With year-end approaching, and millions of Americans getting their finances in order for their tax obligations to Uncle Sam in 2018, financial fraudsters are lying in wait, hoping for an opportunity to commit tax fraud on unsuspecting financial consumers.
Make no mistake, tax fraud is big business for the financial fraud artists. According to a recent study by the AARP, 80% of survey participants say they are concerned, and half (50%) say they are extremely or very concerned about becoming a target or victim of fraud. Additionally, over one in seven U.S. adults say they have been a victim of identity theft; and 27% have been the victim of a security breach.
How can you identify IRS tax scams and learn how to protect yourself? That's an achievable task, but it takes being diligent, being properly educated on the various ways tax scams can strike, and taking the necessary action steps to combat IRS tax scams.
The Two Main Types of IRS Tax Fraud
While tax fraud comes in myriad forms, the following primary categories are most likely to result in someone to report tax fraud:
1. Phone Fraud
With phone scams, tax scammers call claiming to be IRS agents and try to get you to part with key personal information, which they'll use to conduct identity theft.
Here's how phone-related tax fraud works.
You'll receive a phone call out of the blue from someone purporting to represent the Internal Revenue Service. According to an IRS consumer alert, the caller is likely to demand cash directly from your bank account or credit card. Or, even more likely, the fraudster will say you have a refund coming and attempt to get you to part with critical personal financial information, like a Social Security number or a bank account number.
In most cases, the scammer will alter his or her caller ID to mirror an actual call from the IRS. They'll use bogus names and titles and offer to provide equally fraudulent IRS employment I.D. numbers.
Below, the IRS offers some helpful tips and guidance to avoid falling prey to phone fraud:
- The IRS will never call to demand immediate payment, nor will we call about taxes owed without first having mailed you a bill.
- The IRS will never demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
- The IRS will never require you to use a specific payment method for your taxes, such as a prepaid debit card.
- The IRS will never ask for credit or debit card numbers over the phone.
- The IRS will never threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
If you get a phone call from someone claiming to be from the IRS and asking for money, take these action steps:
- Call the IRS immediately at 1-800 829 1040. If there's a problem with your taxes, an IRS staffer can help you work it out. If there's no problem, they'll tell you that, too.
- If you're certain you don't owe taxes and don't have any tax problems, report the phone call scam to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800 366 4484 or at www.tigta.gov.
Phishing, which the IRS placed among its "dirty dozen" tax fraud schemes, happens when taxpayers receive bogus emails that try to link them through to phony IRS websites. The reality is different -- and dangerous, as phishing emails generated from fraudsters are designed specifically to swipe your personal data. IRS phishing scams can also include attachments to emails that embed toxic codes and can either breach or damage your laptop, e-reader, or other digital device.
The emails try to steer unwary taxpayers to fake IRS websites, where they'll be asked to share their personal information in order to claim a refund, address a tax payment problem, or to simply confirm your identity. The websites will appear to be from a legitimate bank, financial institution -- or even the IRS. (Watch out for emails purporting to be from IRS.gov, which is the official IRS website. A big red flag here is if there is not period (.) between "IRS" and "gov.")
Often, the malicious emails will claim to address the following taxpayer issues:
- You're entitled to a tax refund and must click on a link to access your information and claim your refund.
- Your bank account or credit card has been compromised but you can fix the problem by clicking the link to an IRS web site.
- You have a tax obligation to pay and can do so by clicking to an attached web site.
As with phone scams, the IRS will never reach out to you via email to request personal financial information -- they only use mail, and often certified mail to reach out to taxpayers. If you see an email from someone pretending to be from the IRS, ignore it and definitely don't open any attachments. You can steer suspicious phone calls, faxes, text messages and mailed letters to firstname.lastname@example.org.
Four Other Types of IRS Tax Scams
While phone and email-based phishing scams are the primary modes of IRS tax scam fraud, they're not the only ones. Watch out for these scams, too.
1. Social Security Identity Theft
Identity theft via Social Security theft is also on the upswing, the IRS reports.
This occurs when tax fraudsters file bogus tax returns using someone else's Social Security number, often stolen via email, mail or telephone fraud. Unfortunately, since the IRS doesn't match W-2 information submitted by a tax filer with that filed by employers until late in the year, Social Security tax fraud often goes undetected.
