scam
- Common Tax Scams
- How to Report a Scam
- How Do I Know If I’ve Been Hacked?
What are Tax Scams?
A tax scam is when someone uses tax season to steal private information. Many tax scams try and steal your personal information so they can file your taxes before you do, and claim your tax refund for themselves.
How to Tell if Something is a Scam
There’s not a worse feeling in the world than getting fooled by a scammer. Avoid letting this happen to you by first understanding what scammers want. They want to get you to pay for fraudulent services or they want your personal information. Second, learn to recognize the characteristics of a scam before it tricks you.
- They will try and make you panic
- They will try and get you to download something
- They will try and get you to click on links
- They will want you to pay in prepaid debit cards, gift cards, or wire transfers
- They will demand immediate action and try to rush you
- Their site won’t be secure
- They will contact you in a way that the IRS won’t, like through emails, phone calls, or texts
- Their promises will sound (and be) too good to be true
Common Tax Scams
The official website of the IRS is a great place to go for information and resources about tax scams. This year the IRS published a list of tax scams they call the “Dirty Dozen.” Here’s a brief recap of the tax scams you’ll want to look out for and what you should do if one of these tax scams hit you.
1. Berkheimer Tax Innovations Scam
Berkheimer Tax Administrator Services is an example of taxpayers receiving concerning letters in the mail about their taxes. They are one tax preparation company that has received a lot of flax for less than ideal business practices. Many of their customers have complained to the Better Business Bureau about receiving strange letters saying they owed delinquent taxes and asking for payment.
Be careful where you choose to file your taxes. When researching tax service providers you can always check their status on the Better Business Bureau’s website to make sure you aren’t falling prey to a scammy or fraudulent company.
2. IRS Tax Scam
Some tax scams will try and pretend they are the IRS in order to get you to pay them or give them information. This is also called phishing.
Phishing is when a tax scammer sends out emails or even creates a fake website to trick people into thinking they are the IRS. But the IRS directly states on their official website that they “will never initiate contact with taxpayers via email about a bill or tax refund.”
So if you receive an email claiming to be from the IRS, you can immediately know it’s a scam and report it. Do not click on any links or respond to any emails claiming to be from the IRS. By interacting with a fake email from the IRS you can jeopardize your computer and your personal information.
The IRS directly states on their official website that they will never do the following:
- The IRS will not call you demanding immediate payment through a prepaid debit card, gift card, or wire transfer. If you do owe the IRS money, they will first mail you a bill, and you will never pay the IRS through prepaid debit cards, gift cards, or wire transfers. Scammers like to use these forms of payment because they are difficult to track.
- The IRS will never threaten to have you arrested.
- The IRS will never demand payment without allowing you to question or appeal what you owe.
- The IRS will never ask you to give them your credit or debit card numbers over the phone.
- The IRS will never suddenly call you about an unexpected refund for you.
3. Tax Evasion Scam
There are several forms of Tax evasion scams you should be aware of. These types of scams will try and sell programs to help you avoid paying taxes.
Offshore Tax Avoidance
One tax scam is to try and hide income offshore in order to avoid paying taxes on them. If you’ve been involved in any offshore tax avoidance, the best thing you can do is voluntarily catch up on your taxes to make things right.
Frivolous Tax Arguments
Some tax scammers will try convincing you to take part in frivolous tax arguments to try and avoid paying taxes. These cases are repeatedly thrown out in court, no matter what the tax scammer might say.
Abusive Tax Shelters
There are people who create complex tax avoidance schemes and then sell them to unsuspecting members of the public. Be aware that there are tax scammers like these, trying to peddle too-good-to-be-true schemes, plans, programs, or shelters.
4. Tax Fraud Scam
Other scammers will try and encourage taxpayers to fake information on their tax return in order to get certain benefits.
Return Preparer Fraud
Be careful when choosing a tax preparer or tax filing service. Make sure the website is secure and that the tax filing service is trustworthy and legitimate. Many scammers will try to pose as tax preparers to get ahold of your precious personal information and documents.
Find an established tax preparer you can trust, like Check City Tax Services, where you can file your taxes in a timely manner and know your documents and personal information are secure.
Inflated Refund Claims
Be careful if you are being promised an inflated tax refund, or if your tax preparer tries to get you to sign a blank return. When promises seem too good to be true, they often are. Trust this instinct and avoid scammers who will try and reel you in by promising larger than life tax refunds.
Falsifying Income to Claim Credits
Never trust a tax preparer that tries to convince you to falsify information on your tax record. All information on your tax return should be accurate. If someone tries to convince you otherwise, like that you received more income than you actually did, they are lying to you. Scams like these will lead you to pay large bills and penalties back to the IRS.
Falsely Padding Deductions on Returns
Again, all the information on your tax returns should be accurate. Do not inflate your deductions or expenses in order to pay less in taxes or get a larger tax refund. If your tax preparer is trying to work this way, then you should move your tax filing business elsewhere.
Beware of fake charities. Sometimes you can recognize a fake charity because they will try and use similar names to well-known charities in order to confuse you. Donating to a worthy cause is a great thing to do, but not if you don’t take the time to double-check that the charity is real.
Excessive Claims for Business Credits
Be careful not to claim tax credits that you don’t actually qualify for. The fuel tax credit or the research credit are examples of tax credits you more than likely don’t actually qualify for. Make sure you fully understand each tax credit before trying to claim one.
5. Tax Scam Calls
You might receive a phone call from a person claiming to be an IRS agent. These fake IRS agents may even threaten you over the phone with legal action, police arrests, deportation, or license confiscation, but these threats are empty. They are only trying to make you think you are in trouble so that you panic and give them what they want.
If you receive a phone call from someone claiming to be an IRS agent and trying to do any of the following things, you can rest assured it is a scam and feel free to hang up and block that number.
6. Identity Theft
Some criminals will try and use the tax season to steal identities. One of the primary ways that someone can steal your identity is by getting their hands on your social security number or card. Then they can pretend to be you and try to claim your tax refund.
Keep your personal information safe by never revealing your social security number to anyone, and by keeping your social security card in a safe and secure location. It is also a good idea to memorize your social security number so that you don’t need to carry your card in your wallet where it’s more likely to get stolen.
How to Report a Scam
If you come across a Tax scam or fall prey to one, then you’re going to want to know how to report it.
First, fill out a 14039 form and send it into the IRS.
If you have any other questions about how to report any kind of tax scam you can find the information you need on the IRS website, Tax Scams – How to Report Them.
You can also visit the official website of the Office of the Inspector General (OIG) and Social Security Administration.
How Do I Know If I’ve Been Hacked?
One way to know if you’ve been hacked by a tax scammer is when you have trouble filing your taxes. Tax scammers often try and e-file your taxes before you do in order to snag your refund for themselves. You’ll then be unable to e-file your own taxes because the tax scammer already did it.
So if the IRS denies an e-file be wary, it could be a garden-variety error that you can go back and fix, but you should be able to successfully resubmit it if there was just a minor error.
Tax scams may seem scary but once you learn to recognize them, you’ll easily avoid being duped. Just be sure to protect your personal information and always be cautious in all your dealings. It’s always better to be overly safe than to wind up being sorry later.