Beware of Income Tax Scams
Tax time is the time of year when people get anxious to receive their refund from the IRS. It’s also the time of the year when financial criminals get to work on their income tax scams. It’s easy to see why; income tax scams can often be completed in minutes, the pay often comes in cash, and while many thieves are caught, a lot of them manage to get away. Sometimes the victims are taxpayers, and other times, the criminals attempt to defraud the federal government. In most cases, all taxpayers end up footing the bill, so it’s worthwhile for everyone to do what they can to help prevent income tax scams.
We’ve written about the most popular scam making the rounds, where an individual pretending to be an IRS agent calls a taxpayer and demands immediate payment of thousands of dollars to prevent the taxpayer from being arrested. While this is the most common income tax scam at the moment, it’s far from the only one. Below, we’ll cover a few of the other income tax scams that are out there so that you’ll be warned ahead of time about how to best avoid them.
Phishing email messages – Phishing messages aren’t new, but they tend to become more prevalent at tax time. A “phishing” email message is one that appears to be from some legitimate business entity, such as your bank or the IRS, demanding something from you. In the case of the IRS income tax scam, you might receive an email message that appears to be from the IRS, telling you that you either owe money or that you are due a refund. In either case, you’ll be directed to click on a link in the message that will take you to a Website where you can resolve the matter. The Website may look just like the real IRS Website, but these are actually elaborate fakes. Once you get to the site, you will likely be asked for some personal information that the scammer can use to steal from you, such as your Social Security number or a credit card number. The actual IRS will never send email messages to taxpayers, or will they call on the phone. Actual IRS inquiries will be sent by mail, with instructions to call the agency yourself.
Stolen refunds – We’ve written about this one before, and in this case, the thieves are stealing from the IRS, but inconveniencing you in the process. With the stolen refund income tax scam, criminals simply file fraudulent tax returns using the names and Social Security numbers of other people, claiming huge refunds. They usually do this early in the tax season, before most taxpayers have a chance to file. These income tax scams are usually uncovered when the taxpayer who has been victimized attempts to file their return, only to have the IRS reject it because a return in that individual’s name has already been filed. While individual tax refunds might consist of a few thousand dollars, many thieves have been filing thousands of false returns, resulting in millions of dollars in refunds. Problems in IRS data infrastructure make this a difficult problem to fix, and it may be years before a reliable solution is put in place.
Tax Preparer Scams – There are numerous income tax scams put forth by shady tax preparers. These might involve having your refund sent to them instead of you, or basing their fees on the amount of your refund (larger refunds always seem to incur larger fees), or simply asking taxpayers to sign a blank return. Other scams involve telling taxpayers that they haven’t purchased qualified health insurance under the Affordable Care Act and that they owe penalties which must be paid to the tax preparer. Another tax preparer scam occurs when the preparer promises to get you a larger refund than the one to which you’re entitled. This could happen if they enter false information on your 1040 or alter a W2 or 1099 form. In this case, not only will they steal money, but if they file false information and you’ve signed the form, you are legally liable for the contents of that form and could face fines, penalties or even jail time. If you are going to use a professional tax preparer, you might want to stick with someone from one of the large national chains. Alternatively, at least take some time to verify that the person who will be preparing your taxes has a Preparer Tax Identification Number from the IRS. While tax preparer income tax scams aren’t all that common, they do add up to a rather large amount of money stolen from taxpayers each year.
Taxpayer/Tax Preparer Scams – Some tax preparers will work with taxpayers to jointly defraud the government by agreeing to file false documents on the taxpayer’s behalf in order to inflate the amount of the refund. In these cases, the taxpayer and the preparer usually agree to split the amount of the extra refund. This, like the income tax scam listed above, may involve adjusting or altering a 1099 or W2 form. Again, if you sign the form, you’re liable for the form’s accuracy and could face penalties or jail.
The no tax scam – Perhaps the biggest income tax scam of all is the one where taxpayers are convinced that they aren’t actually required to pay income taxes at all. There are many arguments for this and they’re too long to list. All of them have one thing in common – no court has ever ruled in favor of a taxpayer who claimed that he was not obligated by law to pay Federal income taxes. Thousands of people have tried it and the result is always the same – they end up paying the taxes anyway and often go to jail.
Income tax scams end up costing legitimate taxpayers hard earned money and take up valuable time and resources. If you think someone is trying to get you to participate in an income tax scam of any kind, contact the IRS.