There’s no nationwide system for tracking just how many people fall victim to tax scams.
But with scammers getting smarter and their technology more advanced, it’s likely that the number of victims has been rising in the last several years.
These scams can lead you to pay fake bills or handing over personal information. Whether you lose a few hundred bucks or have your entire financial identity compromised, the effects can be devastating. When it comes to your tax records, it can also take you years to recover from a scam.
Learning how to protect yourself from these scams is a must for every taxpayer.
Keep reading to learn a few common scams targeting taxpayers, including the IRS letter scams, email phishing scams, “ghost” tax preparers, and more.
1. IRS Letter Scams
Many scammers utilize the internet or smartphones to try to trick taxpayers into making false payments or offering up sensitive personal information.
The problem with many of these scams is that the IRS rarely calls or emails taxpayers unless they are solicited to do so. Which means that many keen taxpayers quickly spot these scams for what they truly are.
That may be the reason that some scammers are sticking to snail mail to try and trick people into really believing they are the IRS.
Scammers are sending fake tax bills that look very much like real noticed from the IRS. Some are made to look like they are related to the Affordable Care Act.
If a taxpayer doesn’t have health care, they have to pay a penalty related to their taxes.
Scammers make it look as though this notice is to pay that fee. Sometimes the recipients are those who didn’t have to pay such a fee. Other notices make it look as though the taxpayer simply didn’t pay enough.
These scams are incredibly dangerous because it is very difficult to tell which ones are fake and which are real notices from the IRS.
Warning Signs of the IRS Letter Scams
While this scam is one of the more convincing ones, there are several small details that can help protect you from falling victim.
First, check the address that the notice came from. Many of these scams originate from an Austin, Texas address. No official paperwork from the IRS would come from an address in that city.
If the letter requests that you make your check out to the I.R.S. at the “Austin Processing Center,” or if the letter number is “105C,” this is another warning sign.
2. Tax Transcript Emails
There are so many IRS email scams out there that it can be tough to keep track of them all.
But one common one that’s been going around for a few years is the “tax transcript” email scam.
Scammers send out an email with an attachment labeled “tax transcript.” A tax transcript is the summary of your return. Eager taxpayers, excited to see and receive their tax return, open the attachment, only to find that it’s a virus that released malware onto the tax payer’s computer.
This malware can wreak havoc, searching for personal data. It can render an entire network useless for however long it takes to get rid of it, which could be months.
This scam has been knowing to specifically target employees of major banks and other financial institutions in the hopes that they’ll open the email at work and release the malware onto the company’s computer network.
Warning Signs of the “Tax Transcript” Emails
This scam is actually very easy to spot; the IRS has never and will never send unsolicited emails to taxpayers and would certainly never email anything as sensitive as a tax transcript.
If you ever receive an email that looks like it’s from the IRS and you didn’t reach out to them first, you can rest assured that its a scam.
3. Ghost Tax Preparers
Registered tax preparers go through hours of classes and study to learn how to help clients properly (and legally!) file their taxes. They are trained to help taxpayers get the best possible return, while also ensuring that taxes are filed correctly so that fewer problems arise.
In order to file taxes as a tax preparer, professionals need a Preparer Tax Identification Number, or PTIN, valid for the year that the tax return is being filed. Each year, they have to request a new PTIN for that year.
One IRS scam that has been tricking taxpayers into paying for services that aren’t what they seem is the so-called “ghost” tax preparer scam.
A scammer pretends to be a registered tax preparer. They reach out to the taxpayer, by email, and sometimes even under false pretense by having a fake website.
They take over the taxpayer’s paperwork and prepare them for filing. They bill the taxpayer, and then send them the paperwork to be signed, or deliver it electronically to be re-signed.
Then, they tell the taxpayer to send the paperwork to the IRS.
If this sounds like the normal filing process when working with a tax preparer, you’re correct. But this process is missing one very important step; the signature of the tax preparer and their PTIN.
Without these two things, to the IRS, the taxes simply look like they were self-filed by the taxpayer. The taxpayer thinks that their taxes have been professionally prepared.
The tax paperwork is often riddled with errors, and the taxpayer will be blamed for the mistakes because the IRS considers the taxes to have been self-filed.
The taxpayer also thinks that they are going to receive a huge tax return, and they pay the tax preparer a percentage based on that. Ouch.
Warning Signs of the “Ghost” Tax Preparer Scam
This scam can be difficult to spot because the tax preparer might look and sound legitimate. But there are a few warning signs that can help you avoid getting tricked.
To start, professional tax preparers rarely require you to pay in cash. Real tax preparers understand that it will take a while for their clients to receive their return, and are often prepared to accept credit card or other payments to give clients more flexibility.
