Handling your taxes every year can be stressful. There are often many forms to complete and documents that must be provided. All of this should be done in the appropriate time frame, too. Of course, scammers know this and work to exploit the stress and distraction of regular people by conducting tax scams. This type of scam is often designed to exploit people’s fear of the IRS or incurring tax-related debts.
There are two broad types of tax scam that you should be aware of. The first group of scams focuses on filing fraudulent tax returns in your name – a form of identity theft. The second type of scammer is usually someone you trust when it comes to financial or tax-related advice.
- 1 Common tax scams methods
- 2 How to protect yourself against tax scams
- 3 Signs that you may have been scammed
- 4 If you have been scammed
- 5 Canada
- 6 UK
- 7 Australia
Common tax scams methods
You may receive a phone call with a recorded message. The caller will say they are from the IRS and that there is a warrant for your arrest for unpaid taxes. There may be threats of jail time or deportation if the issue isn’t addressed by calling the given phone number and paying the money due. Victims who return the call are tricked into paying money directly to the scammers, and not to the IRS.
Scammers create convincing emails that look like they are official IRS communications. The email will instruct the recipient to follow a link to a mock-IRS website where personal details will be requested. Criminals might lure in victims with the promise of collecting a tax refund. The stolen information may be used for fraudulent tax filings or other identity theft-based crimes.
Bank deposit scams
Scammers are now testing a new style of theft. The gain your personal details through a phishing scam or purchase the information on the black market. They use the data to file a fraudulent tax return on your behalf and the return is deposited into your bank account. The scammers then call, claiming to be from the IRS and explain that a fraudulent claim has been made in your name. Of course, they demand that the money must be repaid immediately, and offer anonymous, untraceable methods of doing so.
Dishonest tax return preparer
While most tax preparers are honest, there are some who set out to defraud the government in your name. They may ask you to sign a blank return, for example, leaving them free to claim almost anything without your knowledge. Be cautious of tax preparers that don’t ask for receipts or other usual documentation. Also, be wary of schemes that charge a percentage of your return instead of a fixed fee. That style of fee structure can tempt some to inflate claims in order to receive a larger payday.
‘I’m on your side’ tax preparer
The first type of scammer alters your tax filings without your knowledge. The scammer who acts as if they have your interests at heart may encourage you to overstate your income or deductions. They may play fast and loose with business credits or other entitlements. Don’t get swept up in the hype of trying to fool the IRS. If the claims do not truly apply to your situation, you may face consequences long after the tax preparer has taken their inflated cut.
Fraudulent tax preparer
Unsurprisingly there are people out there who pretend to be official tax preparers during the busy filing season. If they are not qualified or registered there is a much higher chance that you could file a fraudulent return. The scammers may also steal your personal details while assisting you with bogus paperwork.
Fraudulent charity worker
In some circumstances donating to a charity can be beneficial when it comes time to file taxes. Scammers know this and will impersonate official charities or create fake ones to con people out of their money.
How to protect yourself against tax scams
Protecting yourself against tax scams can save yourself a lot of hassle and stress. Here are the best ways to be proactive about protecting your identity and your tax activity.
Know how the IRS works
They will never initiate a conversation with you via phone, email, text message or social network. The only way the IRS will contact you is via an old-fashioned letter in the mail. If anyone contacts you claiming to be from the IRS, they are trying to scam you.
Verify repayment requests
If you are contacted by someone claiming to be from the IRS, or anyone demands that you send money to them via wire transfer, contact the IRS through their official channels to verify the request. If they cannot confirm it, the first caller is a scammer.
Verify your tax preparer credentials
Before you share your tax information with a preparer, check they are authorized to file taxes. Use the Tax Preparer Directory to confirm details.
Never sign blank documents
This applies to checks, tax paperwork and any other official documentation. It leaves you open to untold exploitation and misrepresentation.
Verify your chosen charities
Use the Tax Exempt Organization Search to ensure your chosen charities are official. Make donations using checks or electronic transfers to create a record of the transaction. Cash payments are more difficult to prove.
Tax scammers file fraudulent returns as soon as they have adequate information. If you file your true tax paperwork as soon as you can, there is less time for scammers to apply before you.
Have your paperwork ready so when annual documents are released, you can file straight away.
File electronically. If you file electronically, the process if often much faster than if you submit hard copies. Elect to have any refund paid by direct deposit. If you’re unsure, here’s how to file federal taxes.
Protect yourself by staying current with tax scam consumer alerts from the IRS, such as this recent news release. They describe the most recent known attempts to impersonate the IRS and other official bodies in order to facilitate malware dispersal and identity theft.
Signs that you may have been scammed
Watch for these unusual signs that indicate you may be a victim of a tax scam.
- You are asked to pay additional tax, receive a return or have other communications about a tax filing in a year when you did not file a return,
- More than one tax filing was made using your Social Security number,
- IRS record shows you earned income from employers that you do not work for.
If you have been scammed
If you think you are a victim of tax-related fraud, you can take steps to alert the authorities and limit damage to your financial standing and credit score.
You must continue to file your taxes as required, even if a fraudulent claim has been made in your name. A paper-based return may be necessary in these cases.
- Report the fraud to the Federal Trade Commission.
- Contact a major credit bureau to have a fraud alert placed on your file. The fraud alert should be applied to all 3 major bureaus.This will stop fraudulent credit applications being approved in your name.
- Equifax, www.Equifax.com, 800-525-6285
- Experian, www.Experian.com, 888-397-3742
- TransUnion, www.TransUnion.com, 800-680-7289
- Notify your financial institutions, banks and credit providers about the scam. You may need to close accounts and reset banking passwords.
If your Social Security Number has been compromised and you are concerned that you are a victim of a tax scam or related identity theft, you must take the following action with the IRS:
- Respond immediately to any paper-based notices or letters from the IRS. (Remember, they will not call or email you about this),
- Complete IRS Form 14039, Identity Theft Affidavit if you believe someone has used your SSN to file a tax return in your name. Any attempt to file electronically will be rejected if your SSN has already been used. A paper filing will be required instead.
Canadians are at risk of tax scams. Be aware that some scammers work to promote evasion schemes that may appear legitimate but are not. The Canadian government offers advice on how to spot these scams. If you are concerned that you are a victim of tax fraud in Canada, follow the steps listed by the Anti-Fraud Centre to report the crime to the Canadian Revenue Agency. A list of official charities can help you to make financial decisions about where to donate money safely.
UK citizens are not immune to tax scams. In the last financial year, HMRC reported nearly 15,000 websites for malicious or fraudulent content and received over 770,000 notifications of phishing emails and SMS messages from the public. If you have reason to think you have been scammed, report the crime to Action Fraud at 0300 123 2040 or use its online fraud reporting tool. Use the charity register to verify that charity fundraisers are legitimate before donating.
The Australian Tax Office provides advice and direction for Australians who suspect they are victims of tax scams. Advice includes reporting any financial loss to the police and to Scamwatch. In Australia, many tax scams focus on aggressive phone calls relating to fake tax debts, and more recently, refund-for-a-fee scams. The Australian Charities and Not-for-profits Commission keeps an updated list of official charities for tax and other purposes.