With Tax Day rapidly approaching, the IRS wants consumers and business owners to be on the lookout for a wide range of tax schemes. Illegal scams can lead to penalties, interest and in some cases criminal prosecution. Many of these scams can take place during any time, but the risk of falling victim of one of these schemes greatly increases during tax season.
Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.
To help combat identity theft, the IRS has introduced new verification methods before issuing refunds. Also, they’ve dedicated 3,000 people working specifically on identity theft related cases, nearly double the amount they had in 2011. Additionally, a special section on IRS.gov has been set up with YouTube videos, tips for taxpayers and an assistance guide to help tax payers who believe they may have been a victim of identity theft. Taxpayers can also call the IRS Identity Protection Specialized Unit at 800-908-4490.
Phishing usually involves an unsolicited email or a fake website that appears to be a legitimate site, to lure potential victims into disclosing valuable personal and financial information. It’s important for taxpayers and business owners to note that the IRS does not initiate contact with taxpayers by email requesting personal information. If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to firstname.lastname@example.org.
Tax Return Preparer Fraud
About 60% of taxpayers will use tax professionals to prepare their tax returns this year. Most tax preparers are honest, but if a tax preparer promises you a deal too good to be true, be leery. It’s important to choose carefully when hiring an individual to prepare your return. Only use preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINS). Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else.
“Free Money” from the IRS & Tax Scams Involving Social Security
A popular scam that preys on low income individuals, the elderly and members of churches involves “free money from the IRS,” and is often spread by word of mouth by well-intentioned people who tell their friends and relatives, without realizing this is indeed a scam.
One example of this type of scam involves telling victims they are eligible for a refund or tax credit via the American Opportunity Tax Credit. Con artists falsely claim that refunds are available, even if the victim was not enrolled in or paying for college. The promoters build false hopes and expectations, then charge people money for bad advice promising a huge reward. By the time the victims discover their claims are rejected, the promoters of the scam are gone and can’t be found. Intentional mistakes of this kind can result in a $5,000 penalty.
These are just few of the most popular tax scams the IRS wants taxpayers to be on the lookout for this tax season. If you or your business suspects you’ve been the victim of a scam, the IRS has a special section on their website with forms, information and phones to assist you.