Tax season can be cumbersome and meticulous for many taxpayers, and most just want to get them done quickly. As there always seem to be, however, scammers have come up with a plethora of strategies to steal your money, and your identity as well. Of course, there are ways for you to commit fraud on your own returns, but for now we’re focusing on scams that can be perpetrated against you.
IRS tax scams have been around for a long time, and have actually increased significantly in recent years. According to the Federal Trade Commision (FTC) there was a 2,300 percent rise in reported IRS tax fraud in one short year.
In 2014, close to 33 percent of all complaints filed to the IRS had to do with tax identity theft. Scammers come in many forms, and they are constantly altering their methods to persuade you that they are the real deal.
How Do Common Tax Scams Work?
There are a number of things a scam artist will try in order to get you to relinquish your personal tax information or pay them money.
- Phone: Scammers will call you and say that you owe money, and if you don’t pay, you’ll be arrested. They use fear and urgency in order to persuade you to give up precious bank account or credit card information. Most of the time, they are actually able to manipulate the caller ID to say, “IRS” or they’ll even have the last four digits of your Social Security Number.
- Phishing: Faux emails are designed to look authentic; they may have the logo of the IRS, or perhaps an official-sounding signature. But these are always scams. This is the form of fraud that is on the fastest rise: the 1,389 incidents reported through February 16th of this year already tops the total reported for all of 2014. They will request everything from tax ID numbers, to social security and bank account numbers.
There are many forms of email scams that, while not all are directly related to taxes, can still affect you come filing season. The email you receive will try to convince that this is a trusted source. For example, one of these email schemes is known as the “grandparent scam.” What happens is, the scammers will tell you that they are a family member in a jam, and they need you to send them money for help. They can get this information from almost anywhere, so it’s important to consider: if this actually is a family member, and they actually are in trouble, would they be emailing me for help? The answer is no.
- Identity theft in general is also of major concern: people gain access to your Social Security Number and then file a fraudulent tax return. They do this through phishing, so it’s important to note that you should never give out this number through email.
- W-2s: This is in relation to the phishing scheme in that it originates through email, but it’s a bit more nuanced. The scammers will once again have a couple pieces of information to make it seem legit, such as the name of the CEO of the company, and they use this in emails to the payroll department in order to trick them into giving up personal information.
When one reads all of this, the first question one might have is, “How do they get my email address or phone number?” Well with email, they use bots to crawl through email list, such as those for online shopping websites, or they can actually buy email addresses in bulk. This same process can be used for phone numbers as well.
New Programs, New Tax Scams
Every once in a while, a new provision is put into place that creates an extra step for taxpayers when they are filling out their returns. A few years ago, the Affordable Care Act, a.k.a Obamacare, went into effect. And since then, there have been a rash of people claiming themselves as, “tax preparers” who try to tell you that you owe a penalty fee for not having health insurance. This is especially troubling because, as opposed to someone in India or Nigeria phoning you up and demanding money, this scam happens in person and from someone you may even deem trustworthy.
As Obamacare is a new program, it is still confusing to some, particularly to those whose English is their second language and/or are a new citizen of the U.S. So someone fraudulently claiming themselves as a tax preparer will try to convince you that you owe a penalty or fee for Obamacare, and tell you to give them cash or a personal check, and they will take care of it for you. They of course never do this, and just pocket the money for themselves.
So although businesses, websites and consumer shopping centers are using technology to protect your information as closely as possible, this same technology is being used by scammers to their advantage. A high school math teacher’s favorite phrase is, “The calculator is only as smart as the person operating it.” This applies here; your information is only as safe as the person to whom it belongs. This is why it’s always important to recognize when a potential scam is taking place.
How Can I Tell It’s a Tax Scam?
The IRS will never, ever ask you for money over the phone or through email. All of their communications are through regular mail, at least at first, and then it will likely be in person. Over the phone with a scammer, the exact amount you “owe” will remain vague from start to finish, and they will request unordinary means of money transfer, such as Western Union, Moneygram, or even a prepaid debit card.
Be on the lookout for an overuse of adverbs in email scams, particularly the word, “kindly.” The term “God bless” will likely be in the email as well. These are common phrases for scammers whose first language is not English, and if you ever see these terms, it is a scam. If you see an email or receive a phone call that you know is a scam, report it. The worst thing you can do, other than falling for the trick, is to ignore it. People reporting these attempts at fraud are the only way the IRS can stay one step ahead of the problem, and alert taxpayers to evolving schemes.
Every year the IRS publishes a “Dirty Dozen” list summarizing the most popular and effective methods scammers use to steal your money and identity. Every year phishing and phone scams are on that list. This signifies that although people are more aware of scams, they continue to fall for it. The most at-risk group are those 55 and older, and this is because they are more trusting of others than younger age groups.
While most schemers are caught and the money returned to its rightful place, the IRS still paid $5.8 billion in fraudulent refunds in 2013. Identity theft is always a threat, but during tax season it becomes the height of the IRS’ focus. The good news is that, while the number of cases of tax scams are on the rise, punishment for these scammers is harsh, and the rate of incarceration is fairly high. This is why it’s so important to understand the signs of a scam described above, and to report it when you see it.