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How to avoid tax scams in the countdown to April 15

Tax season is fraud season.

Scam artists and identity thieves work double-time to snag more unsuspecting victims in the months leading up to April 15. With everyone concerned about filing taxes accurately and getting their tax refunds, it can be easy to fall prey to an imposter scam artist pretending to be the Internal Revenue Service.

Let’s go over some practical advice on how to avoid tax scams.

Practical steps to defend against fraud and scams

  1. Get to know the real IRS. For instance, they don’t initiate contact with taxpayers by email or phone calls. The IRS uses regular mail. Ask for official identification, such as a HSPD-12 card, if you’re approached in-person by someone claiming to be from the IRS.
  2. Stay skeptical. If it’s too good to be true, it probably is. Also, if a call sounds like you’re in trouble, you should be able to verify everything independently. Just because someone recites part of your social security number doesn’t mean you should give them the rest.
  3. Give information only after you’re sure. Don’t click links or download attachments unless you’re certain of the sender. Don’t give your social security number, credit card or debit card numbers, or any other personal information until you’ve verified the security
  4. Trust information you can cross-reference with other sources Social media channels are full of one-sided, incomplete stories that scare people into falling for tax fraud scams. Instead, check for real fraud alerts that are shared across official government and law enforcement agencies’ sites.

Taking sensible precautions and a dose of common sense can prevent you from becoming one of the next victims of identity theft or tax-related scams.

It also helps if you know the signs of a scam.

Let’s go through some of the most common scams from the IRS’s most recent Dirty Dozen list and how to spot them.

IRS-Impersonation by Phone or Email

The IRS will not call you or email out of the blue and demand payment for a tax debt you’ve never heard of. They will not threaten your immigration status if you don’t make a payment right now with a gift card or a prepaid debit card.

However, that’s one of the most common phone scams related to the IRS. They may make a call that mimics the Taxpayer Advocate Service, and then berate you for payment like a collection agency.

The real IRS follows strict procedures. You’ll be notified by mail first if the IRS wants to initiate contact. Not by phone calls. Not email. Even if you e-filed your income taxes. Additionally, the IRS offers a reasonable timeline for payment if you do owe taxes.

One tell-tale sign of this scam is the urgency or hostility on the call. Fear and threats are common tactics scam artists use to keep their victims compliant.

Another sign is requiring a specific payment method, such as a gift card. The real IRS accepts multiple methods of payment, from mailed checks to payments in-person to credit payments on their online portal.

If you’re a target of a phone impersonator scam, do consider reporting it to the real IRS.

Example of a phishing email impersonating the IRS.

Tax-Debt Settlement Schemes

Can the company on TV actually get your tax bill settled better than if you do it yourself? The truth of the matter is that such offers are a waste of time. The IRS operates the offer-in-compromise (OIC) program to help taxpayers settle overdue tax debts. The IRS has the authority to settle tax liabilities for less than the amount owed, and every taxpayer can check their OIC qualifications for free.

However, a “debt reduction” company can charge well-meaning taxpayers to submit an application on their behalf when they know a taxpayer won’t qualify.

The IRS calls these companies “OIC mills.” Like a mill grinding wheat, they grind through taxpayer after taxpayer, charging fees for performing free services. Watch out for “pennies on the dollar” tax debt reduction or settlement schemes.

If you owe money on your income tax return, your tax provider can direct you to public resources as well as put you in contact with the IRS to learn about payment options.

Pandemic-Related COVID-19 Scams

Promises of missing stimulus payments or COVID-19 relief are likely too good to be true. They’re also good hooks in spear phishing schemes.

An email promises additional stimulus payments if you enter bank account details, filing status, or other personal information. The message may come from the IRS or one of your financial institutions. They may even know a portion of your social security number. However, instead of receiving money, your private information gets used either to directly steal from your account or in another scheme.

Watch out for this email phishing scheme in all its variations. Verify their story before giving your information away.

Remember, the IRS contacts taxpayers by mail, not by email or phone. You or your tax professional can contact state or federal tax offices to inquire whether you’ve missed any payments.

Impersonated Unemployment Benefits

Since the pandemic, criminals have used stolen identities to file for unemployment benefits from state agencies. Meanwhile, these fraudulent claims have real tax consequences. Unemployment benefits count as taxable income. State agencies report the income to the IRS, who in turn report it to the individual on a Form 1099-G.

If you received a 1099-G for unemployment income you didn’t get, you’re a victim of tax-related identity theft. The IRS recommends you contact the U.S. Department of Labor and so they can begin investigating the fraud. Also, don’t report the inaccurate 1099-G income on your actual tax return.

Charity Fraud Information

Beware of fake charities. Criminals can ask for donations, claiming to be raising money for a cause or foundation. However, such a foundation doesn’t exist or the true charity goes by a similar name.

Charity fraud results in substantial monetary losses, and the IRS partners with state and federal organizations across the country to fight it.The good news, before you wire transfer any funds to a charity, you can verify that it exists via this IRS-related function, the Tax-exempt Organization Search Tool.

Anyone can check an organization eligibility for tax-deductible charity. Before making your charitable contributions (and filing it on your federal taxes), check the status of the organization first.

Natural Disaster-Related Scams

File this under fake charities. Fraudsters can rake in millions of dollars from generous individuals by claiming to support victims of natural disasters. In some variations, you may be directed to what appears to be legitimate sites offering information about the charity, only for the payment button to collect your debit card details.
Again, verify these charities with the Tax-Exempt Organization Search Tool.

The Tax Transcript Emails

Emails can carry more than lures to give over information. In this case, the phrase “your tax transcript” has tricked workers and tax professionals into downloading malware to their computers.

The email appears to come from IRS Online and purports to offer amendments or corrections to your tax transcript. Again, the IRS will not contact taxpayers first by email. Additionally, they will not email anyone’s tax information to an email address that could be inaccurate.

Don’t click links or download attachments unless you’re certain you know who sent it and why. Don’t even open it to see if it has your social security number inside. It doesn’t. It’s one of many scam emails that deserves to be deleted or forwarded to the authorities at [email protected].

The W-2 Scam Evolving Employee Protections

In the months leading up to April 15, expect the W-2 scam to surge during a busy season for these professionals. This phishing scam targets payroll and HR professionals by luring them to send their employees’ W-2 forms to identity thieves. Using similar tactics such as impersonating the Taxpayer Advocate Service or the IRS phone number, the unsolicited email may stress the urgency to send information without offering much detail as to why.

If a fraudster swipes W-2s from an employer, they can file fraudulent returns in the names of the employees. The W-2 scam is well-documented to lead to tax-related identity theft.

One of the surest defenses is establishing protocols to protect your employee’s sensitive information.

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