Do you dread tax season? Well, for some people, tax season is the most wonderful time of the year. Scammers are constantly looking for ways to get their grimy hands in your pockets. And tax season is a popular time for them to strike. This is why it’s important for you to remain vigilant when it comes to protecting yourself from scams.
Tax fraud is big business. Tax refund fraud alone affects many people each year and costs the government millions of dollars. In 2016, banks stopped 108,539 suspicious refunds and returned them to the IRS. These suspicious returns totaled $239 million.
The IRS has provided anecdotes about some notable tax fraud cases. Among them is the self-proclaimed queen of tax scams, who is estimated to have defrauded the government for millions of dollars. In another instance, an identity fraud ring was sentenced in $24 million of fraudulent refund claims. However, thanks to increased enforcement, the amount of fraud being caught has increased. The IRS says the amount of new people reporting tax-related identity theft has fallen by more than 50%, with close to 275,000 fewer victims from 2015 to 2016.
Each year, the IRS reports a list of the top tax scams the public should be aware of. Many of these scams can result in a fraudulent return being filed on your behalf — or worse. Let’s take a quick look at 10 dirty tax scams to watch out for this year and what you can do to protect yourself.
1. Identity theft
“Identity theft occurs when someone uses your personal information, such as your name, Social Security number, or other identifying information, without your permission, to commit fraud or other crimes,” according to the IRS. “In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.”
Roughly $16 billion was stolen from 15.4 million Americans this past year, according to Javelin Strategy & Research’s 2017 Identity Fraud Study. Furthermore, over the past six years, identity thieves have stolen more than $107 billion.
2. Phone scams
If you get a call from someone claiming to work for the IRS, hang up immediately. It’s a tax scam. The IRS will not call you if there’s a problem. It will send you a letter. So a phone call is the first tip that you’re being scammed. The IRS has observed an increase in the number of phone scams during the past couple of years. These scams involve fraudsters pretending to be IRS agents, so they can steal money or the identity of an unsuspecting victim. Here are some characteristics of fraudulent calls:
- Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
- Fraudsters might be able to recite the last four digits of a victim’s Social Security number.
- They “spoof” or imitate the IRS toll-free number on caller ID to make it appear it’s the IRS calling.
- Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
- Victims hear background noise of other calls being conducted to mimic a call site.
3. Fake charities
It’s great to have a giving heart. But don’t let your generosity put you in a situation where a scammer can take advantage of you. Some groups pretend to be a charitable organization, so they can garner donations. However, be on guard if a group has a name that is close to a nationally recognized organization. Some scammers choose familiar names, so victims will get their fake organization confused with a reputable organization. If you want to check the status of an organization, one good tool to use is Charity Navigator.
4. Excessive claims for business credits
The IRS warns against improperly claiming the fuel tax credit, a tax benefit not usually available to most taxpayers. This credit is typically only available to off-highway business use, which includes farming. The IRS also warns against improperly claiming the research credit. “Improper claims often involve failures to participate in or substantiate qualified research activities and/or satisfy the requirements related to qualified research expenses,” according to the IRS.
5. Falsely padding deductions
Don’t get into hot water trying to lower your taxable income. The IRS said it’s in your best interest to avoid the temptation to overstate deductions or expenses on your returns to pay less than what you owe or snag a bigger refund. Some deductions taxpayers might overstate are charitable contributions and credits, such as the Earned Income Tax Credit or the Child Tax Credit.
6. Falsifying income to claim credits
Resist the urge to give a false account of how much you make each year as a means to fraudulently qualify for tax credits. The IRS said sometimes tax payers are talked into doing this by con artists. However, you are legally responsible for what appears on your tax return. So even if someone talked you into doing this, you are the one who will have to deal with the repercussions.
Some fraudsters carry out their schemes through phishing. The IRS said this is when scammers use an unsolicited email or a fake website, posing as a legitimate source to attract potential victims and persuade them to provide their personal information. Scammers use this information to commit identity theft.
Email scams aren’t new, but fraudsters wouldn’t survive if they weren’t getting more sophisticated. If you’re unsure whether an email is genuine, you can report it directly to the IRS through email@example.com. In addition, if you’ve lost money as a result of a tax scam, you can report it to the Treasury Inspector General for Tax Administration and file a complaint with the Federal Trade Commission through its Complaint Assistant.
8. Inflated refund claims
This age-old rule of thumb applies to tax refunds: If it sounds too good to be true, it probably is. The IRS notes that when tax season rolls around, fraudsters often pose as tax preparers, “luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place.”
There are two big things to keep in mind about these types of tax scams. First, do some homework on the people preparing your tax return. Don’t give your personal information to a business with no history. Second, remember you are ultimately responsible for whatever is on your tax return, even if someone else prepared it. You could end up with the bill for a fraudster’s bad behavior if you aren’t careful. If you’re going to hire professionals, make sure they have a long, clean reputation.
9. Return preparer fraud
Be careful about whom you hire to prepare your tax returns. Most are honest and offer good service, but there are still some running tax scams to make a quick buck. The IRS reports that 60% of taxpayers use tax preparers. If you use utilize the service of a tax preparer, don’t just relax and assume he or she is trustworthy. Thoroughly research the person you plan to hire. The Better Business Bureau is a good place to start.
10. Hiding income offshore
This isn’t so much the work of a third-party fraudster as it is the work of a would-be taxpayer trying to reduce tax liability. Hiding money in offshore bank accounts is about as classic a tax scam as you can get, and the IRS is cracking down on this behavior. Since the IRS opened its Offshore Voluntary Disclosure Program in 2009, there have been more than 55,000 disclosures reported. As a result, the IRS has managed to collect roughly $9.9 billion from this program.
Sheiresa Ngo also contributed to this post.