Tax scams are, sadly, quite common. Many people in the U.S. have received fake robocalls demanding immediate payment, threatening arrest or even deportation. This is not the IRS calling you. Unfortunately, this is just one way criminals try to commit tax scams.
The growth in e-filing for taxes has had many benefits. It means much fewer errors as well as faster processing. Hey, this is why you can get your tax refund faster!
But there is a dark side — that is, hackers, scammers and cyber thieves. For the most part, they have engaged in two types of tax scams:
- Refund Fraud: This is when a hacker steals information about your identity and uses this to file a return to get a refund.
- Impersonation: This is where you get a call or email threatening that the IRS will take action against you unless you pay a certain amount.
The most recent IRS scam alert issued explains a new tax scam. Someone impersonating an IRS agent will pretend you need to verify some financial information in order to receive or refund, or try get you to return a refund they claim was issued in error. The IRS’ official statement details how they would deal with an erroneous refund.
Now the IRS has been taking actions to improve security. But unfortunately, the agency has limited resources (keep in mind that there have been ongoing cutbacks over the years). It is also important to note that cyber crimes and fraud can never be eliminated.
There are things you can do to protect yourself, however. So let’s take a look:
Tip #1 To Protect Yourself From Tax Scams: Beware Of Calls And Emails
One key piece of knowledge will help you avoid a lot of tax scams: The IRS will not use unsolicited email, text message, or social media to contact you and will only call you under rare, specific circumstances.
If you have received a call demanding immediate payment or threatening to involve law enforcement or immigration, this is a scam. Most IRS communications will go through regular mail delivered by the U.S. Postal Service.
If you receive an email or text that requests that you provide financial or personal information, this is not the IRS, though it may look as if it is coming from the IRS or your financial institution.
So what to do?
Well, for the most part, this is probably a phishing scam. Basically, it is a way to capture your information, which can be used to steal your identify.
Keep in mind that the IRS does not make such requests via email. Rather, notices come through the mail. (Note that you can forward a the phishing email to the IRS at [email protected] for further investigation).
In other words, if you get a call from some who claims to be from the IRS and is demanding payment so as to avoid criminal actions, then this is a scam too. You should just hang up. You can also contact the Treasury Inspector General for Tax Administration — at 800-366-4484 — regarding the scam.
Tip #2 To Protect Yourself From Tax Scams: Take Steps To Avoid Identity Theft
Protecting yourself from identity theft could keep a scammer from trying to file taxes or obtain a refund on your behalf. There are ways to reduce the odds of identify theft. Consider the following:
- Do not carry your Social Security with you.
- Shred your mail and financial statements.
- Use security software on your computers (and make sure the software is updated).
- Do not email sensitive financial information.
Tip #3 To Protect Yourself From Tax Scams: Check Your Tax Preparer
In many states, there are few regulations on tax preparers. Unfortunately, this has led to an increase in fraudulent activities.
So you need to check the background on any tax preparer before you use their services. Does he or she have a credential, such as being a CPA or EA (Enrolled Agent)? Have you done a Google search on the person?
Here are some other red flags:
- The tax preparer does not use secure software for documents.
- The person wants you to sign a blank tax return.
- He or she makes claims that you will get a substantial refund, even though much has not changed with your tax situation over the past year.
- The tax preparation fee is based on a percentage of your refund.
Tip #4 To Protect Yourself From Tax Scams: File Early
If you file early, then you may avoid refund fraud as it gives criminals less time to take action.
But there are other benefits. Let’s face it, many people do procrastinate with the filing of their return. And this could mean rushing at the last minute, which may result in mistakes and missed deductions.
What if your refund has already been stolen?
Well, in this case, you will be made whole. But the process will take time, say 6 months or more (you can call the IRS at 800-908-4490).
You should also promptly contact your financial institutions about the matter.
Tom Taulli is an Enrolled Agent and also operates PathwayTax.com, which is a tax advisory and preperation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.