The IRS has released a list of the most common tax scams carried out against taxpayers, along with a warning to taxpayers to be on their guard against such schemes.
Although criminals can carry out many of the tax scans anytime during the year, the number of tax scams increases during the months leading up to April 15 when many individuals file their state and federal income tax returns.
Following is part 1 of the most common tax scams and steps taxpayers can take to guard against becoming victims of these scams.
Identity theft occurs when someone uses a taxpayer’s personal information to file a fraudulent tax return, obtaining the tax refund that should have gone to the taxpayer. Taxpayers are often unaware they are the victim of identity theft until they file their tax return and receive a notice from the IRS that they have already processed a return for that taxpayer.
Taxpayers can limit their risk of being a victim of identity theft by protecting their personal information, especially their social security number. Taxpayers should share their social security number and other personnel information only with trusted individuals. Taxpayers should mail documents with that information at the post office rather than by placing them in the mailbox at their home where someone can remove the mail before the postal carrier picks it up.
IRS Telephone Tax Scams
Telephone scams during tax season involve callers contacting taxpayers pretending to be an employee of the IRS. In such calls, the caller may tell the taxpayer they are owed a large refund, but more commonly callers use fear tactics, telling taxpayers they owe money to the IRS and may be arrested or lose their drivers license if they do not take action. In the case of immigrants, the caller may threaten deportation.
Such callers generally take some basic steps to make their calls seem legitimate, including possibly being able to provide the taxpayer the last four digits of their social security number and making their caller ID indicate the number belongs to the IRS. Taxpayers may also receive a follow up call where the caller ID says indicates it is from the local police.
Taxpayers should never give personal information or make payments to such callers. If taxpayers receive a call from someone claiming to be with the IRS, the taxpayer should hang up and call the IRS at 800-829-1040. An IRS employee at this number can confirm if you owe money to the IRS and the appropriate steps you should take to make payment.
Phishing is commonly performed using e-mails sent to taxpayers. As with tax scams made using phone calls, such e-mails claim to be from the IRS and include a link to a bogus web site, with instructions that the taxpayers needs to visit the web site to collect a refund, make a payment, or simply verify their information.
Criminals use the information taxpayers provide on the web site to commit identity theft, potentially draining bank accounts or applying for credit using the taxpayer’s information.
Taxpayers should remember the IRS does not contact taxpayers via e-mail. If taxpayers receive e-mails claiming to be from the IRS, they should call the IRS at 800-829-1040 to confirm if there is any action needed on the part of the taxpayer.
Promises of Inflated Refunds
Criminals may pose as tax preparers during tax season, advertising they guarantee large refunds regardless of the taxpayer’s tax situation.
Once the criminals have the taxpayer’s information, they may file a tax return on the taxpayer’s behalf, but such returns commonly contain incorrect information in order to inflate the amount of the refund. The criminal may deduct a large fee from the refund before giving the remainder to the taxpayer or take the entire refund rather than provide it to the taxpayer.
As taxpayers are responsible for the content of their tax returns, filing of a return with incorrect information may leave the taxpayer subject to fines and penalties from the IRS.
Taxpayers should use care when selecting a tax preparer. Legitimate tax preparers will based the return on W-2s and other tax documents provided by the taxpayer. They will also allow the taxpayer to review the return before they file the tax return.
Fraud by Tax Preparers
Some individuals offer services to prepare tax returns even though they do not have the experience or training to file the return accurately. Even if the tax preparer is not attempting to carry out tax return fraud or identity theft, they may make errors on the return that leave the taxpayer subject to IRS fines or penalties.
Taxpayers should ensure a tax preparer has a valid IRS Preparer Tax Identification Number (PTIN).
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.