Each year, the Internal Revenue Service (IRS) releases its list of the “dirty dozen,” which it bills as the worst of the worst tax scams. While many of these scams relate to taxpayers attempting to defraud the federal government by abusing tax law or failing to report income, others involve an increasing problem in the United States: attempts by criminals to steal the money or identity of others through tax scams.
The IRS reports that tax scams are on the rise, particularly those involving phone calls and electronic communications. These schemes tend to ramp up around tax-time, they can and do occur year-round. As a result, the IRS has reminded taxpayers to stay vigilant throughout the year.
At Paladini Law, we believe that understanding the most common types of tax scams can help you avoid becoming a victim of fraud. Combined with knowledge of how the IRS operates, the following information will empower you to protect your finances and your identity during tax season and beyond.
Each spring, as the tax filing deadline approaches, many individuals begin to get calls from fraudsters. According to the IRS, the scam involves individuals posing as IRS agents in an attempt to steal money or personal information. These schemes have cost thousands of people millions of dollars in recent years.
Known as voice phishing or “vishing,” phone scams are no longer limited to tax filing season. Instead, criminals make these calls throughout the year. It is one of the IRS’ “dirty dozen” tax scams.
The calls are usually robocalls, giving victims instructions to call back at another number, but may involve individuals placing calls personally. The scammers may also ask for personal information, such as credit card numbers or full social security numbers.
Many of the callers use technology to make it appear that a government agency such as the IRS is calling. They tend to use IRS employee titles to appear legitimate. In some cases, the caller will have personal information about the taxpayer — such as their address and last four digits of their social security number.
According to the Treasury Inspector General for Tax Administration (TIGTA), vishing scams have cost 14,700 victims more than $72 million since October 2013.That is why it is important to understand how the IRS works — and how these scams ensnare unsuspecting taxpayers.
Phone Scam 1: Calling with News of a Big Refund
A typical phone scam involves calling taxpayers and informing them that they have a refund waiting for them. The individual getting the call is surprised to learn that they have money coming to them and may eagerly hand over their personal information in order to access the cash.
The only problem is that the refund is non-existent, and the con artists who made the call now have enough information to run a scam. That may involve identity theft, filing a fake tax return on your behalf, or any number of other schemes.
It is important to remember that the IRS will not call you to tell you that you have a refund. Instead, you will get a check in the mail if you have an unexpected refund. Never give personal or financial information to someone over the phone. If you have any questions about a potential refund, call the IRS yourself at 1-800-428-1040.
Phone Scam 2: Threatening Action If You Don’t Pay
One of the most common phone scams takes a different tactic: threatening taxpayers with harm if they don’t send money. For example, the caller may claim that the person is under audit or that they owe the IRS a certain amount of money that must be paid in a specific way.
These calls will often threaten an arrest, deportation or license revocation if the victim does not immediately pay a (fake) tax bill. Some taxpayers are frightened by these calls and comply with the demands. They may send cash through a wire transfer, prepaid debit card, or gift card.
The IRS will never call you to demand immediate payment, or request that you use a specific payment method such as a gift card, wire transfer or prepaid gift card. As a general rule, the IRS will mail a bill to you first. The IRS will also give a taxpayer an opportunity to appeal the amount owed before demanding payment.
The IRS will not threaten to immediately bring in law enforcement to arrest you or otherwise punish you for nonpayment of taxes. The IRS also will not ask you for a credit or debit card number over the phone.
If you do encounter an IRS phone scam, do not give out any information or send any money. The best course of action is to hang up immediately, and then report the call to the IRS and/or the Federal Trade Commission (FTC). If you believe you may owe taxes and are concerned about paying them, an experienced New Jersey tax lawyer can review your options with you, such as installment agreements or offers in compromise.
In the era of the internet, online scams related to taxes are more frequent than ever. Broadly labeled “phishing,” these attempts to steal personal information can take the form of emails, texts, fraudulent websites and social media messages. The primary danger of these scams is the potential for identity theft.
Typically, the IRS does not communicate with taxpayers by email, text or other forms of electronic communication, and will not request personal or financial information in this method. Any request for such information should be met with suspicion. If an individual, professional or organization suspects that they have been targeted in a phishing or other online scam, they should contact the IRS.
Online Scam 1: Phishing
Phishing is again listed one of the IRS’ “dirty dozen” tax scams in 2019. It often involves emails or other electronic communications that appear to be from the IRS. These communications may promise a large refund or threaten action but are really a way to induce unsuspecting taxpayers to click on links or open attachments that will expose their devices to viruses and other threats.
Once a person clicks on a link or opens an attachment, they may be prompted to input their personal information, which the con artists will then use to steal the victim’s identity or file a false tax return. Alternatively, the link or attachment will install a virus on the person’s computer, tablet or phone and will gather personal information, including passwords and credit card information, in that manner.
