Almost as certain as death and taxes is the perennial appearance during tax season of scammers and evaders.
Con artists steal personal information, gull the elderly and promote schemes to the unsophisticated to avoid taxes or increase refunds. Some venal taxpayers don’t need help, and instead finagle their returns to win undeserved benefits or lower liabilities.
Every year, the Internal Revenue Service issues a “dirty dozen” list of a variety of common scams that taxpayers may encounter anytime but especially during filing season as people prepare their returns or hire people to help with their taxes.
The agency notes that illegal scams can result in significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.
The agency also offers a variety of ways to obtain tax information.
Following are this year’s “dirty dozen” as prepared by the IRS:
1. Identity Theft
Tax-related identity theft, in which someone uses a stolen Social Security number to file a tax return claiming a fraudulent refund, remains a chief concern for the IRS.
And with good reason. A recent study found that some two-thirds of taxpayers thought identity theft “could never happen to me,” often making them easy prey for scammers.
In fiscal 2015, the IRS initiated 776 identity-theft-related investigations, resulting in 774 sentencings through its enforcement efforts.
“We urge people to use caution when viewing emails, receiving telephone calls or getting advice on tax issues because scams can take on many sophisticated forms,” IRS commissioner John Koskinen said.
“Keep your personal information secure by protecting your computers and only giving out your Social Security numbers when absolutely necessary.”
2. Phone Scams
Criminals impersonating IRS agents have deluged taxpayers across the nation with phone calls, threatening police arrest, deportation, license revocation and other things.
“There are many variations,” Koskinen said. “The caller may threaten you with arrest or court action to trick you into making a payment. Some schemes may say you’re entitled to a huge refund. These all add up to trouble.”
The IRS reminded taxpayers it would never do the following:
- Call to demand immediate payment, or call about taxes owed without first having mailed a bill
- Demand payment without first giving the taxpayer an opportunity to question or appeal the amount said to be owed
- Require a taxpayer to use a specific payment method for your taxes, such as a prepaid debit card
- Ask for credit or debit card numbers over the phone
- Threaten arrest for nonpayment
Following is what a taxpayer who gets a phone call from someone claiming to be from the IRS and asking for money should do.
If you don’t owe taxes, or have no reason to think that you do:
- Do not give out any information. Hang up immediately.
- Contact the Treasury Inspector General for Tax Administration to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
- Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.
If you know you owe, or think you may owe tax:
- Call the IRS at 800-829-1040. IRS workers can help you.
“Criminals are constantly looking for new ways to trick you out of your personal financial information, so be extremely cautious about opening strange emails,” Koskinen said.
Some scammers pose as a person or organization the victim trusts or recognizes. Others hack an email account, and send mass emails under another person’s name. Still others pose as a bank, credit card company, tax software provider or government agency.
Criminals create websites that appear legitimate but contain phony login pages in the hope victims will take the bait and provide money, passwords, Social Security number and identity.
“The IRS won’t send you an email about a tax bill or refund out of the blue,” Koskinen said. “We urge taxpayers not to click on any unexpected emails claiming to be from the IRS.”
Doing so can expose the target’s computer to malware, enabling the criminal to access sensitive files or track keyboard strokes, exposing login information.
4. Return Preparer Fraud
Although most tax professionals provide honest, high-quality service, some dishonest preparers set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers.
“Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected,” Koskinen said.
The IRS offers these tips for choosing a tax preparer:
- Ask whether the preparer has an IRS Preparer Tax Identification Number, which is required to register with the IRS and must be included on the filed tax return
- Does the tax return preparer have a professional credential, belong to a professional organization or attend continuing education classes?
- Check the preparer’s qualifications on the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications
- Ask the Better Business Bureau about the preparer. For CPAs, check with the State Board of Accountancy; for attorneys, the State Bar Association; for enrolled agents, IRS.gov
- Ask about service fees, and keep in mind preparers are not allowed to base fees on a percentage of their client’s refund. And make sure that your refund goes directly to you, not into the preparer’s bank account
- Make sure the preparer offers IRS e-file — the safest and most accurate way to file a return
- Good preparers ask to see records and receipts, and ask questions to determine total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file a return using your last pay stub instead of your Form W-2, as this is against IRS e-file rules
- Make sure the preparer is available in the event questions come up about the tax return. Avoid fly-by-night preparers
- Understand who can represent you. Attorneys, CPAs and enrolled agents can represent any client before the IRS in any situation, while non-credentialed tax return preparers can do so only in limited situations
- Never sign a blank return
- Review the return before signing
- Report tax preparer misconduct to the IRS
5. Offshore Tax Avoidance
The IRS said that despite several years of budget reductions, it has continued to pursue cases of offshore tax evasion in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil. It said taxpayers were best served by coming in voluntarily and taking care of their tax-filing responsibilities.
The IRS offers the Offshore Voluntary Disclosure Program to enable people catch up on their filing and tax obligations. Since the first OVDP opened in 2009, there have been more than 54,000 disclosures, and the agency has collected more than $8 billion from this initiative alone. The agency has conducted thousands of offshore-related civil audits that have produced tens of millions of dollars, and has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.
It noted that the recent string of successful enforcement actions against offshore tax cheats and the financial organizations that abet them shows that it is a bad bet to hide money and income offshore.
6. Inflated Refund Claims
“Be wary of tax preparers that tout outlandish refunds based on federal benefits or tax credits you’ve never heard of or weren’t eligible to claim in the past,” Koskinen said. “Taxpayers should choose preparers who file accurate returns.”
Scam artists use flyers, advertisements, phony store fronts and word of mouth to throw out a wide net for victims. They frequently prey on people who do not have a filing requirement, such as low-income individuals or the elderly, as well as on non-English speakers, who may or may not have a filing requirement.