Scammers come out in droves when they know there's a lot of money changing hands. It gives them an easy opportunity to confuse people and catch the money in transit, which is easier than hacking into a secure bank account. Around the holidays, they might pose as fake retailers or representatives of a fake charity soliciting donations. Around tax season, they might pretend to be an agent of the IRS, a tax preparer, or even you.
The key to avoiding tax scams -- or any scam for that matter -- is to know their tricks and always be cautious with your financial information. Here are three of the most common tax scams you need to watch for this tax season.
1. Fake calls from the IRS
Scammers might call pretending to be from the IRS. They might tell you that you owe money and need to send money or a prepaid debit card to a certain address or they might tell you that you're actually entitled to a larger refund than you thought and request your bank account information so they can wire the funds. In reality, they just end up keeping any money you send them or wiping your bank account clean.
The IRS will never call to demand immediate payment and they will always send you a letter first if you have an outstanding bill. They will also not threaten you or request your bank account, credit card, or debit card information over the phone. If you receive a suspicious phone call like this, you should hang up without giving away any personal information. Report it to the police and the FTC.
Always reach out to the IRS for more information if you receive correspondence that you're not sure is legitimate. Don't use any emails or phone numbers provided in the correspondence in case they take you directly to the scammer. Look up a phone number or email address online and use that instead.
2. Fake tax preparers
Bolder scammers might also try to get a hold of your tax refund by posing as a legitimate tax professional. They promise to file your taxes and they will do so, but they'll often claim a lot of deductions and credits you don't qualify for to increase your refund. Then, they take a portion of your refund as their payment and skip town, leaving you to deal with the mess when the IRS comes to your door.
You can avoid this problem by choosing a reputable tax professional if you don't feel comfortable filing your taxes on your own. The IRS maintains a nationwide directory of credentialed tax return preparers, so start there if you're trying to find one in your area. You can also ask any tax preparers you're considering for their Preparer Tax Identification Number (PTIN). Everyone who gets paid to help file other people's tax returns must have one of these. If they can't give this to you or you can't verify this information in the IRS database, that's a good sign you're not working with a real tax professional.
Make sure you get a chance to review your tax return before your tax preparer files it and never agree to sign a blank tax return. The scammer can then submit your tax return with whatever information he or she chooses to include and you'll never know. If you suspect a tax preparer of being a fraud, notify the local police and fill out Form 14157 and mail it to the IRS.
3. Filing a fake tax return on your behalf
If a scammer gets hold of identifying information, like your Social Security Number, he or she might try to file a fake tax return on your behalf. They'll probably claim a low income and a large number of tax deductions or credits, even if you don't actually qualify for them, to artificially inflate the tax refund. Then, they'll request that the IRS send the money to their bank account instead of yours.
This type of scam usually goes undetected until you try to file your legitimate tax return only to be told you already filed one for the year. It can create a major headache for you and the IRS, so it's best to file your tax return as soon as you are able so that scammers can't use this trick.
If you are the victim of a false tax return scam, you should still complete your regular tax return, print it out, and mail it to the IRS, along with a copy of Form 14039. You won't be able to submit your tax return electronically if an identity thief has already submitted one on your behalf. You should also notify your local police and the Federal Trade Commission (FTC) about the scam. Pull your credit reports and check your other financial accounts to ensure that the thief hasn't accessed these as well and consider placing a fraud alert on your credit reports to stop the thief from opening up new accounts in your name.
You can also request a unique six-digit PIN from the IRS if you want to be extra secure. You must enter this PIN before you can submit a tax return so identity thieves without it won't be able to submit a fake one on your behalf. But once you opt into using a PIN, you have to use it every year thereafter, so make sure you're comfortable doing this.
Taxes can be enough of a headache without getting mixed up in a scam. Carefully guard your personal information so a scammer can't file a fraudulent tax return on your behalf and notify the appropriate authorities if you think your identity has been stolen or you've encountered a fake tax preparer or a scammer posing as an IRS employee.