Online Scam 2: Fraudulent Tax Returns
The IRS has warned about one particular scheme where criminals file fraudulent tax returns on behalf of the victim. Using the victim’s stolen bank account information, they have the return deposited in the account and then employ a number of tactics to reclaim the refund, including by pretending to be from a collection agency or the IRS. To avoid falling prey to these schemes, the IRS warns individuals to be wary of any unexpected refunds deposited in their accounts.
Online Scam 3: Targeting Businesses and Professionals
Some criminals are targeting tax professionals, payroll offices, and human resources personnel in an attempt to collect the personal and financial information collected in their files. These scams are known as business email compromise (BEC) or business email spoofing (BES) scams. Organizations may receive an email asking them to pay a fake invoice, an email allegedly from an employee seeking to re-route a direct deposit, or an email supposedly from an executive or another trusted employee asking them to initiate a wire transfer.
The IRS warns that all taxpayers, tax professionals and other organizations should be wary of unsolicited emails and emails from unknown persons. These communications may contain malware or viruses that can infect the user’s computer, giving the sender access to the device and allowing them to gather personal data.
In some cases, criminals will contact taxpayers via postal mail to get information from them. Because the IRS generally contacts individuals by mail for matters related to back taxes or refunds, these types of schemes may be harder to avoid. Yet with some careful attention to detail, you can prevent being taken in by an IRS mail scam.
With a mail scam, the criminal will send a fake CP2000 form, which is the form that the IRS uses to inform taxpayers of proposed adjustments to their returns. Scammers will put a fake IRS address on the form and ask the taxpayer to make out a check to the IRS instead of the United States Treasury. In addition, the fake notice will inform taxpayers that they must pay the amount due first and dispute the issue later.
Notices from the IRS require you to make checks out to the US Treasury and give taxpayers an opportunity to dispute claims of unpaid taxes before making a payment. A simple way to determine if a notice is genuine is to go to the IRS website and search for the form number. The IRS has an explanation page, Understanding Your IRS Notice of Letter, that will help you determine if the notice you received is legitimate.
While mail scams are lesson common than phishing and phone scams, taxpayers should still be alert to this type of fraud. Because many Americans are aware that the IRS communicates with taxpayers primarily through the mail, it may be easier to be tricked into sending money to a criminal with a mail scam. If you do receive a fake IRS notice in the mail, you can report it to the IRS.
Fake Tax Agency Scams
One of the most common type of tax scams involves dishonest tax preparers. This type of fraud happens so often that it has made the IRS’ “dirty dozen” list of top tax scams. Fake tax agencies may engage in a number of schemes, such refund fraud or identity theft, that harm taxpayers and can lead to significant difficulties.
According to the IRS, approximately 53.5% of taxpayers use a paid tax preparer. A fraudulent tax preparer may take advantage of someone who doesn’t understand taxes or may otherwise mislead clients into taking credits or deductions that they are not entitled to in order to increase their fee.
These tax preparers will typically lure clients by promising them huge refunds. They often target elderly and low-income taxpayers. Because many are paid based on a percentage of your return, they will inflate your return amount in order to get paid more.
The problem is that this is often done through illegal means, such as taking illegal deductions, exaggerating charitable contributions or lying about the number of children that a person has. For taxpayers, this might result in a short-term gain but may result in steep IRS penalties. Even if the preparer has actually completed the returns, the taxpayer must sign the document and confirm the accuracy of its contents.
Although the IRS has taken action against fake tax agencies, including assessing significant civil penalties, individuals should take steps to avoid being scammed. Warning signs of a fraudulent tax preparer include the following:
- Promising large refunds;
- Asking you to cheat on your tax return;
- Presenting false or misleading credentials, such as claiming to be endorsed by the IRS (the IRS does not endorse tax preparers);
- Working out of a temporary pop-up shop;
- Being paid by percentage of refund received;
- Asking you to sign a blank or incomplete tax return;
- Telling you that a refund will go into their account instead of directly to you; and
- Failing to sign the tax return.
The IRS offers additional tips on how to choose a tax professional, including an explanation on different credentials and qualifications. You can also report potentially fraudulent tax preparers directly to the IRS. If you are selected for an audit due to a fake tax agency, a skilled New Jersey tax lawyer can advocate for you to protect your rights.
Work with a New Jersey Tax Lawyer
Attorney Brad Paladini has dedicated his practice to tax law. He represents clients in both federal and New Jersey state tax matters, working collaboratively with clients to help them solve their tax problems. His goal is to resolve issues quickly, so that his clients can move forward with their lives.
Paladini Law believes offers consultations 7 days a week, by phone, Skype or in-person at our Morristown or Jersey City locations. Whether you are facing an audit or are overwhelmed with another tax issue, we are here to help. Contact us today at 201-381-4472 or reach out online to schedule a confidential consultation.