3 Tax Scams to Watch Out for in 2015

With tax season rapidly approaching, there will be lots of money coming and going from the IRS. Unfortunately, that also means there will be a lot of scammers in action, attempting to cash in on unsuspecting individuals.

Source: Wikipedia

Here are three tax scams to be on the lookout for in 2015, and how to make sure you don't become a victim.

Selena Maranjian: Here's a huge and growing tax scam to watch out for: Crooks are using identity theft to steal tax refunds. According to a CBS News report, it's now the biggest tax scam around, and has tripled in scope in just three years. The IRS has estimated that it sent out close to three million refunds to fraudsters, costing us taxpayers more than $5 billion. Yikes. Part of the scam's success lies in its simplicity. All someone has to do is steal your identity via a few key pieces of information. With, say, your birthdate and Social Security number, he can file a return with false information on it, and his address, not yours. Then your refund gets sent to him. And when you file your return, you learn that your refund has already been issued.

One of the best ways to prevent this scam is to beat the scammer to the punch: File your return as soon as you can, before anyone else does. That's not always possible, though, or you might just not be early enough. If so, know that all is not lost. The IRS will work with you to resolve the problem, though it can take time. (The IRS notes that a typical case can take six months to get resolved, and it's working on speeding things up.)

The identity-theft-tax-refund-stealing problem has grown so large that the IRS is taking multiple steps to fight it. (Though at the same time, years of budget cuts have also reduced the IRS's workforce constraining its ability to fight this onslaught.) According to the agency, by educating its employees (and some consumers, too), it prevented nearly 15 million fraudulent refunds from being claimed between 2011 and late 2013. It also offers victims of identity theft a unique "identity protection" PIN (IP PIN) to include on their return.

Dan Caplinger: One scam that always comes around at tax time involves the claim that income taxes are unconstitutional. Some proponents of this scam argue that the First Amendment gives them the right not to pay taxes based on religious grounds, while others point to the Fifth Amendment and say that taxes are an unconstitutional taking of property or involve taxpayers having to provide information against their own best interest. Some even argue that taxes are a type of slavery that violates the 13th Amendment. In addition, although the 16th Amendment specifically authorized a federal income tax, some scams argue that the amendment was never properly ratified or that it doesn't actually apply to U.S. citizens.

These scams all fall into the category of frivolous tax arguments, and they not only have no chance of success but also allow the IRS to impose steep penalties on those who use them. Those provisions include a 20% penalty for inaccurate returns due to negligence or disregard of the rules, as well as a 75% penalty for civil fraud. Other provisions allow for penalties of $5,000 for frivolous returns, and the Tax Court can impose penalties of up to $25,000 if a taxpayer uses frivolous arguments. As tempting as it is to use these arguments, taxpayers have to avoid them in order to avoid getting into even more trouble with the IRS.

Matt Frankel: One common tax season scam is callers posing as IRS agents in order to swindle money out of unsuspecting taxpayers. Fortunately, this is a relatively easy scam to detect if you know what to look for.

Generally, the victim will receive a call from someone claiming to be an IRS agent. They may even give an official-sounding IRS badge number, know the last four digits of a victim's Social Security number, and send official-looking emails along with their phone calls.

Then, the caller will tell the victim one of a variety of stories, the most common being that they owe the IRS money. And, the victim is told, unless they send money loaded on a prepaid debit card or through wire transfer, they can be arrested or face other consequences like having their driver's license revoked.

Another popular version of the story is that the victim has an unclaimed refund, which will be given to them as soon as they provide identifying information, such as their Social Security number and bank account details. You can guess what really happens next...

Fortunately, according to the IRS, there is an easy way to deal with these scams. Simply hang up the phone, and call the IRS at 800-829-1040. If there is a real payment or refund issue, it can be dealt with there. If not, they'll be able to confirm that there is no outstanding issue and that you have nothing to worry about.