Avoiding Tax Scams

Mike Halper, CFP®, MPAS®, SE-AWMA®, CDAA, CBDA

08/10/2022 08:00 AM Comment(s)

Year after year, criminals try to scam certain taxpayers. And year after year, certain taxpayers resort to schemes in an effort to put one over on the Internal Revenue Service (IRS). These cons occur year-round, not just during tax season. In response to their frequency, the IRS has listed the 12 biggest offenses, what the IRS calls the "Dirty Dozen." Here are the scams that taxpayers should be on the alert for to protect themselves and quickly resolve any issues that come up should they become a victim.

Phishing

If you get an unsolicited email claiming to be from the IRS, it is a scam. The IRS never reaches out via email, regardless of the situation. If such an email lands in your inbox, forward it to [email protected]. You should also be careful when sending personal information, including payroll or other financial information, via an email address or website.

Phone Scams

Each year, criminals call taxpayers and allege that said taxpayers owe money to the IRS. Visual tricks can lend authenticity to the ruse. For example, the caller ID may show a toll-free number. The caller may mention a phony IRS employee badge number. They may even threaten arrest or deportation. Generally the IRS will not call, and will instead send a notice in the mail. If you are ever in doubt, refer to any official IRS mailing or call the IRS directly to inquire about any potential contact from them.

Text Message Scams

These scams are sent to taxpayers' smartphones and can reference things like COVID-19 or stimulus payments. These messages often contain bogus links claiming to be IRS websites or other online tools. Other than IRS Secure Access, the IRS does not use text messages to discuss personal tax issues, such as those involving bills or refunds. The IRS also will not send taxpayers messages via social media platforms.

If a taxpayer receives an unsolicited text message that appears to be from either the IRS or a program closely linked to the IRS, the taxpayer should take a screenshot of the text message and include the screenshot in an email to [email protected] with the following information:

Date, time and time zone they received the text message
Phone number that received the text message
The IRS reminds everyone NOT to click links or open attachments in unsolicited, suspicious or unexpected text messages whether from the IRS, state tax agencies or others in the tax community.

Identity Theft

The IRS warns that identity theft is a constant concern — and not just online. Thieves can steal your mail or rifle through your trash. While the IRS has made headway in terms of identifying such scams when related to tax returns and plays an active role in identifying lawbreakers, the best defense is to be cautious with your identity and information.

Economic Impact Payment Scams

Identity thieves who try to use Economic Impact Payments (EIPs), also known as stimulus payments, are a continuing threat to individuals. Similar to tax refund scams, taxpayers should watch out for these tell-tale signs of a scam:

Any text messages, random incoming phone calls or emails inquiring about bank account information, requesting recipients to click a link or verify data should be considered suspicious and deleted without opening. This includes not just stimulus payments, but tax refunds and other common issues.

Remember, the IRS won't initiate contact by phone, email, text or social media asking for Social Security numbers or other personal or financial information related to Economic Impact Payments. Also be alert to mailbox theft. Routinely check your mail and report suspected mail losses to postal inspectors.

Reminder: The IRS has issued all Economic Impact Payments. Most eligible people already received their stimulus payments. People who are missing a stimulus payment or got less than the full amount may be eligible to claim a Recovery Rebate Credit on their 2020 or 2021 federal tax return. Taxpayers should remember that the IRS website, IRS.gov, is the agency's official website for information on payments, refunds and other tax information.

Unemployment Fraud

Because of the pandemic, many taxpayers lost their jobs and received unemployment compensation from their state. However, scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Payments made on these fraudulent claims went to the identity thieves.

Taxpayers should also be on the lookout for a Form 1099-G reporting unemployment compensation they didn't receive. For people in this situation, the IRS urges them to contact their appropriate state agency for a corrected form. If a corrected form cannot be obtained so that a taxpayer can file a timely tax return, taxpayers should complete their return claiming only the unemployment compensation and other income they actually received.

Ghost Preparers

Among the many honest professionals, there are also some con artists out there who aim to rip off personal information and grab phantom refunds, so be careful when selecting who prepares your tax returns.

Although most tax preparers are ethical and trustworthy, taxpayers should be wary of preparers who won't sign the tax returns they prepare, often referred to as ghost preparers. For e-filed returns, the "ghost" will prepare the return, but refuse to digitally sign as the paid preparer.

By law, anyone who is paid to prepare, or assists in preparing federal tax returns, must have a valid Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on the return.

Fake Charities

Some taxpayers claim that they are gathering funds for hurricane victims, an overseas relief effort, an outreach ministry, and so on. Be on the lookout for organizations that use phony names to appear as legitimate charities. A specious charity may ask you for cash donations or your Social Security number and banking information before offering a receipt.

Bogus charities are always a problem. They tend to be a bigger threat when there is a national crisis like the pandemic. Here are some tips to remember about fake charity scams:

Individuals should never let any caller pressure them. A legitimate charity will be happy to get a donation at any time, so there's no rush. Donors are encouraged to take time to do the research.

Potential donors should ask the fundraiser for the charity's exact name, web address, and mailing address so it can be confirmed later. Some dishonest telemarketers use names that sound like large well-known charities to confuse people.

Be careful how a donation is paid. Donors should not work with charities that ask them to pay by giving numbers from a gift card or by wiring money. That's how scammers ask people to pay. It's safest to pay by credit card or check — and only after having done some research on the charity.

Inflated Refund Claims

In this scenario, the scammers do prepare and file 1040s, but they charge big fees up front or claim an exorbitant portion of your refund. The IRS specifically warns against trusting preparers who charge based on the amount of your tax refund or ask you to sign a blank return. Not signing a return is a red flag that the paid preparer may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund.

Unscrupulous tax return preparers may also:

Require payment in cash only and will not provide a receipt.
Invent income to qualify their clients for tax credits.
Claim fake deductions to boost the size of the refund.
Direct refunds into their bank account, not the taxpayer's account.

Fake Employment Offers

There have been many reports of fake job postings on social media. The pandemic created many newly unemployed people eager to seek new employment. These fake posts entice their victims to provide their personal financial information. This creates added tax risk for people because this information in turn can be used to file a fraudulent tax return for a fraudulent refund or used in some other criminal endeavor.

These are just some of the most common scam methods used against taxpayers. Always be wary of anyone asking for your personal information and be on the lookout for notices from the IRS or your state tax authority that might indicate you've been a victim of a tax-related scam. Also, be sure to file your taxes in a timely manner as that will help stop scammers from successfully filing a fake return or other claims with the IRS and state.

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