For some old movie buffs out there, the “Dirty Dozen” might harken back to the famous 1967 war movie. But there is another dirty dozen that requires watching and that is the Internal Revenue Service’s “Dirty Dozen” list of potential tax scams. Compiled annually, the IRS lists scams that taxpayers may encounter anytime but many of them peak in activity as people prepare their income tax returns, which is a ripe time for criminals to steal personal data and money.
Below we provide a summary of some of these potential tax scams to alert you to their existence and hopefully help you to avoid these pitfalls:
Scammers may send you fake emails, text messages, or websites links intended to convince you into clicking on them with the intention of stealing your personal and financial information. Phishing emails can come from a variety of sources, though emails that pretend to be from IRS are often convincing enough to consumers because they fear getting into trouble with the government.
Impersonation and Identity Threats
Impersonations are where you may receive an email, phone call, or social media instant message, apparently from the IRS, that threatens you with arrest, imprisonment, financial penalties, or other consequences if you fail to make a payment to them. Senior citizens, immigrants, and non-English speakers can especially be IRS impersonation targets. As stated above, you can safely assume emails and text messages that are coming from the IRS are always a scam, and a phone call most likely is as well if there are threats or consequences made by the caller.
Identity theft — or the act of stealing personal information such as your Social Security number, address, and birthdate — is also a significant and growing problem. In the past two years, nearly half of U.S. consumers have experienced identity theft. Thieves will employ tax-related identity theft to use such personal information to file an income tax return in your name.
A crisis like that in the Ukraine or the recent Covid-19 pandemic can create opportunities for scammers to take advantage of sympathetic people who want to help others. Criminals may establish fake charities with similar names to well-known organizations and solicit donations to take advantage of the crisis of the day and sell you on a potential income tax deduction from a charity that does not exist.
Fake Tax Return Preparers
Beware of masquerading or “ghost” income tax preparers, who may inflate your tax refund with made-up tax deductions and credits. A qualified preparer will always ask for documentation and proof of deductions. Ghosts may also ask for an upfront payment for services from you based on the level of your anticipated large refund.
Offer in Compromise Mills
An Offer in Compromise (OIC) is an agreement where the IRS helps eligible taxpayers settle their tax bill at a reduced amount. This is fertile ground for unethical companies and individuals (also known as OIC “mills”) who falsely advertise that they can settle tax debts at “pennies on the dollar.” In exchange for their services, they try to collect a hefty fee upfront.
Fake Payments with Repayment Demands
Scammers will jump through hoops to make a fraud look authentic. For this scam, the thief will file a fake tax return using your social security and have a refund deposited to your bank account number. Then, you would receive a phone call from an IRS impersonator claiming there was a refund made in error, and you must buy gift cards for the amount of the refund and provide the gift card codes over the phone.
Cybersecurity threats have become more pervasive today because more people are working remotely, which increasingly can compromise corporate network security. Ransomware is a threat whereby you may mistakenly download malware on your computer that a criminal can then use to demand a ransom in return for not exploiting, stealing, or destroying personal information or data files on your computer. A common identifier of ransomware is that the perpetrator demands to be paid in cryptocurrency such as Bitcoin.
Protect Yourself from Tax Scams
You can help avoid such tax scams by following these basic principles:
Do not click on emails or email attachments, texts, or instant messages claiming to be from the IRS. The IRS will never use these forms of communication to contact you. You can report such phishing scams to the IRS at email@example.com.
Avoid taking phone calls from unrecognized phone numbers. The IRS will always first notify you by regular mail through the U.S. postal service before calling you.
Similarly, if you receive a letter that looks like it is coming from the IRS requesting that you contact them, verify the phone number first by going to the website: https://www.irs.gov/help/telephone-assistance
Do not share your financial or personal information via email or text message, where that information can be stolen more easily.
Obtain and use the IRS’ Identity Protection Personal Identification Number, better known as an IP PIN, so that someone would need to know your name, address, Social Security number and your unique IP PIN to steal your tax identity.
Always request your income tax preparer’s qualifications and signature. You should make sure he or she has an official Preparer Tax Identification Number (PTIN) and signs your completed return before you sign and submit it to the IRS.
Practice good cybersecurity protocol. Invest in security software for your computers, phones, and tablets. Use strong passwords and multi-factor authentication where available on all financial-related websites and if you use tax return software so that your tax return data cannot be easily accessed by someone else.
Verify the charities listed on your tax return. The IRS provides a website where you can search for and verify qualified charitable organizations for their legitimacy.
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