Tax scams don't all look the same, but they are all intended to steal your money. Most fall into one of several categories of illicit acts, including phone scams, phishing and tax provider scams. Help yourself avoid these scams by knowing what kinds are out there and taking steps to keep your money safe.
Don't engage with phone scammers
The caller knows your name and maybe your address, too. He says he's from the Internal Revenue Service (IRS) and tells you that you owe back taxes and must pay up now or face arrest or deportation.
Or, sometimes, the scammer says the IRS owes you a refund and then asks for your financial information. Aggressive phone calls like these are at the top of the IRS' "Dirty Dozen" tax scam list. Remember—the IRS will never:
- Demand payment in a phone call
- Threaten to bring in law enforcement agencies
- Ask for credit or debit card numbers by phone
Avoid these scams by remaining calm and vigilant. The key is to get off the phone without providing any personal information, then report the incident to local police, the Federal Trade Commission or the Treasury Inspector General for Tax Administration at 1-800-366-4484.
One way to avoid phone scams is to let voicemail pick up calls from people you don't know, especially during tax season. Elizabeth Beristain, writer and teacher in the San Francisco Bay Area, uses this technique.
Last year, she received several threatening, tax-scam calls on her voice mail, but simply opted not to return them. "It's easier to recognize a scam on your voice mail," Beristain says. "You aren't put in the position of having to respond immediately."
Don't respond to emails seeking personal or financial information
If a phony IRS contact comes via email, it's called phishing. The newest twist on phishing is a request that says it comes from the IRS asking you to update your IRS e-file or profile.
The term phishing also refers to websites designed to steal your personal information, like Social Security numbers. Criminals can use this information to steal your identity or your money. With a Social Security number, they can file a tax return in your name and pocket the refund.
Avoid phishing scams by taking these precautions:
- Never open emails claiming to be from the IRS. The agency won’t send emails out of the blue about your taxes or refunds.
- Stay away from websites that look suspicious or promise results that are too good to be true.
- Never give out your Social Security number or any financial information in response to an email request.
Use reputable tax preparers and websites
Not everyone who offers to do your tax return is a legitimate tax preparer. Phony tax preparers and tax preparation websites are interested only in stealing your money and financial information.
The IRS requires tax preparers to obtain an annual Preparer Tax Identification Number (PTIN) before they are authorized to prepare federal tax returns. If someone doesn't have a PTIN, don't allow him or her to do your tax return. The IRS also has a Directory of Federal Tax Return Preparers you can use to verify that a tax preparer is credentialed.
Ideally, use a tax preparer you know and trust or a tax preparation website that has been around awhile and has a good reputation. If you are solicited by someone new, be wary if the tax preparer:
- Bases fees on the amount of your refund
- Suggests you have your refund sent to him
- Cannot file electronic returns
- Doesn’t sign your return and include a PTIN
Steer cear of tax preparers who promise too much
Some unscrupulous tax preparers lure taxpayers with such tactics as:
- Promising to hide income in off-shore companies
- Claiming sky-high exemptions
- Using deductions you've never used before and don't understand
Remember, if a tax preparer files a fraudulent return in your name, the IRS can assess penalties and interest, and you might even face criminal charges.
Avoid any tax preparer who asks you to sign a blank return or assures you of a big refund before even learning the details of your financial situation. Walk the other way if he suggests falsifying documents or bending the law, like offering to "correct" a 1099 form by reporting your income as zero.