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3 Common Tax Scams and How to Avoid Them

By Matthew Frankel, CFP® - Updated Feb 15, 2017 at 11:37AM

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Don't become a victim this tax season. Here are three common tax scams to be on the lookout for

Tax season is right around the corner, and unfortunately, that means lots of scammers are about to come out of the woodwork to prey on unsuspecting taxpayers.

Source: via Flickr.

Fortunately these scams are avoidable if you know what to look for. Here are some of the most common tax scams, along with some ways to make sure you don't become a victim of one them.

Phony IRS agents
One common scam that happens during tax season involves callers pretending to be IRS agents. There are many varieties of this scam, but scammers generally try to get the victim to pay an outstanding tax debt that doesn't actually exist.

The callers may use a phony IRS badge number, and they usually know some information about their intended victim, such as the last four digits of their Social Security number. They may even send official-looking emails in addition to their calls to make the scam appear legitimate.

Victims are told they owe money to the IRS and are threatened with arrest, suspension of driving privileges, and even deportation if they don't pay immediately. In some cases, victims are instructed to pay using a prepaid debit card or wire transfer (this alone should be a huge red flag).

Fortunately, this one is easy to detect. If you even suspect that you may be on the phone with a scammer, hang up and call the real IRS phone number, which is (800)829-1040. They can tell you whether or not you actually owe any money, and if you do, you'll at least know you're dealing with the right people.

Attempted identity theft and phishing
Identity theft can take many forms, and a dangerous one to watch for during tax season is tax refund fraud.

Basically, a thief will fill out a false tax return using the victim's identifying information (Social Security number, name, and other information) in order to claim a tax refund under your name. This can cause a nightmare scenario of audits and investigations, not to mention the rejection of your actual tax return.

The IRS has set up an Identity Protection Specialized Unit, so check out their identity theft prevention tips. And bear in mind that the IRS will never email or text you to request your personal information. Any unexpected email from the IRS is always a scam.

Phishing scams are also rather common. Phishing refers to an email or phony website designed to trick users into revealing their personal information. The IRS is one agency many people feel comfortable revealing personal information to.

Official IRS websites have URL addresses beginning with, so if the site you look at has a different address, don't enter any information, no matter how official it looks.

Dishonest tax-preparers
Every tax season, lots of scam artists become "tax preparers," promising people large tax refunds. Like the impersonation scam, this one comes in several different forms, but the common denominator is too-good-to-be-true promises.

Usual victims of this scam are people who aren't required to file a return, non-English speakers, and the elderly, but anyone is a potential victim. The "preparers" can do a variety of dirty deeds with your information, such as falsifying your information to obtain a huge refund, have your refund deposited into their bank account, or simply use the information on your return to steal your identity.

Of all of the scams listed here, this is perhaps the one you should be most careful about. Even if you use a tax preparer, you are legally responsible for everything on your tax return, so victims can be further penalized for false information or the issuance of fraudulent refunds.

The best way to avoid this scam is to be extremely careful about whom you choose as your tax preparer. With large chains like H&R Block you should be OK, but it's generally still a good idea to ask for your tax professional's IRS Preparer Tax Identification Number, or PTIN.

The bottom line
If you notice anything suspicious about anything related to your tax return, you need to make sure you aren't the victim of a scam. Only give your personal information to the IRS (when you call them) or a verified, licensed tax professional. Never respond to unexpected emails or other communications that are supposedly from the IRS. With a little knowledge of what to look for and a lot of caution, you won't become another victim of a tax scam.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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