Common Tax Scams and Fraud Alerts: What You Need to Know

As tax season approaches, so does an increase in scams and fraudulent schemes targeting unsuspecting taxpayers. The Internal Revenue Service (IRS) has made significant efforts to educate the public about these threats, but unfortunately many people still fall victim each year. Understanding these common tax scams can help protect your hard-earned money and personal information. In this article, we will explore various types of tax scams, how they operate, and what you can do to stay safe and protected.

The IRS Impersonation Scam

One of the most common tax scams involves criminals impersonating IRS agents. These scammers often call or send emails claiming to be from the IRS, threatening legal action or arrest if the victim doesn’t pay a supposed tax debt immediately. They might provide fake badge numbers and personal information to appear credible.

How It Works

  • Phone Calls: The caller claims to be from the IRS, demanding immediate payment of overdue taxes. They may use aggressive tactics, such as threatening to report you to law enforcement.
  • Emails: Scammers send emails that appear to be from the IRS, urging recipients to click on links that lead to phishing sites designed to steal personal information.

Protect Yourself

If you receive such a call or email, remember that the IRS will never initiate contact via phone or email for tax debts. Instead, hang up and report the incident to the IRS or the Treasury Inspector General for Tax Administration (TIGTA). The IRS would never contact you by text message or social media, they would send you certified mail.

Phishing Scams

Phishing is a method used by cyber-criminals to trick individuals into providing sensitive information, such as Social Security numbers, bank account details, or passwords. Phishing schemes can occur through emails, text messages, or social media.

How It Works

  • Email Phishing: Scammers send emails that mimic official communications from the IRS, claiming that you need to verify your account or update your information.
  • SMS Phishing (Smishing): Text messages purporting to be from the IRS or other financial institutions ask you to click on a link to “verify” your information.

Protect Yourself

Always verify the sender’s email address and avoid clicking on suspicious links. Instead, visit the IRS website directly to check any messages regarding your tax status. Use multi-factor authentication for online accounts to add an extra layer of security. You can also contact your tax preparer, and they can verify for you if it’s legitimate or not.

Fake Tax Preparers

During tax season, many people turn to tax preparers for assistance. Unfortunately, some scammers pose as tax professionals to steal personal information or inflate refund amounts.

How It Works

  • Promises of Large Refunds: Scammers lure victims by promising unusually high tax refunds. They may ask you to pay a fee upfront.
  • Identity Theft: After gaining access to your personal information, they file fraudulent tax returns in your name and pocket the refunds.

Protect Yourself

Choose tax preparers carefully. Verify their credentials and check for reviews or references. Look for professionals who have an IRS Preparer Tax Identification Number (PTIN). Trustworthy preparers should be willing to discuss their fees and how they determine them upfront.

Refund Fraud

Refund fraud occurs when a thief uses stolen personal information to file a tax return and claim a refund. This type of scam often targets those who have not filed their taxes yet.

How It Works

  • Identity Theft: Scammers steal personal information from various sources, such as data breaches, and file fraudulent returns using that data.
  • Early Filing: Many of these scams happen early in the tax season before legitimate taxpayers have filed their returns.

Protect Yourself

Be vigilant about protecting your personal information, especially your Social Security number. Shred documents containing sensitive information and be cautious about sharing details online. If you suspect you’ve been a victim of refund fraud, file a report with the IRS and the Federal Trade Commission (FTC).

Fake Charities

With the rise of online giving, scammers have exploited this opportunity by creating fake charities that solicit donations, especially around tax season when people are looking for ways to reduce their taxable income.

How It Works

  • Appealing Stories: Scammers use emotional appeals or urgent causes to solicit donations, claiming that contributions are tax-deductible.
  • Phishing for Information: Some may ask for personal details while soliciting donations, aiming to steal identities rather than funds.

Protect Yourself

Before donating, research the charity through resources like the IRS’s Tax Exempt Organization Search. Ensure the organization is legitimate and that your donations are tax-deductible.

Lottery and Prize Scams

Scammers may claim you’ve won a lottery or prize that you never entered. They’ll often ask for personal information or an upfront payment to release the winnings.

How It Works

  • Notification Letters: Victims receive letters or emails claiming they’ve won a large sum of money but need to pay taxes or fees to claim it.
  • Phone Calls: Scammers call to inform you of your “win” and request sensitive information for processing the prize.

Protect Yourself

If you receive such notifications, it’s crucial to remember that legitimate lotteries do not ask winners to pay fees upfront. If you haven’t entered a lottery, you haven’t won.

Social Media Scams

Social media platforms have become a breeding ground for various scams, including tax fraud. Scammers may use these platforms to target individuals with phishing attempts or false investment opportunities.

How It Works

  • Fraudulent Ads: Ads that promise tax relief or quick refunds for a fee often lead to scams.
  • Impersonation: Scammers may create fake profiles of IRS agents or tax professionals offering help for a fee.

Protect Yourself

Be cautious about unsolicited messages or offers you receive through social media. Always verify the authenticity of the profiles and companies before engaging. Report suspicious accounts to the platform.

Conclusion

As tax season draws near, it’s essential to remain vigilant against scams and fraud attempts. By staying informed and aware of the common tactics used by scammers, you can protect yourself and your financial information. Always trust your instincts; if something seems too good to be true or feels off, it probably is.

If you encounter a scam, report it to the IRS or appropriate authorities to help combat these fraudulent activities. Being proactive and informed is your best defense against tax-related scams, ensuring that you keep your finances secure during tax season and beyond.

If you are unsure whether or not something is a scam, you can always contact your tax preparer and they can help determine if it’s a scam.

 

Further Reading

The Most Important Tax Law Changes You Need to Worry About

 

Your Comments and Suggestions are Welcome!

I hope this helps you be more prepared when it comes to understanding the different ways you could be scammed.

Please leave your comments, suggestions, and/or questions and I will try to answer them as soon as possible.

Thank you and stay safe!

Kayla M. Pham

Administrator
RA Tax & Accounting

 

admin@rataxandaccounting.com

8877 Bourgade Street, Lenexa, KS 66219