Tax season: it’s a time when you put off doing your taxes, scramble to find your receipts, and stay vigilant against the many forces trying to steal your identity and your money.
Tax scams are nothing new, but with technology creating even more avenues for fraudsters to reach us, we have to be wary of being tricked not just by phone and mail but social media, email, and more. And with the fear that people have of being audited, needing to pay fines, and even the threat of jail time, it’s no wonder so many get spooked and give in at the first sign of trouble.
There are a lot of ways to get scammed, but here are five common types of fraud that you should be on the lookout for.
Have you heard of phishing? No, it’s not a rogue autocorrect on your smartphone. It’s basically a way to get you to give people information willingly by posing as a legitimate authority. That’s apparently easier than marketing yourself as a master criminal.
Phishing over the phone is one of the most common ways someone will try to get you to give them some of your personal information or hard-earned cash by pretending they’re the IRS. So how do you avoid it?
Pretty simple: the IRS will never call you asking for payment. If you get a call, hang up.
Want more tips? Check out our post dedicated to helping you avoid phone tax scams.
Email phishing scams work pretty similarly to phone scams with one added benefit for the scammer – you can forward entire tax forms and make things a lot easier on their part.
A big scam this year is receiving emails allegedly from the Taxpayer Advocacy Panel (TAP). These emails usually mention needing to do something so you can get your refund. Which is pretty genius: probably the only thing guaranteed to make us act more quickly than owing is the possibility of getting some back.
Don’t fall for it. TAP:
never requests, and does not have access to, any taxpayer’s personal and financial information such as Social Security and PIN numbers or passwords and similar information for credit cards, banks or other financial institutions.
Pretty cut-and-dry that if you get an email from TAP requesting any information, it’s a faux-TAP party trying to make off with your identity.
Another popular scam this year was phishing scams going directly to human resources departments at companies. If you’re trying to get detailed information about people, why not go directly to the department that mails it out to employees?
You may have seen this make headlines when the HR teams of companies like Seagate and Snapchat received emails from their "CEOs" requesting W-2s. You know, the W-2s that have employees salaries, addresses, and Social Security numbers.
So basically an all-in-one identity thief starter kit.
Tax preparer scams
If you’re getting someone to do your taxes for you, you needed to be on the lookout for fake preparers along with those who are legitimate but shady.
When you’re researching tax preparers, come ready with a few questions. They should have a preparer tax identification number (PTIN) assigned to them by the IRS, and preparers who are above board will be happy to share their PTIN with you. You can also ask about their qualifications, like if they’re an enrolled agent, a CPA, or a tax attorney.
You can use the IRS’ tax preparer database to choose a preparer you know is legitimate, or go through an organization like the AICPA.
When you find a tax preparer who turns out to be a real tax preparer, there are still some best practices you can follow to make sure you aren’t ripped off.
Never, ever sign a blank return, and when it’s complete review it before you sign it. Also, don’t use a preparer who sets their fee based on a percentage of your refund amount. It’s illegal for them to do so and could lead to them including fraudulent deductions to get a bigger refund, which can get you in trouble with the IRS.
Speaking of which...
Deduction and credit scams
Deduction and credit scams can happen with an unscrupulous preparer, but it’s also something you may be tempted to pull yourself. If you are thinking about adding in a credit or bumping up a deduction to an amount higher than it should be, here’s a piece of advice:
It’s not worth it. The risks of getting caught, and the fines and jail time that come along with it, don’t outweigh the limited savings you’ll receive. So definitely claim what you can, keep track of deductions and receipts in case the IRS comes calling, but don’t do anything dumb (and illegal).
You might be scared that you’ll accidentally make a mistake regarding a deduction that will get you in trouble. But there’s a difference between fraud – the intentionally-misleading things we’re talking about here – and negligence, which can be the result of honest mistakes.
And if you’re that worried, hire a professional to take care of your return for you (and, of course, follow the tips above).
Charities: they help people in need and help you lower your tax bill. And where there’s someone trying to do good, there’s another person trying to take advantage of it.
Obviously there are some big-name charities that you don’t have to do much vetting for. The Red Cross, for example, is usually a safe bet. But some fraudsters will take advantage of name recognition and set up a fake charity that sounds similar to an existing one. Make sure the place you’re donating to is actually the place you think it is.
As they usually do, the IRS has a resource to help you out here. In this case, it’s their Exempt Organization Select Check tool, which will show everywhere you can donate while getting a tax break.
Scammers will also take advantage of breaking news. It’s not unusual to see charitable campaigns pop up during natural disasters, and people will try to take advantage of that good will with fraudulent charities. After Hurricane Katrina, the FBI shut down at least 15 fake Red Cross sites.
For a little extra protection, it helps to donate through methods that provide a paper trail like check, credit card, or even PayPal. Donating cash is great, but if things go south for some reason – like you fell for one of those fake Red Cross sites – evidence that you actually got scammed can help in getting some recourse.
You can avoid a lot of tax scams with some common sense and a little legwork, but money (and especially taxes) can make even the best of us slip up now and then. If you think you’ve been a victim of fraud, be sure to report it to the IRS so they can investigate and prevent others from falling for the same trap.