Tax scams and fraud are persistent threats that taxpayers face year-round, but they become especially prevalent during tax season. Scammers use sophisticated tactics to steal personal information, commit identity theft, and defraud individuals and businesses. Understanding these schemes and knowing how to protect yourself is essential to safeguarding your financial well-being. This article will explore common tax scams and offer actionable tips for fraud prevention.
Common Tax Scams
Phishing Scams – Phishing involves fraudulent emails, text messages, or websites designed to steal personal and financial information. Scammers often impersonate the IRS or other legitimate organizations to trick victims into providing sensitive data.
Example: A taxpayer receives an email claiming to be from the IRS, stating that their tax refund is delayed. The email includes a link to a fake IRS website where the victim is asked to enter their Social Security number and bank account details.
Prevention Tips:
- The IRS does not initiate contact via email, text, or social media to request personal or financial information
- Report phishing emails to the IRS at phishing@irs.gov
- Avoid clicking on links or downloading attachments from unknown sources
- Phone Scams – Scammers often call taxpayers, pretending to be IRS agents. They use threats, intimidation, or promises of refunds to extract money or personal information.
Example: A scammer calls a taxpayer, claiming they owe back taxes and must pay immediately via a prepaid debit card or wire transfer to avoid arrest.
Prevention Tips:
- The IRS will never demand immediate payment over the phone or threaten to involve law enforcement
- Hang up immediately if you receive such a call and report it to the Treasury Inspector General for Tax Administration (TIGTA)
- Identity Theft – Identity thieves use stolen personal information to file fraudulent tax returns and claim refunds
Example: A taxpayer attempts to file their return, only to discover that someone else has already filed using their Social Security number
Prevention Tips:
- Use an Identity Protection PIN (IP PIN) from the IRS to add an extra layer of security to your tax return
- Monitor your credit report and financial accounts for suspicious activity
- Notify the IRS immediately if you suspect identity theft
- Fake Tax Preparers – Dishonest tax preparers may promise large refunds or fabricate information on tax returns to claim credits the taxpayer is not eligible for. They often disappear after collecting their fees, leaving the taxpayer responsible for any penalties or audits.
Example: A fraudulent preparer inflates a taxpayer’s income to qualify for a larger Earned Income Tax Credit (EITC). When the IRS audits the return, the taxpayer is held liable for the discrepancy.
Prevention Tips:
- Choose a reputable tax preparer with a valid Preparer Tax Identification Number (PTIN)
- Review your tax return carefully before signing and ensure all information is accurate
- Social Media Scams – Scammers use social media platforms to spread false information about tax benefits or to impersonate trusted individuals to steal personal information.
Example: A scammer posts a message on social media claiming that taxpayers can claim a refund by filling out a specific form, even if they have no income. Victims who follow the advice may face penalties for filing false returns.
Prevention Tips:
- Verify tax advice from trusted sources, such as IRS.gov
- Be cautious about sharing personal information on social media
How to Report Tax Scams
If you encounter a tax scam, it’s important to report it to the appropriate authorities. Here’s how:
- Phishing Emails: Forward the email to phishing@irs.gov
- Phone Scams: Report the call to TIGTA at https://www.treasury.gov/tigta or call 1-800-366-4484
- Identity Theft: Visit the IRS Identity Theft Central at https://www.irs.gov/identity-theft-central for guidance
- Fraudulent Preparers: File Form 14157, Complaint: Tax Return Preparer, with the IRS
Tips for Fraud Prevention
- Secure your personal information:
- Use strong, unique passwords for online accounts.
- Enable multi-factor authentication whenever possible.
- Avoid sharing sensitive information over the phone or online unless you are certain of the recipient’s identity.
- File early:
- Filing your tax return early reduces the window of opportunity for identity thieves to file a fraudulent return in your name.
- Verify IRS Communications:
- The IRS initiates most contact through regular mail. Be cautious of unexpected calls, emails, or texts claiming to be from the IRS.
