Tax season can be stressful enough without the worry of falling prey to tax scams, but that’s the reality taxpayers face. According to the Federal Trade Commission, an estimated one in 10 Americans are targets of fraud each year.
Here are three common types of tax scams:
- IRS imposter scams: Someone purporting to work for the IRS contacts you (typically by phone or email) and asks you for confidential information. They can then use it to access your financial accounts, steal your identity or a bevy of other crimes.
- Tax ID theft: Someone files a return using your Social Security number and steals your refund before you have filed your return.
- Tax prep scams: Shady tax preparers take the fee for preparing your taxes but then don’t file them or sign them, leaving you financially responsible for any filing mistakes or late fees. Anyone who prepares or assists in preparing federal tax returns for compensation must have a current preparer tax identification number (PTIN) from the IRS.
Educating yourself and knowing what to look out for can help protect yourself from becoming a victim. Following are some tips for safeguarding yourself from these increasingly frequent crimes.
1. Be wary of unsolicited communication from the “IRS”.
As a general rule, the IRS will not call or email you without sending you prior written notification in the mail. If you do get a phone call appearing to be from the IRS, pay attention to how the caller acts. A good indicator of a scam is if they use a sense of urgency or even threats (such as calling the police, hefty fines, etc.) to get you to hand over information or money. You can ignore any email or text message claiming to be from the IRS that asks for personal information.
As stated on irs.gov, the IRS does not:
- Initiate contact with taxpayers by email to request personal or financial information.
- Leave pre-recorded, urgent or threatening messages on an answering system.
- Threaten arrest by police or other law enforcement groups.
- Call to demand immediate payment with a prepaid debit card, gift card or wire transfer.
- Ask for checks to be sent to third parties.
- Demand payment without giving the taxpayer an opportunity to question or appeal the amount owed.
If you’d like to communicate with the IRS electronically, you can set up an account on their website where you can view your balance, set up payments and access prior tax records.
2. Freeze your credit with the major credit rating bureaus.
A credit freeze can help protect you from identify theft by preventing thieves from getting access to your credit records. The Federal Trade Commission has more information regarding how to contact the credit rating bureaus should you decide to freeze your credit.
3. File your taxes as early as possible (generally, once you have all necessary documents).
There are lots of reasons for not waiting until the last minute to file your taxes, including preventing tax ID thefts. In general, the earlier you can file your taxes, the harder it is for someone to steal your refund by fraudulently filing your tax return before you can.
4. Get an Identity Protection PIN from the IRS.
An Identity Protection PIN (IP PIN) is a six-digit number only known to you and the IRS that prevents someone else from filing a tax return using your Social Security number or Individual Taxpayer Identification Number (ITIN). Visit the IRS website for instructions on how to get an IP PIN.
5. Work with a reputable tax preparer.
In addition to wanting your taxes filed correctly and on time, working with a reputable and trustworthy tax preparer can help protect you from tax prep scams. Some red flags to be on the lookout for when choosing a tax preparer include:
- “Pop-up” tax preparers who do not have a brick-and-mortar office
- No preparer tax identification number (PTIN)
- Asking you to sign a blank return
- Promising a big refund before looking at your records
- Charging fees based on a percentage of your refund instead of a set price up front
Usually, if it’s too good to be true, then it’s probably a scam. If you’re unsure of how to go about finding a reputable tax preparer, the IRS provides some helpful tips, and your financial advisor may be able to provide a recommendation.
6. Report tax fraud to the IRS.
Should you come across tax fraud or suspected tax fraud, reporting it to the IRS can help protect others from similar scams.