Dirty Tax Scams You Should Avoid at All Costs

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.

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.

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 some of the worst tax scams to watch out for this year, including a suspicious phone call to watch out for (No. 9), and what you can do to protect yourself.

1. Identity fraud

identity thief on a computer

Stealing someone’s personal information is one of the scams fraudsters commit during tax season. | iStock.com

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 $16.8 billion was stolen from 16.7 million Americans this past year, according to Javelin Strategy & Research’s Identity Fraud Study. Furthermore, over the past six years, identity thieves have stolen more than $107 billion.

Next: Taking advantage of people who give back

2. Fake charities

Salvation Army red kettle

Be on guard for sound-alike charities. | Tim Boyle/Getty Images

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.

Next: Capitalizing on disasters

3. Natural disaster scams

Businesswoman texting and using laptop

Resist the urge to give without knowing where it’s going. | iStock.com/DragonImages

The IRS warns against common scam tactics following natural disasters. In addition to impersonating charities to get money or personal information, they may also create bogus websites with similar names as reputable charities to collect financial information or money. Scammers may also claim to work for the IRS or on its behalf and offer to help victims file casualty loss claims and get refunds.

Next: Don’t scam yourself

4. Falsely padding deductions

Young man with glasses working on his notebook

Exaggerating deductions could end up hurting you. | iStock.com/NakoPhotography

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.

Next: More than a little white lie

5. Falsifying income to claim credits

Businessman signing papers

If you falsify income, you’ll likely get caught by the tax man. | iStock.com/BernardaSv

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.

Next: Be careful what you click on

6. Phishing

man typing on laptop

Scammers love to phish. | iStock.com

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 phishing@irs.gov. 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.

Next: If it seems to good to be true …

7. Inflated refund claims

woman taking money from wallet

Be leery about inflated refund claims. | iStock.com/dolgachov

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.

Next: Watch who you ask for help

8. Return preparer fraud

money exchanging hands

Stay away from shady tax preparers. | iStock.com

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.

Next: Who’s really calling you?

9. Phone scams

man sending text message using mobile phone

Watch out for phone scammers. | iStock.com/Ondine32

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.

Next: Don’t try to hide

 10. Hiding income offshore

pile of money

Don’t even think about hiding money in an offshore account. | iStock.com/halduns

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.

Follow Sheiresa on Twitter @SheiresaNgo and on Facebook.

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