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WHAT YOU SHOULD KNOW ABOUT TAX SCAMS
With tax season in full effect, I wanted to get a better understanding of any tax scams that may be out there and how we can avoid them.
If you’ve ever been a victim of a scam or identity theft or know someone who has then you know it can be devastating!
Scams can result in a huge loss financially and can cause a tremendous amount of stress.
Scammers are out there thinking up new ways to scam people and I want you to be aware!
Since I’m not an expert in that field I brought one in to help us all learn what to look out for.
Expert tips by Mike Savage, CPA, and CEO of 1-800Accountant.
Tax day is fast approaching and scammers are out in full force seeking ways to take advantage of Americans. In 2018, the IRS recorded a 60% increase in bogus “phishing” email schemes that tried to steal Americans personal data and money.
To help taxpayers avoid being taken for a ride, we here at 1-800Accountant wanted to spotlight some of the top tax scams from both shady accountants and professional con artist’s so that you don’t get taken advantage of this year.
9 TYPES OF TAX SCAMS
1. Identity Theft
Tax time brings extra activity among thieves looking for Social Security numbers and other personal information that allows them to falsely claim refunds. Taxpayers should be alert to tactics aimed at stealing their identities, not only during the tax filing season but all year long.
2. Phishing
The IRS does not e-mail you or direct you to websites regarding any bill without prior contact. Do not be fooled by e-mails encouraging you to click on links to a site in reference to your tax bill; the website may be a fake, designed to gain your personal information.
Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or tax refund. Don’t click on one claiming to be from the IRS. Be wary of emails and websites that may be nothing more than scams to steal personal information.
3. Phone Scams
Con artists sometimes impersonate IRS agents and threaten arrests, deportation, and other unpleasant outcomes unless a bill is paid immediately over the phone. No matter what horrible things you think about our tax system, the IRS does not do business this way.
Never give out your personal information over the phone unless you initiated the call and are sure you are dealing with a real IRS agent. Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers.
4. Preparation Fraud
Some tax preparers bend the rules in order to get the highest refund possible for a client. Unfortunately, once the taxpayer signs and files the return, he or she is responsible for any errors. If you choose to have others do your taxes, be sure to use a reputable tax preparer.
The vast majority of tax professionals provide honest, high-quality service. There are some dishonest preparers who operate each filing season to scam clients, perpetuating refund fraud, identity theft and other scams that hurt taxpayers.
5. Inflated Refunds
Anyone who promises a big refund without looking at your records first should be avoided. If it sounds too good to be true, guess what? It is.
Those preparers who ask clients to sign a blank return, promise a big refund before looking at taxpayer records or charge fees based on a percentage of the refund are probably up to no good. To find victims, fraudsters may use flyers, phony storefronts or word of mouth via community groups where trust is high.
6. Fake Charities
Before making a donation, check the IRS website to make sure it is going to a qualified charitable organization. Look for knockoff organizations with names, websites, and logos that are similar to well-known legitimate organizations.
Groups masquerading as charitable organizations solicit donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to bona fide charities.
7. Falsifying Income for Credits
Scam artists can suggest bending the income rules to qualify for tax credits that target lower-income taxpayers, such as the Earned Income Tax Credit. Do not give in to their claims.
Never falsify income on a tax return for any reason, regardless of what anybody tells you. Taxpayers should file the most accurate tax return possible because they are legally responsible for what is on their return. This scam can lead to taxpayers facing large bills to pay back taxes, interest, and penalties.
8. Abusive Tax Shelters
By using complicated but authoritative-sounding language, tax scammers can fool people into thinking tax shelters are legitimate when they are not. Seek independent confirmation and outside advice on any scheme designed to limit or avoid taxes.
Abusive tax structures are sometimes used to avoid paying taxes. The majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true.
When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered.
9. Frivolous Arguments
The IRS is too busy to waste time listening to your claims of being a sovereign nation and therefore enjoying immunity from taxes, or any similar outlandish claims on tax returns.
Frivolous tax returns incur a $5,000 penalty, and failure-to-file penalties can end up being even worse. Frivolous tax arguments may be used to avoid paying tax.
Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes despite being repeatedly thrown out in court.
Mike Savage is a CPA and CEO of 1-800Accountant, the nationwide premier virtual accounting firm servicing over 200,000 taxpayers across the country. Mike’s expertise has been featured in CNBC, Business Insider, Consumer Reports, US News and World Report, and many other prominent publications.