The taxpayer victimized by tax fraud won't find out about the crime until he or she files a tax return, and is told by the IRS that somebody else has already filed a tax return in his or her name, and has already collected the refund. Often, it can take the IRS months to correct the problem, and get you the right tax refund.
2. Tax preparer fraud
This type of tax scam involves contact from purported tax preparers either looking for information or asking you to update your tax or financial records.
Following through on such requests -- and listing any critical personal financial information, like bank accounts, credit card numbers, Social Security numbers, or bank PIN numbers, for example -- can lead directly to identity theft. Often, the culprit is long gone by the time you realize your data has been compromised, and you've been victimized financially by tax preparer fraud.
3. Bogus IRS agent "at home" visits
IRS tax scammers aren't above knocking on your door and informing you of a discrepancy on your tax return -- and demanding you pay for that discrepancy right then and there. The so-called "agent" will likely have a phony IRS card or credentials that look all too real. This type of scam, which is usually targeted to elderly taxpayers, should be stopped in its tracks by informing the tax agent imposter you won't do business face-to-face and ask to speak directly to their superior. The IRS, by and large, will never send an agent to your home (most taxpayer business can be handled by pre-authorized phone contact, using the IRS phone number, by authorized IRS payment providers, or via U.S. mail.)
4. Promises to boost tax refund claims
The IRS warns taxpayers to be "on the lookout" for scammers promising inflated tax refunds. Avoid any individual or organization who asks you to sign a blank return, and in return promises to obtain a hefty tax refund in your name. Fraudsters use flyers, advertisements, phony storefronts and word of mouth via community groups, where trust, is high to find victims, the IRS states.
What Is Tax Fraud?
Tax fraud against consumers is broadly defined as when your personal information, (i.e. name, Social Security number, address, etc.) is stolen and used to commit tax-related identity-theft. For example, a tax fraud specialist who gains access to your personal data can use it to file a tax return in your name, and collect any tax refund you had coming in the process. Or the fraudster can steal your Social Security number and use it to open up a credit card in your name.
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The IRS has grown increasingly focused on targeting tax fraud, and is reporting a rise in scams, primarily via email, text messages, and phone-based fraud. Such cases often lead to taxpayers unwittingly providing tax fraud criminals with personal data that could lead to significant financial loss.
How to Prevent Tax Scams from Happening to You
If you do become a victim of tax fraud, or suspect that it's happening to you, report any tax scams directly to the IRS, who'll open an investigation. You'll be asked to fill out an IRS Identity Theft Affidavit that records your case with the IRS and informs them officially that there has been suspicious activity on your tax account. That process triggers an investigation that will seek to solve your tax fraud case.
In addition, you should deploy these additional tips to help you avoid becoming a scam or identity theft victim during tax season:
- When filing your taxes online, send your income tax return from your home computer and never file your taxes using public Wi-Fi access. Fraudsters can easily swipe your personal data if you opt to file using out-of-home Internet access. Keep your tax filing in-house, and safe, and you'll drastically reduce your chances of being victimized by tax fraud.
- Never store your income tax returns on your home computer. That just makes it easier for cyber thieves to hack your computer and steal your tax returns. Here's a better idea -- use a portable USB hard drive to store sensitive material, and store the hard drive in a home or bank security vault for safekeeping.
- Try to use strong passwords and choose tax software preparation companies that use dual-factor authentication for further security, which makes it more difficult for scammers to hack into your personal accounts.
- Stop phishing emails by ignoring or deleting any request for personal information from anyone purporting to be from the IRS. Also, never click on links or download attachments in emails from anyone claiming to be from the IRS.
- Never engage in telephone calls from someone claiming to be from the IRS. Tax scammers can be persistent, and will be using phone calls to threaten, cajole and scare you into providing personal payment information to settle a tax debt. They'll often use arrest, deportation, or tax levies to get you to part with your personal financial data. Don't fall for it, as the IRS doesn't use phone calls to settle tax debt payments. If you do receive such a call, take the person's name, badge number, and phone number, and report them to the IRS at 1-800 366 4484.
- Make sure to select a real, professional tax preparer. Only enrolled agents, tax accountants and tax lawyers can represent you on IRS tax matters. Know that going in when you choose a tax preparer, and make sure you review all of a tax preparer's credentials, including possible disciplinary actions, before making any hiring decisions.
The IRS also offers a helpful website on tax fraud. Find it at https://www.irs.gov/individuals/identity-protection. Or, you can call the IRS's Identity Protection Specialized Unit at 1-800 908 4490.