The IRS is familiar with fraud. In 2015, they stopped a total of $10.9 billion in fraudulent refunds. And that’s the number of scams they caught and not counting ones they didn’t.
But scammers aren’t just targeting large organizations like the IRS. Consumers fall victim to scams all the time. The top consumer fraud is the Imposter scam, and the FTC investigated nearly 350,000 cases in 2017.
During tax season, you need to be on your guard. Don’t let scammers take your money. Here’s what to be aware of and how to resolve your tax debt legitimately.
The Top Tax Scams You Should Avoid
Tax scammers are getting creative. They know how to catch you off your guard and get your information. You’ll be spouting off your credit card number before you have a chance to think.
Your only defense against this kind of attack is knowledge. If you know what they’re going to do, you can recognize a scam before you fall victim to it. Here are a few scams to understand.
Phone-y IRS Agents
If the tax man gives you a personal call, hang up. Seriously, the IRS will never call you threatening you with arrest or any immediate criminal prosecution.
But when you get a phone call from someone claiming to have authority, it’s reasonable to panic. Your amygdala hijacks the rest of your brain, and you enter fight or flight mode.
Scammers have been using this technique to steal people’s information over the phone for years. The scam artist will first request a social security number and then explain that the victim owes money and needs to make immediate payment to avoid tax penalties.
The most common victims of this scam are older citizens and immigrants, who are not up to date on tax laws and customs in the U.S. These individuals should be especially cautious and take steps to identify these calls during tax season to avoid becoming a target.
Any phone call from someone claiming to be from the IRS can be identified as a scam call. The IRS will send letters to a citizen to collections and will make multiple attempts to collect. Escalation of tax penalties takes a long time in the IRS, which means they will not immediately contact a person to demand money.
What do you do if you get one of these calls? Question their authority. If they claim to be the police, ask for a badge number. If they claim to be the IRS, ask for identification and a supervisor.
If they continue to escalate, hang up and report the caller to the police. The police might not do anything, but you’ve done your duty. Never call back.
One of the oldest tricks in the book is the phishing email. Phishing is when someone attempts to steal personal information by sending a fraudulent email. Some of these are more obvious than others, but during tax season, an email from the IRS can seem pretty legitimate.
In the past, email scammers sent a link to an online tax form for victims to fill out. After a victim filled out all his or her personal information, however, the form was submitted to a scam artist instead of to the IRS. Not only can this result in identity theft, but it also caused fines and penalties to build up for people who thought they had paid their tax returns but hadn’t!
A new type of phishing email that has appeared in 2019 are emails from fraudulent associations or professional groups that claim the victim is a member. These groups pretend that they need updated information in order to file the group’s taxes.
Never send private information like your social security number or your bank information. Don’t give any information at all. Some scammers might be trying to figure out your bank security questions.
The Internal Revenue Service warns the public that they will never send you an email asking for personal information. Do not respond to or open emails claiming to be from the IRS. The IRS does not send emails out of the blue.
A general rule of thumb with any of these scams, contact the IRS directly if you suspect you owe money. Don’t reply to emails or phone calls.
Once the scammer gets ahold of your social security number, they can now file tax returns in your name. It might seem like you’re stuck if this happens, but you’re not.
File your tax returns every year. File early. If the IRS gets a second tax return, they’ll know it’s not from you.
Did you lose a family member recently to a disease or some tragedy? You might get a call from a scammer.
Legitimate charities trying to eliminate rare diseases do exist. And scammers know how to emulate these charities. They’ll call asking for money and remind you that it’s tax deductible.
First, never give your financial info over the phone. If you want to give to a charity, the IRS has a tool you can use. The Tax Exempt Organization Search tool lets you search for tax-exempt organizations approved by the IRS.
False Tax Preparers
One tax scam to be aware of is unfortunately with income tax preparers. If a tax preparer promises huge returns and charges a percentage of the tax refund, there is a good chance he or she is a scam artist. This kind of scam takes more gumption than phone or email scams. These scammers have to be willing to meet with you in person.