Another warning sign is not receiving a receipt from your services. You can actually deduct the amount you paid a tax preparer for that year’s taxes, but you’ll need a receipt to do so, which means professionals will provide you with one.
Scammers may also try to encourage you to embellish your income in order to score you a higher return. A legitimate preparer would not (or at least should not!) ever do this.
There are even parts of the IRS website that contain advice you need to be cautious about following. You should never follow advice or accept/pay for help from an unverified or questionable source.
4. Natural Disaster Relief Scams
As it does every year, the U.S. saw its share of natural disasters in 2018.
There were 8,500 wildfires in California. Hurricane Florence caused widespread flooding in the Carolinas, as well as in numerous inland states. Hurricane Michael decimated Mexico Beach, as well as several other small coastal Gulf towns. Hawaii experienced a volcanic eruption that destroyed entire neighborhoods and changed the landscape of the land.
Countless Americans reached out to help their friends, neighbors, and complete strangers deal with the damage and restart their lives from scratch.
Unfortunately, many Americans also fell victim to scammers looking to cash in on their generosity.
There are several ways they did this. Some scammers impersonate charities in an attempt to gain access to personal information. Others set up websites or even entire fake charities and accept “donations.”
There have even been reports of scammers pretending to be working with the IRS and offering to help taxpayers who have been affected by natural disasters file loss claims and get their tax returns.
Warning Signs of Natural Disaster Relief Scams
There are several ways to avoid becoming a victim of one of the natural disaster relief scams.
One is to only donate to verified charities. The IRS maintains a list of tax-exempted charities and non-profits that they have vetted. If you want to give, consider choosing a charity from this list.
To avoid scammers impersonating one of the verified charities, only contribute using a credit card or check, never with cash. Legitimate charities and non-profits will never solicit personal information from you when you give a donation.
If you’ve been affected by a natural disaster, check the IRS website to see what kind of relief is available. Only go through the website to file for this relief, never through individuals offering their help.
5. New IRS Telephone Scams
IRS telephone scams long precede the new email phishing schemes. But scammers are getting smarter and updating old tactics in an effort to claim more victims.
The scam starts out the same as always. A scammer calls a taxpayer pretending to be the IRS. They usually schedule their calls right around when tax returns are being released, though new reports show that scammers are attempting this scheme year-round now.
The scammer claims that the taxpayer owes a tax bill and demands that they pay it right away, usually over the phone using a debit card.
They may threaten the taxpayer, saying that they’ll face additional charges or even jail time and criminal charges if they don’t pay.
The way that this scam has changed is that scammers have now figured out how to get their computers to display the local IRS TAC phone number. To the taxpayer, it looks like the local office is calling. When taxpayers question whether or not the caller is truly from the IRS, the scammer instructs the taxpayer to hang up and go online to verify the phone number.
When the taxpayer checks their local IRS website, they’ll see that phone number displayed. The scammer then calls back, demanding payment.
Warning Signs of the New IRS Telephone Scams
Spotting this scam is relatively easy, though trusting citizens worried about breaking the law still fall for it often.
The IRS will never, ever ask for payment over the phone. If you do owe money to the IRS, you’ll first hear about through a notice sent by mail. While the IRS could call taxpayers about a bill, they would still instruct you to go online or pay through the US Treasury.
They also would never specify the type of payment you need to use to pay. Scammers will often request anything from debit cards to gift cards as payment.
This type of scammer often tries to use direct threats to trick taxpayers. They may say that you will lose your license, that immigrants will get deported, or that police will soon arrive at your door to arrest you. In reality, the IRS would not and could not do any of this.
You can certainly face legal trouble if you don’t pay your taxes. The IRS can even arrange for your passport application to be denied if you are far behind on your taxes.
But there are many steps that would be taken first, none of which include a police officer knocking on your door immediately after your first notice of a missed payment.
How to Spot IRS Scams
Falling for IRS letter scams, email phishing scams, “ghost” preparer schemes, or telephone scams can be devastating for your finances. It can also harm your standing with the IRS.
If a fake or incorrect tax document is filed, or if you pay a fake bill and end up not paying the real one, you could end up owing back taxes and facing penalties. While the IRS wants to help educate you on scams and shut them down, they won’t accept a scam as an excuse for mistakes made.
But scams aren’t the only reason you might face an audit this year. New tax law changes are mixing things up and putting more taxpayers at risk of making mistakes.
Learn what these changes are so that you can prevent an audit from happening to you, or get in touch with us today so that we can help you if you believe you’re faced with a scam or have already been affected by an IRS scam.