Each year, the IRS releases the Dirty Dozen – a list of the largest tax scams they saw for that year's taxes. The IRS scams list reads like a playbook from the past, with phishing, identity theft, and fake charities making the top 12. These common scams are increasing in complexity, so they require a careful look. In addition to expected appearances, the list is dominated by private, white-collar fraud, including abusive tax shelters, partially-fraudulent business credit applications, and falsified credit claims.
While not all of the top 12 tax scams will affect individual consumers, here are some that will:
Phishing is the act of sending a communication or setting up a fraudulent website that asks a consumer to provide personal or financial information. This common scheme continues to collect its share of victims. Some fraudsters focus on stealing personal information from taxpayers through emails and calls about bills, back taxes, or tax refunds. By posing as the IRS, they attempt to collect any information they can.
1) PhishingIt’s important to note that the IRS does not initiate contact about bills or refunds using email. Avoid clicking any links that may involve scams, and report any phishing attempts to the IRS .
2) Phone ScamsAccording to the IRS, early in each tax season, they see often see an upswing of phone scams. These scammers often threaten to arrest or deport victims and demand faux tax bill payments through wire transfer or prepaid card payments. The IRS will never ask for immediate payment via wire transfer or prepaid cards (although these are payment methods you can use legitimately), and typically send bills by mail.
Among the many helpful tax preparation services, there are also dishonest and unethical tax professionals that scam individuals through identity theft and refund fraud. Before you give your information to someone, do some quick research to see if you uncover any red flags about the potential tax preparer.
3) Tax Return Preparer FraudOne method is to use the IRS’s Directory of Tax Return Preparers with Credentials. You can also do basic internet research by:
- Checking your potential preparer’s state license to make sure it’s in good standing
- Read online reviews and note any negative claims
- Check the preparer on the Better Business Bureau (BBB) website
It’s also beneficial to review your tax returns before you sign on the dotted line. If reviewing your taxes is confusing or overwhelming, you can often find local low-cost help. Check your library, schools, community centers, and other community resources to see if they have tax preparation volunteers.
Be wary of anyone promising you an inflated refund. This scam is often set up with flyers, phony storefronts, or by using word of mouth in community groups where people may trust easily. They will promise big refunds before even gathering a victim’s information. These fraudsters will also often have people sign a blank return, and take their personal and financial information. Another tactic is to make a deal by asking for a percentage of the refund for preparation services – which is a red flag.
Even if you hire a “professional” to handle your taxes, you’re responsible for IRS scams perpetrated in your name, so look for falsified deductions, padded expenses, or inflated income before submitting your returns.
This scam falls in line with tax return preparer fraud. Often, the scammer will encourage the taxpayer to lie or enter false information (like inflated expenses or deductions you don’t qualify for) to increase their refund. If you fall victim to tax preparer fraud, file a Form 3946-A.
Identity theft can occur year-round, but it also happens during tax filing season when criminals file fraudulent returns in your name. Most people won’t know a false return has been filed until they file their tax return or a second return is filed. If this happens, the IRS will mail you a 5071C letter to verify your identity and confirm whether or not you submitted the return.
4) Inflated Refund Claims5) Falsified Income for Credit Claims and Padded Expenses 6) Identity TheftYour first step is to protect yourself and your assets. If someone has your information and used it to file a false tax return notify your banks and put a freeze on your credit report file. You will also want to notify the IRS so that they can start to take the right steps toward fixing the situation.
The tax filing season comes with a flurry of fraudulent activity, so approach your tax dealings with care.