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Don’t Get Fooled by These Scams This Tax Season
Tax fraud is a serious crime. Tax refund fraud itself affects millions of people every year and costs the government billions of dollars. In 2011, fraudsters stole more than $3 billion from the government via an estimated 1.1 million false returns. That same year, the Internal Revenue Service blocked more than 12 million false refund claims worth more than $40 billion.
The Internal Revenue Service today (IRS) has issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.
Here are some of the list of the tax scams:
1. Identity theft
“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,” says the IRS. “In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.”
According to the Identity Fraud Report by Javelin Strategy and Research, 12.6 million people, more than 5 percent of the U.S. adult population, were the victim of identity theft in 2012. If this number still feels a little abstract, it works out to about one American ever three seconds. Nearly one in four people who are initially notified of a data breach end up having their identity stolen. Identity fraudsters stole nearly $21 billion, the most since 2009.
The good news is that as enforcement mechanisms improve — one thing that we can thank the IRS for — the amount of misuse per incident is dropping. The average duration that an identity thief used stolen information dropped to 48 days in 2012, down from 95 days in 2010.
2. Pervasive Telephone Scams
The IRS has seen a recent increase in local phone scams across the country, with callers pretending to be from the IRS in hopes of stealing money or identities from victims.
These phone scams include many variations, ranging from instances from where callers say the victims owe money or are entitled to a huge refund. Some calls can threaten arrest and threaten a driver’s license revocation. Sometimes these calls are paired with follow-up calls from people saying they are from the local police department or the state motor vehicle department.
Characteristics of these scams can include:
- Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
- Scammers may be able to recite the last four digits of a victim’s Social Security Number.
- Scammers “spoof” or imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
- Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
- Victims hear background noise of other calls being conducted to mimic a call site.
After threatening victims with jail time or a driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.
In another variation, one sophisticated phone scam has targeted taxpayers, including recent immigrants, throughout the country. Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.
Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.
If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, report it immediately. It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
4. False Promises of “Free Money” from Inflated Refunds
Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place.
Scam artists use flyers, advertisements, phony store fronts and even word of mouth to throw out a wide net for victims. They may even spread the word through community groups or churches where trust is high. Scammers prey on people who do not have a filing requirement, such as low-income individuals or the elderly. They also prey on non-English speakers, who may or may not have a filing requirement.
Scammers build false hope by duping people into making claims for fictitious rebates, benefits or tax credits. They charge good money for very bad advice. Or worse, they file a false return in a person's name and that person never knows that a refund was paid.
5. Return Preparer Fraud
About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But, some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.
It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).
6. Hiding Income Offshore
This isn’t so much the work of a third-party fraudster as it is the work of a would-be taxpayer trying to reduce their tax liability. Hiding money in offshore bank accounts is about as classic a tax dodge as you can get, and the IRS is cracking down on this behavior. “Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations,” the IRS reports. “And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.”