Unfortunately, tax scams are a fairly common occurrence these days. In fairness, the IRS has done a great job over the past few years of cracking down on phony returns, and providing guidelines on what to do if you're a victim. However, thieves are still out there, so you need to know what to look for in case you're a victim, or an intended victim of a tax scam. Here are some of the more common types of scams, and how to spot them.
This is a type of scam in which a thief files a false tax return in your name in order to claim a phony refund. The thief will generally have the refund deposited to a prepaid (untraceable) account, and this scam is often undetectable for several months after it happens.
Here are some signs that you might be the victim of identity theft, and what you should do if you suspect it has happened to you.
- When trying to file your tax return, you receive a message indicating that a return has already been filed with your Social Security Number.
- The IRS sends you a letter saying they've identified a suspicious tax return with your SSN.
- You owe additional tax, or have collections actions taken for a year in which you didn't file a tax return.
- IRS records show you were paid by an employer you never worked for.
If you suspect you're a victim of tax-related identity theft, the Federal Trade Commission (FTC) recommends that you first file a complaint at identitytheft.gov, and then immediately place a fraud alert on your credit report with one of the three major credit bureaus (that one will contact the other two). During the subsequent months and years, continue to monitor your credit reports for accounts you didn't open.
In addition, if you receive a notice from the IRS, or discover a fraudulent return has been filed in your name, don't ignore the situation. Complete an Identity Theft Affidavit with the IRS, and file your tax return anyway, even if you have to do it on paper.
Phishing involves thieves using fraudulent emails or websites claiming to be associated with the IRS in order to steal money or personal information. Unlike identity theft, however, phishing is fairly easy to avoid if you know what to look for. Specifically, you need to know the telltale signs of an impostor.
- The IRS will not send you an email about a bill or refund out of the blue; if you get an unexpected email from the "IRS," don't even click on it.
- The real IRS website is www.irs.gov, and any site actually run by the IRS will begin with that address. If you see any other variation (irsgov.com, for example), you could be a target of a scam.
If you think you're the intended victim of a phishing attempt, don't open any attachments or click on any links. Simply forward the email to email@example.com to inform the authorities.
Since October 2013, more than 5,000 people have reported that they've been victimized by tax-related phone scams, and this has cost these victims more than $26.5 million. Simply put, phone scams involve a caller posing as an IRS agent, generally claiming that you owe the IRS money that must be paid immediately. The callers often threaten and/or trick the victims into paying.
In order to tell if you're the victim of an attempted tax-related phone scam, you need to know what the IRS won't do.
- The IRS will not call you to demand immediate payment.
- The IRS will always give you an opportunity to appeal or question the amount owed before demanding payment.
- The IRS doesn't require a specific payment -- scammers generally demand a wire transfer, money order, or a prepaid debit card.
- The IRS won't threaten to have you arrested for not paying.
- The IRS won't ask you for a credit card or debit card number over the phone.
Any of these can be signs that you're a tax-scam victim. If you think you are, hang up right away and report the scam to the IRS. If you're concerned that you might actually owe money, call the IRS directly at 1-800-829-1040, and you'll at least know you're talking to a legitimate IRS representative.
Return preparer fraud
Most professional tax preparers are honest, but just like many other industries, there are bad apples among them. You should choose your tax preparer carefully -- preferably one who works for an established firm, and has plenty of references. Here are some warning signs that your tax "professional" may not have your best interests in mind:
- If your preparer promises you a big refund before he/she even sees your documentation, it's a big red flag. Legitimate preparers will ask to see your receipts and records before promising a specific refund amount.
- Ask for your preparer's IRS Preparer Tax ID Number (PTIN). Paid tax-return preparers are required to have these.
- If your preparer asks you to sign a blank return, or won't let you thoroughly review your return before signing, that person is probably up to no good.
- If a tax preparer charges a fee based on a percentage of your refund, it's a dead giveaway that they're trying to artificially inflate your refund.
Many of these dishonest tax preparers will make up a bunch of phony deductions and credits in order to inflate your tax refund, in order to collect a higher "fee." The problem is that the IRS will eventually realize that these are bogus, and want to see proof, which you'll be unable to provide. Then, you'll have to pay back the excess, as well as penalties and interest.
Be on the lookout
Unfortunately, in any business where there are large sums of money floating around, there will always be less-than-honest people trying to get their hands on some of it. Fortunately, when it comes to taxes, scammers are relatively easy to spot if you know what to look for. Keep these telltale signs in mind as you navigate through this, and future, tax seasons.