Part One: Everything You Need to Know About Tax Fraud

Benjamin Franklin is often credited as saying, “In this world nothing can be said to be certain, except death and taxes.”

If Franklin were alive today, besides being relieved electricity has evolved beyond a kite and key in a thunderstorm, he might add a third item to his list of permanent things in life: scams focused on taxes.

We are now in the midst of what many identity thieves view as “the most wonderful time of the year” – tax season. The massive amount of financial data and key personal information being exchanged in the weeks leading up to April 18 is a virtual treasure trove for evil doers who specialize in scams and identity theft.

While these types of crimes are permanent – and increasing each year – that doesn’t mean you have to be one of the statistics. In the first installment of this two-part series, I will arm you with helpful information you can use to reduce your odds of becoming a victim of tax-related identity theft. Your biggest defense shield is simply being aware of the methods criminals use to try and scam you.

1. Be aware of how the IRS will contact you

If the IRS needs to contact you, they will first send you a letter (called an IRS notice) through the U.S. Postal Service. Such a letter will not be threatening, but will explain why you are being contacted and provide next steps. Any IRS contact information provided should be confirmed on the official IRS website (https://www.irs.gov/).

In extremely unusual instances, the IRS may contact you by phone. This would occur only after you received one or more IRS notices via postal mail and did not reply.

Even more rare would be a situation where an IRS revenue agent comes to your home or business as part of an audit or under the pretext of delinquent taxes or tax returns. In such an instance, you would be made aware of this visit in advance or at a minimum that the IRS was trying to contact you.

2. Be aware of how the IRS will NOT contact you (but the fraudsters will)

• The IRS is never going to send you a text message for any reason – yet this is a common delivery method criminals use to execute tax-related identity theft. Scammers will send text messages to individuals claiming to be from the IRS. These text messages might include links directing you to fake websites that resemble the real IRS site. The goal is to get you to enter in sensitive data. The text messages might also tell you to contact the IRS at a fake phone number. Once you call the bogus number, fraudsters answering the phones will try to get personal information from you or attempt to trick you into making some sort of payment.
• Email hoaxes may be similar to text hoaxes – they often include links directing you to fake websites under the guise they need information to process a refund owed to you. It may include a threat in the email message that if you do not supply certain information, you will face criminal charges. Just as with texting, the IRS is not going to contact you by email. Since the actual IRS logo may appear in the email, these fake messages can look very convincing.
• In recent years, there has been a massive increase in phone calls to U.S. taxpayers pretending to come from the IRS. These calls are usually threatening and tell you immediate action is required. For example, they may say “This is the IRS Division of Collections and you owe $3,000 in taxes from the previous tax year. If you do not arrange payment on this call, we have already contacted local authorities who are on their way to arrest you.”

However, per the official IRS web site: “The IRS will never demand immediate payment, threaten, ask for financial information over the phone, or call about an unexpected refund or Economic Impact Payment. Taxpayers should contact the real IRS if they worry about having a tax problem.”

3. In addition to knowing the ways the IRS will and won’t contact you, consider these helpful tips of things the IRS will never do

• Request a fee of any amount for you to receive your tax refund.
• Ask you to complete a form before or after filing your tax return that includes requests for information such as birthday, address or social security number.
• Threaten to cancel your social security number unless you act as directed.
• Claim to be from a section called the Bureau of Tax Enforcement (it doesn’t exist) and say they are placing a lien on your assets.
• Email or text you a link with the status of where your tax return is in IRS processing. If you want to get an update on your IRS return, you can do so on the official IRS website. (https://www.irs.gov/refunds)
• Say you owe the Federal Student Tax and need to pay now. There is no such thing as a Federal Student Tax.
• Threaten to arrest you.
• Demand immediate payment. If you owe money to the IRS, you will be notified via postal mail and you will always be given the opportunity to ask questions or appeal what it is claimed you owe.
• Ask you for your credit card or debit card information over text, phone or email.
• Request payment via means such as wire transfers, gift cards, pre-paid debit cards or cryptocurrency. Scammers prefer these types of payment because they’re almost impossible to track.

4. When filing your taxes, never use a “ghost tax preparer”

Always research your tax preparer. “Ghost preparers” are people who pose as tax prep professionals but are not properly licensed. They don’t sign the returns they prepare – a huge red flag – and any errors they make in filing the return will become the responsibility of the taxpayer. They may charge for filing a return that is not needed or will ask for payment upfront for an inflated refund.

A legitimate tax preparer will have a Preparer Tax Identification Number (PTIN). It’s a good idea to ask your tax preparer to sign and include this on your return. Any reluctance on these steps is a warning sign they’re likely a ghost preparer.

These four tips can help protect you from being a victim of tax fraud scams. But what if you believe your information has been compromised? Stayed tuned for the second half of my series “Everything You Need to Know About Tax Fraud” for signs that your personal data has fallen into the wrong hands and what to do if your information is compromised.

Informational and educational purposes only and should not be construed as specific tax advice. The above information may be based on third party information which may become outdated or otherwise superseded. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this information. R-22-3367