Usually, fraudulent tax preparers will only meet with people who do not speak English well. False tax preparers also prey on people who don’t understand the U.S. tax system.
These scammers will charge large sums for their services and make it seem like you’re getting an incredible deal by working with them. Don’t fall for this. Tax preparers never charge based on the amount of the return. Instead, they will charge a fee based on the time it took to prepare the tax return and to file it. In addition, if a scammer is promising a high return, there is a good chance he or she is using sneaky tactics to get it.
Scammers may state on the tax return that a client has additional dependents or is eligible for extra tax credits. This can result in tax penalties and fines based on an incorrectly filed return.
Instead of trusting these “tax preparers”, check the Federal Tax Return Preparer directory. You can also ask trusted friends if they know of a legitimate tax preparer or attorney.
Business owners need to be especially cautious of tax scams. Scam artists have a number of ways of targeting business owners directly.
One major way in which scammers target business owners is by crafting a fake email address that is similar to that of the company’s owner or CEO. The scammer then sends out the email asking for sensitive employee data, either to HR or to the employees. Employees and HR managers may send this information back, enabling the scammer to collect data from multiple sources at once.
Another business scam occurs where a scam artist pretending to be a tax preparer approaches a business to help with their tax preparation. Similar to “false promise” scams, the scam artist will charge a percentage of the amount returned. The scammer then reports a loss on their tax return so as to increase the return amount. This results in a large tax return, a large cost for the tax preparation services, and large fines when the loss turns out to have been faked.
As a business owner, it is important to protect employee data against these types of scam attacks by having a strong cyber security system in place.
Letters in the Mail
Unfortunately, scammers have begun to target victims by sending out mailed letters which look as though they are from the IRS. These letters state that the individual owes taxes to the IRS and are commonly printed on a fake IRS letterhead.
Often, there will be small typing or spelling errors, which can help be red flags that this may be a fake. Look for signs to help understand whether this letter really is the IRS contacting you or if this might be a scammer.
While these bills may look as though they are from the government, be wary about paying any tax bills without double checking whether or not you are expecting any fines.
You hear about it in the news all the time. Billionaires are hiding their funds in offshore accounts to avoid paying taxes. And we all feel a little jealous.
These tax scammers rely on your jealousy. They know you’d like to avoid your taxes just like everybody else. But remember, only well-connected people know how to navigate the shadow financial world. An offshore bank won’t email or call you offering to move your modest savings to an offshore account.
What do you do? Give away no information and hang up or delete the email.
Fall for this scam, and The IRS can still prosecute for attempting to hide your money. So, don’t even try. You’ll regret it.
Getting a Bigger Return? It’s Too Good to be True
Let nobody but a certified tax professional file your taxes for you. Don’t even let your neighbor do it for you. They might say they know a secret that could get you a more substantial return. Don’t listen to them.
Some of these scammers look like legitimate tax preparers. They’ll put a sign up in their front yard and claim to be accountants. If they tell you about some unheard of tax deduction or credit, this is a sign you should take your personal information and get out of there and report them.
Tax Shelter Scammers
If you think you can break bad and avoid taxes through some illegal scheme, think again. You’re more likely get scammed by a scammer than find someone who can legitimately hide your money from the government.
Sorry, Saul Goodman, but the IRS will readily prosecute anyone who tries to convince someone to hide their money from the government.
One common way scammers convince people to do this is through supposed tax shelters. Tax shelters can be a legitimate way to lessen your tax burden, and we’ll talk more about that later. The illegal kind of tax shelter is the most popular kind.
A typical tax shelter method that’s illegal is assigning your income to someone else with a lower tax rate. Some try to set up shell corporations and put another family member in charge to pay less in taxes. The IRS won’t approve.
If anyone offers to do something similar for you, say no. File your taxes, pay them, and be honest.
Free Money, Who Wouldn’t?!
Scammers who call offering free money aren’t offering free money. They’ll ask for your bank account information so they can wire money to you. You’ll never hear back from them again.
They tend to target non-profits and small church groups hoping for donations. If you run any of these organizations, ask for a check or cash payment. Don’t ever give out financial information over the phone.
