Avoiding Tax Scams and Fraud
Tax season can be stressful enough without the added worry of falling victim to tax scams and fraud. In recent years, criminals have become increasingly sophisticated in their tactics, targeting unsuspecting individuals and businesses with the intention of stealing sensitive financial information or even extorting money. Not only can these scams be a financial burden they are almost always a gigantic headache to get sorted out. This article will provide you with essential information on common tax scams, red flags to watch out for, and proactive steps you can take to protect yourself and your hard-earned money.
Common Tax Scams
Phishing: Scammers often pose as IRS agents or tax professionals, sending fraudulent emails or making intimidating phone calls, claiming you owe back taxes or demanding personal information. The IRS does not initiate contact via email, text, or social media, so be cautious of unsolicited messages. If it didn’t come in the mail with an official IRS letterhead, it’s likely a scam.
Identity Theft: Fraudsters may use stolen personal information to file false tax returns in your name, redirecting refunds to their accounts. Regularly review your credit reports and monitor your financial statements for any suspicious activity. There are many great service providers that have services to help monitor this.
Fake Charities: During times of crisis, scammers exploit people's generosity by creating fake charities. Always research and verify the legitimacy of charitable organizations before making donations. I highly recommend using the IRS Tax Exempt Organization Search Tool to verify the validity of any charity you plan to donate to. Personally I recommend requesting the organization's EIN to conduct this search. If the company cannot provide an EIN that is another enormous red flag.
Tax Preparer Fraud: Be wary of tax preparers promising inflated refunds or asking for a percentage of your refund as payment. Choose a reputable tax professional with proper credentials. I suggest finding a qualified CPA or Enrolled Agent (EA) to help you with anything tax related.
Red Flags to Watch For
Urgent and Threatening Language: Scammers often use fear tactics to pressure you into taking immediate action. The IRS will never threaten arrest, deportation, or license revocation. Additionally the IRS generally gives you at least 30 days to respond to any communication.
Unusual Payment Methods: Be cautious if you're asked to pay taxes using gift cards, wire transfers, or cryptocurrency. Legitimate tax agencies accept payments through official channels.
Too-Good-to-Be-True Promises: If an offer sounds too good to be true, it probably is. Avoid schemes that promise unreasonably large refunds or guarantees of tax reduction without proper assessment.
Protect Yourself
Stay Informed: Keep up-to-date with the latest tax scam trends and IRS announcements. Knowledge is your best defense against scams.
Secure Personal Information: Safeguard your Social Security number, financial details, and other sensitive data. Use strong, unique passwords for online accounts and enable two-factor authentication when available. Yes this means you should stop using the easy to remember password that you created in middle school. Adding a number at the end isn’t going to cut it.
Verify Contact Information: If you receive a call or email from someone claiming to be from the IRS or a tax agency, independently verify their identity by contacting the official agency directly using the contact information on their official website. If the area code is from the Cayman Islands, it’s not the IRS.
Use Reputable Tax Professionals: When seeking professional help, choose tax preparers or advisors with a solid reputation, proper licensing, and a history of trustworthy service.
Protecting yourself from tax scams and fraud requires vigilance, awareness, and proactive steps. By staying informed about common tactics, red flags, and protective measures, you can ensure a safe and secure tax season. Remember, taking the time to verify information and seeking help from legitimate sources can save you from financial loss and potential identity theft. If you do happen to find yourself a victim of fraud please take the time to report this to the IRS or your local authorities.