Don’t Fall Victim to these Tax Scams!

Your Guide to State, Local, Federal, Estate + International Taxation

Each year, the IRS updates their “Dirty Dozen” list of tax scams to watch out for during the filing season. The list highlights the most common scams that taxpayers have dealt with during the previous year.

#1 – Identity Theft

Tax-related identity theft occurs when someone uses your stolen Social Security Number (SSN) to file a tax return claiming a fraudulent refund. The IRS is working hard to address tax-related identity theft, but scammers are continuously coming up with new ways to commit crimes.

If someone uses your SSN to file for a tax refund before you do, the IRS may think you already filed and got your refund. Your legitimate refund may be delayed for months while the IRS sorts the issue out. IRS Commissioner John Koskinen warns taxpayers to “use caution when viewing e-mails, receiving telephone calls, or getting advice on tax issues because scams can take on many sophisticated forms.”

#2 – Phone Scams

Criminals routinely make aggressive and threatening phone calls impersonating IRS agents and threaten taxpayers with arrest, deportation, license revocation, or court action unless the taxpayer provides a bogus tax payment over the phone. They may even offer ID or badge numbers to make them sound more legitimate.

“Don’t be fooled by callers pretending to be from the IRS in an attempt to steal your money,” Koskinen warns. The IRS will never demand immediate payment or call about taxes owed without first having mailed a bill. They will also never demand a specific payment method, such as a prepaid debit card, or ask for debit or credit card numbers over the phone.

#3 – Phishing

Criminals pose as a person or organization you trust and/or recognize to steal money, passwords, and other identifying information. They may hack an email account and send mass emails under a friend or family member’s name. They may pose as a bank, credit card company, tax software provider, or government agency. They go to great lengths to create websites that appear legitimate but contain phony log-in pages.

Koskinen warns, “Criminals are constantly looking for new ways to trick you out of your personal finance information so be extremely cautious about opening strange emails. The IRS won’t send you an email about a tax bill or refund out of the blue. We urge taxpayers not to click on any unexpected emails claiming to be from the IRS.”

#4 – Return Preparer Fraud

Although the majority of tax professionals provide honest, high-quality service, there are some dishonest preparers who commit refund fraud, identity theft, and other scams that hurt taxpayers. Choose your tax preparer carefully.

While tax preparers aren’t required to have a credential, they are required to register with the IRS and have an IRS Preparer Tax Identification Number (PTIN) and include it on your filed return.

The IRS maintains a directory of credentialed federal tax return preparers such as CPAs, Attorneys, and Enrolled Agents. Use this tool to find a tax return preparer with the qualifications you prefer.

#5 – Hiding Money or Income Offshore

Through the years, offshore accounts have been used to lure taxpayers into scams and schemes. While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. Taxpayers who maintain such accounts and do not comply with reporting requirements are breaking the law and risk significant penalties and fines as well as the possibility of criminal prosecution.

“Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore,” said Koskinen. “We have voluntary options to help taxpayers get their taxes and filing obligations in order.”

#6 – Inflated Refund Claims

Koskinen warns taxpayers to “be wary of tax preparers that tout outlandish refunds based on federal benefits or tax credits you’ve never heard of or weren’t eligible to claim in the past.” Scam artists pose as tax return preparers during tax time and lure victims by promising large refunds. The criminals may falsely claim education credits or the Earned Income Tax Credit to get a bigger refund. They have refunds deposited into their own bank accounts then deduct a large fee before paying their victims.

Legitimate tax preparers will not base fees on a percentage of their client’s refund. Be wary of anyone who promises you’ll get a big refund. Make sure your refund goes directly to your bank account, never into your preparer’s bank account. Always review your return before you sign. Ask questions if something is not clear, and never sign a blank return.

Remember, you are legally responsible for what is on your return, even if it was prepared by someone else. Protect yourself by selecting a qualified tax preparer.

To be continued . . .

By Janet Berry-Johnson, CPA