Social Security Refunds
Scammers often prey on the elderly. They’ll claim these people can claim a larger than usual Social Security refund. The catch is you have to file through them to get the larger refund.
Don’t believe someone who calls and says they can transfer funds from the Social Security Administration to the IRS. These are scammers. Be wise, hang up on these people.
Also, if a tax preparer surprises you with a larger than usual return, don’t sign your papers. Go get a second opinion from another legitimate tax preparer. And if you find the preparer was doing something illegal, report them.
How to Resolve Your Tax Debt the Right Way
You’re pretty sure you owe the government money. That thought can be anxiety producing. Relax. We can help you solve your debt without falling victim to scammers. Here’s how.
File Your Taxes Early
62% of millennials and 56% of Gen-Xers worry about their finances weekly. Included in that fear is taxation.
This kind of anxiety can be crippling. The longer you procrastinate on filing your taxes, the worse your anxiety will get.
Filing your taxes early will also ensure several things. First, you can know that if someone stole your identity, the IRS would be more likely to catch them. Second, you can start planning to pay off your debt to find financial freedom sooner.
If you don’t file your taxes soon, you could forget. The penalties are severe for not filing your taxes. The late filing fee is 5% of the taxes owed for every month late up to 25%.
Depending on how much you owe, this could be a decent amount of money. Thus, it’s better to file sooner than later.
Apply for a Payment Plan
You have 120 days to pay the IRS. Paying the IRS within the allotted time frame is by far the best option. You’ll avoid fees and interest and come out on top.
But if you can’t pay back the IRS within that time and you owe less than $50,000, you can apply for various options. Thanks to the Fresh Start initiative introduced after the 2008 financial crisis, the IRS is more gracious than previous decades.
An IRS Payment Plan
If you owe more than $50,000 to the government, you can skip this section. But if you owe less and can’t pay in 120 days, this might be the option for you.
You can pay monthly payments on your IRS debt for up to seventy-two months. Seventy-two months is about six years. You get to pick your minimum payment, but the IRS encourages you to divide your debt into seventy-two installments and make that your minimum.
We recommend you make your minimum payments low and then pay as much as you can each month. This will ensure you don’t miss a payment each month and if you pay more than the minimum, you’ll be debt-free sooner.
The maximum number of years in which you can choose to pay off the IRS is ten years. But the standard streamlined installment plan and the one we encourage due to interest buildup is six years.
If you owe more than $25,000, then you need to provide documentation proving your income to the IRS before you can begin your installment plan. It costs $120 for a standard agreement and $52 if you want a Direct Debit agreement from your bank account. If your income is below 250% of the Federal Poverty Guidelines, then you might qualify for a reduced fee of $42.
If You Owe More Than $50,000
It’s a little harder to apply for a payment plan from the IRS if you owe this much. You can’t use the online installment agreement if you owe so much.
You must provide some financial information to the IRS if you want them to help you out. This includes lines of credit and any accounts you own. Any assets you own and that includes real estate. Lastly, you’ll need to submit your income and living expenses.
You may still not be eligible for installment plans. If you need time, it never hurts to ask. Be sure to provide any documentation you think supports your case.
The fees for this payment plan are the same as the payment plans for less than $50,000.
A Small Business Agreement
If you own a small business, your taxes will be more complicated than if you’re an individual filing taxes. The IRS has a special payment plan for small business owners who owe $25,000 or less.
With this installment plan, you have less time to pay off your debt. The most common timeframe is 24 months or two years.
You’ll want to use the Online Payment Agreement Application and in addition file the In-Business Trust Fund Express Installment Agreement. If you do this, you won’t need to submit a financial statement to the IRS.
If you owe more than $10,000, you can set up a Direct Debit agreement. And the cost for a Direct Debit agreement is $25.
If You Need Representation
Sometimes the IRS gets it wrong about your tax debt. They might not have all the information they need, or scammers might be involved in some aspect.
If you need help dealing with the IRS, you don’t have to approach them alone. Get a free case evaluation and give yourself every opportunity for success.