While most people look upon tax season with dread, scammers see it as a golden opportunity to cheat people out of their hard-earned cash. These fraudsters capitalize on taxpayers' desire for a large refund, or their fear of breaking the law, to trick them into handing over personal information. Then, they disappear with the money before their victim even realizes they've been duped.
But this doesn't have to happen to you. By learning to recognize the most common tax scams, you can avoid falling into one of their many traps. Here are three of the most common tax scams to watch for this season.
1. Phony calls and emails from the "IRS"
If the Internal Revenue Service (IRS) is really trying to get in touch with you, their first contact is always a letter in the mail. If you receive an official-looking email or a phone call from someone claiming to work for the IRS, raise a red flag.
Phony IRS calls and emails are the most common type of tax scam around. The fake IRS agent may scare you by informing you that you owe a certain amount in taxes and that if you don't pay right now, you will be audited or even arrested. Next, they ask for your personal information to collect the money you apparently owe. Stay strong and don't let yourself be pressured into anything, or let them convince you they are really who they say they are. Sometimes they are armed with your personal information to goad you into becoming gullible, but don't believe them even if they divulge they know your home address or other private details -- this is not how the IRS operates. If you receive an odd phone call from someone claiming to be from the IRS, make note of the phone number but don't share any personal or financial information and hang up. Then, report the incident to your local police and file a complaint with the Federal Trade Commission (FTC) to report consumer abuse.
Disregard any suspicious emails you receive entirely; Don't enter any personal information or click on any links, which could download spyware onto your computer and let the scammer steal your personal information. Forward the suspicious email purporting to be from the IRS to email@example.com to notify the government of the scam.
2. Filing a false tax return
If an identity thief gets hold of your Social Security Number and other personal information, they may file a fraudulent tax return in your name. Typically, they'll report a low income for the year, with high tax deductions to inflate the tax refund. Then, they'll have the money sent directly to them. When you go to file your legitimate return, it will be rejected because, according to the IRS, you have already filed your return for the year. This can take months to sort out; all the while you go without your legitimate tax refund.
You can avoid this by filing your tax return early so scammers can't target you, and by protecting your Social Security Number and private personal information. Never access your financial accounts on an unsecured computer network, and don't leave your Social Security card anywhere others can find it. You can also apply for an Identity Protection Pin from the IRS. Once you opt in, it sends you a randomly generated six-digit code every year that you must enter in order to file your tax return. Identity thieves without this code won't be able to submit a false return in your name.
3. Phony tax professionals
Daring scammers may pose as legitimate tax professionals, promising to complete your return and get you a large refund in exchange for a percentage. Then they'll file your taxes and while you may indeed get a large refund, the quack filed your return with false information by making up children, charitable donations and claiming tax deductions you didn't actually qualify for. You don't realize it until the IRS asks questions, at which point the scammer has disappeared with their cut of your money.
The simplest way to avoid this is to check the credentials of the person you're considering hiring to file your taxes. Ask for references if you haven't worked with them before, or use the IRS's Federal Tax Return Preparer Directory to find a legitimate tax professional near you. Once your tax return is prepared, look it over yourself for anything that seems odd, like side gig income you didn't earn, before filing.
What to do if you fall victim to a tax scam
If the scammer gains access to your personal information, the damage can be far more extensive than messing up your tax return. They could also gain access to your financial accounts or go so far as to ruin your credit for years to come.
So the first step to take when you know you've been a victim of identity theft is to pull your credit reports and look for any more suspicious activity. Everyone is entitled to one free credit report per bureau per year through AnnualCreditReport.com. If you notice anything suspicious, alert the credit bureaus and the financial institutions involved immediately. Place a fraud alert on your account so creditors know to take additional steps to verify your identity before opening new accounts in your name. Then, file a complaint with the FTC and your local police.
If you receive a legitimate notice from the IRS in the mail, respond immediately and explain your situation. Fill out Form 14039 if your tax return was rejected because a scammer had already filed a fraudulent return in your name. Attach it to your legitimate tax return and mail this to the IRS.
Tax scammers can be tricky, but by understanding the most common types of scams and carefully guarding your personal information, you can avoid becoming another victim.