Caution Tape

Image source: Flickr user Eugene Zemlyanskiy.

Tax scams take many different forms. Some scams are perpetrated against the IRS -- for example, claiming phony deductions in order to get a bigger refund. While it's certainly unfortunate that these exist, you're probably more concerned with other scams intended to victimize law-abiding taxpayers like you and me. Here are three particularly nasty scams to watch out for as you prepare to file your tax return.

Identity thieves
Perhaps the worst tax scam is when thieves use your Social Security number to file a phony tax return in your name. The goal is to claim a false amount of income and a bunch of fabricated deductions and credits in order to get a massive tax refund, which the thieves will request payable to a prepaid debit card that's tough to trace.

The main reason this scam works is that most victims don't realize anything has happened until they try to submit their own return, only to find that their SSN has already been used. For this reason, the best way to prevent this is to file your tax return as early as possible during tax season. As soon as you get all of your W-2s, 1099s, and other tax forms, get your return in. Even if you owe taxes to the IRS, you can submit your return now and wait until the April 18 deadline to pay – so don't let it stop you.

Aside from filing early, here are some other preventative measures you can take:

  • Don't carry your Social Security card with you, or any other documents with your SSN.
  • Only give your SSN to a business or individual if it's absolutely necessary.
  • Check your credit report: Under Federal law, you can actually do this for free once per year with no strings attached at www.annualcreditreport.com.
  • Make sure the antivirus software you use on your computer is up to date.

Phishing scams
"Phishing" refers to a scam that is carried out either through a fake website or phony email, and tax-related phishing is a big problem.

One scam consists of an official-looking email supposedly sent by the IRS, asking taxpayers to update their IRS file. The email contains a link to a website designed to look like the actual IRS website, and with a web address that looks like the real deal, such as IRSgov.com. Be aware that the only official IRS website is www.irs.gov. Any address that does not begin with that is not an actual IRS website.

The IRS does not initiate contact with taxpayers via email to request personal or financial information. If you know this one valuable piece of information, it's easy to avoid becoming a victim of an IRS-related phishing scam.

IRS agent phone scams
One increasingly popular scam is scammers posing as IRS agents calling to demand payment of a phony tax debt. In fact, over $23 million has been taken from 4,550 phone scam victims since October 2013. The general idea is that the caller will use a threatening tone to ask for immediate payment, and will request payment via a wire transfer or prepaid debit card, both of which are difficult to trace.

The caller may give a fake IRS agent ID number, and your caller ID may even say "IRS" or something similar. However, there are a few easy ways to identify this type of scam.

  • The IRS will never demand immediate payment.
  • The IRS does not require tax debt paid by a specific payment method.
  • The IRS will send you an official notice that you owe money before attempting to call you.
  • If you do owe a legitimate tax debt, the IRS will give you a chance to appeal it.
  • You will never be asked to give a credit or debit card number over the phone by a legitimate IRS agent.
  • A real IRS agent will never threaten you with arrest, deportation, or the loss of your driver's license.

If a phone call seems suspicious, hang up immediately. You can verify whether or not you actually owe the IRS money by calling them directly at 800-829-1040. If it turns out the call you received was fake, be sure to report it to help prevent others from being victimized.

What to do if you're a victim
Now that you know what to look for, hopefully you'll never need to handle the after-effects of a tax scam, but it's good to be prepared anyway. Sadly, once you actually pay money to a scammer, there is little that can be done about it, so be sure to only send money when you're 100% certain it's for a legitimate tax debt and is being sent to an actual IRS office. If you notice anything that doesn't feel right about any tax-related contact you receive, call the IRS immediately. If you think someone has or might file a false return under your name, the IRS provides step-by-step instructions for what to do.

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