With tax season upon us, it’s a good time to go over some reminders about safeguarding ourselves so as not to fall victim to any scams.
Tax Scams That Wreak Havoc on Americans Every Year
In this article, we’ll go over some common tax scams you need to be on the lookout for.
1. Tax Refund Fraud
Tax-related identity theft occurs when criminals steal people’s Social Security numbers and then file false tax returns as though they were those people.
The crooks typically claim a low income with high deductions, and they usually file electronically. Then when you go to file your return, the Internal Revenue Service (IRS) rejects it, because somebody else has already filed with your Social Security number.
The whole mess can take months to straighten out.
What you can do: You can prevent tax refund fraud by getting an Identity Protection PIN (IP PIN) from the IRS before you file your taxes.
The IP PIN is a six-digit number that you include on your tax return, in addition to your Social Security number, to verify your identity.
To qualify for an IP PIN, “you must pass a rigorous identity verification process,” according to the IRS.
Any taxpayer can apply for an IP PIN. However, if you’re a confirmed victim of ID theft, once you opt in to the program, you can’t opt out. If you qualify, you will get a new PIN each year through the mail.
Learn more here.
Here’s what to do if someone files a false return in your name.
To bolster the security of its online sign-in process, the IRS is also migrating to a new ID verification system. Learn more here.
2. Fake Charity Scam
Because taxpayers may be able to claim a deduction for money they donate to certain organizations, fake charities are another scam you should be concerned about.
The IRS says crooks are setting up fake charities to trick taxpayers into handing over their money.
What you can do: Always check out a charity before you donate. The IRS has a search tool to help you find charitable organizations.
3. Ghost Tax Preparers
The IRS warns of another scam that involves paid tax preparers who don’t sign off when they prepare your tax return.
Any tax preparer who fails to sign and include their valid Preparer Tax Identification Number is violating the law. If your return is missing a signature or the preparer’s ID number, it’s a red flag that they “may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund,” according to the IRS.
Other signs you may be dealing with a “ghost” preparer include:
- Asking for cash payment without providing a receipt.
- Falsifying income info on your return to get tax credits.
- Making up fake deductions to boost the size of your refund.
- Having clients’ direct deposit refunds sent to their own bank accounts.
What you can do: Choose your tax return preparer wisely. Before you hire one, read up on tax preparer credentials and qualifications.
The IRS says you should also:
- Review your tax return carefully once it’s completed.
- Don’t hesitate to ask questions about things you don’t understand.
- Always verify your routing and bank account number on your return.
4. IRS Phone Scams
The IRS phone scam can have many variations. One scenario is that you receive a call about a surprise tax bill you need to pay immediately to the IRS, and you’re told you’ll be arrested if you don’t pay. Scammers sometimes use phone spoofing to make their number come up on your caller ID as “IRS.” And they may already have the last four digits of your Social Security number. Don’t be fooled by that.
If you’re told to submit payment either by wire or by prepaid debit card, know this: The IRS will never contact you by phone asking for money. The agency communicates payment information exclusively through the U.S. Mail.
What you should do: The IRS says if you get a call supposedly from an IRA agent, but you don’t owe any taxes or find the call to be suspicious in any way, you should:
- Hang up the phone immediately without giving any information.
- Report the phone number to the IRS by sending it to [email protected]. The subject line should include “IRS Phone Scam,” the IRS says.
5. Tax Settlement Schemes
Another common scam tries to take advantage of the IRS’s Offer in Compromise (OIC) program.
The OIC program works lets taxpayers off the hook for their full tax bill if the IRS finds that paying it would create a financial hardship. In many cases, the agency will set up a payment plan to satisfy the debt for a lesser total amount.
But scammers are trying to get people to pay them for help navigating the OIC program. The IRS calls these fake operations “mills.”
“We’re increasingly concerned that people having trouble paying their taxes are being duped into misleading claims about settling their tax debts for ‘pennies on the dollar,'” IRS Commissioner Chuck Rettig says in a warning. “The IRS urges people to take a few minutes to review information on IRS.gov to see if they might be a good candidate for the program – and avoiding costly promoters who advertise on radio and television.”
What you can do: The IRS says, “If you hire a tax professional to help you file an offer, be sure to check his or her qualifications.”
Team Clark hopes you have a safe filing season. Before you give away information or money, take time to confirm that any person purporting to be an IRS representative is legitimate. This guide from the IRS can help you determine if a contact you receive is from a real IRS employee.
If you have questions regarding tax scams or any other financial or consumer matter, consider calling our free Consumer Action Center.