Since it's Tax Identity Theft Awareness Week, we figured this would be the perfect time to help you recognize the signs of a tax-related fraud or scam.
Tax season isn’t any fun, to begin with. Even if you’ve got a big, fat refund to look forward to, the process of getting your taxes actually submitted is a headache-and-a-half. But there’s one way that tax season can get much, much worse than you ever imagined. We’ll give you a hint: Did you know that this week, January 28th-February 1st, has been designated Tax Identity Theft Awareness Week?
Tax-related fraud and identity theft generally involve scammers stealing your personal information and using it to commit tax crimes. Oftentimes, they’ll file taxes under your name and then collect your refund. They’ll even make up fake numbers to get a bigger return—leaving you on the hook if the IRS comes knocking.
If you’ve fallen victim to tax-related fraud, you should immediately notify the authorities. This includes the IRS, the Treasury Inspector General for Tax Administration, and your local police department. And if you haven’t yet been taken in by such a scam, here are the types of fraud you should be on the lookout for and the signs you’ll need to recognize in order to avoid them.
Some scammers pose as IRS agents.
Attorney Josh Wu is a tax partner at the law firm Clark Hill, and he’s no stranger to tax scams. “Many of the schemes we have encountered involve the IRS impersonator directing the taxpayer to immediately satisfy their “tax liability,” or face criminal arrest, by purchasing pre-paid gift cards and providing the gift card number and PIN to the impersonator,” he said.
According to him, taxpayers themselves aren’t the only ones who have to be on the lookout for IRS impersonators: “The scams also target tax professionals, who are encouraged to provide client information to IRS impersonators in order to receive IRS correspondence or reactive their IRS e-services account.”
Here are three ways that scammers posing as IRS agents will try to contact their intended marks:
- Email: Cybercriminals will send taxpayers an email that looks like it’s from the IRS. These quite realistic-seeming emails can fake thousands of people each year into sharing their personal information. Email-based scams like this are also known “phishing.”
- Over the phone: Cybercriminals will also call a person’s cell phone or landline and pose as IRS agents. They might demand your personal information or simply tell you that you can pay your debt off immediately, using fear and pressure tactics to create a false sense of urgency.
- Fake in-person visits: Sometimes, these scammers will even go directly to a victim’s house, posing as IRS agents. These IRL IRS scams often target unsuspecting senior citizens.
If someone gets contacted by the IRS, they’re naturally going to be a little nervous. Don’t let those feelings trick you into handing over your sensitive information to someone who is—after all—a complete stranger!
How to avoid the fake IRS.
One of the best ways to tell that an IRS agent is actually a scammer in disguise is by the method they use to contact you. Simply put: The IRS will never contact you by email, text message, or over social media. If the IRS wants to get in touch with you, they will send you a letter through the mail. Any other mode of communication should be treated with maximum suspicion.
Another way to tell they’re fake is by the way they ask for payment. To steer clear of scammers, Wu advised that you “decline to make payments to the ‘IRS’ via gift cards, virtual currency, or pre-paid debit cards.”
“Watch for any callers that threaten immediate arrest by law enforcement if payment is not made,” he added.
As for agents—or “agents”—who show up in person, make sure you ask for identification. Furthermore, while IRS agents do occasionally make house calls, they will always send you a letter beforehand.
For advice on how to strengthen your logins and passwords for your tax filing system—which will help prevent a thief from stealing your personal information—check out our recent post on identity theft. When it comes to phony emails, he said that you should forward them to firstname.lastname@example.org.
Watch out for fraudulent tax preparers.
Fake IRS agents aren’t the only scammers you have to be wary of. Some of the other common types of tax-related scams involve fraudulent tax filers and scam tax preparers who will steal your refund.
Sometimes these scams involve a phishing scheme where a fraudster sends someone a phony email claiming to be from their tax preparer and asks for their personal information to help them “update” that person’s account.
But sometimes the scammers are tax preparers themselves! According to tax professional Jai Kumar with Rapid Filing Services, the following signs should tip you off that a tax preparer is trying to take advantage of you:
- “Preparers who promise larger refunds without a consultation.
- “Preparers who plan on depositing your refund into their bank account or taking a portion of it.
- “Your preparer does not offer IRS e-file. If you pay a tax preparer, and they file more than ten returns, they must file your return electronically.
- “Preparers who do not ask for records and receipts if you are itemizing or reporting expenses.
- “A preparer who goes against the IRS and claims you can use your last pay stub instead of your income statement.
- “A paid preparer who does not sign your return and does not include their PTIN.”
“Beware of a tax preparer who charges extensive fees and has suspicious availability times,” he added, saying that they must be available even after you file your return.
How to vet your tax preparer.
“Luckily, the IRS provides a page called the Authorized IRS E-file Providers which will let you find valid companies,” said Kumar. “You will need to enter the company’s zip code, state, and Provider Type. This will list authorized e-file companies and their locations.”
He also provided the following list of qualifications that you should verify if you’re going to be using a CPA, EA, or any tax professional:
- “Proper Training: Tax preparers need this to grasp an understanding of intricate tax questions and circumstances.
- “Continuing Education: Your tax preparer is informed about ongoing tax debates and official tax laws such as federal tax codes, regulations, and state and local taxes because they are constantly being subject to change.
- “Professional License: Your enrolled tax agent, public accountant, or attorney has a valid license, PTIN, or certificate to prepare tax returns.”
Any legitimate tax professional should be able to easily provide you with their credentials. If you start getting a whole bunch of excuses, you know you’re getting taken for a ride.
Keep your money safe!
But more and more, protecting your money means protecting your sensitive personal information–especially when it’s online. All it takes is one fraudster cracking into your accounts or stealing your identity to endanger your financial future for years to come.
Josh Wu is a partner in the tax group at Clark Hill, a national law firm with more than 650 attorneys with 25 offices in 12 states, the District of Columbia, Ireland, and Mexico. He advises businesses and high-net-worth individuals on all aspects of federal tax law. He has particular experience with complex IRS audits, administrative appeals, civil tax litigation, offshore trusts and assets, and multijurisdictional investigations.
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