January 26, 2015 notice: Read this Federal Trade Commission press release about the latest tax scams and how to protect yourself: 1) File early. 2) Remember that the IRS will never contact you by phone or email, and 3) Notify the FTC and the IRS if a scammer contacts you.
Scammers are everywhere, so be careful!
Read the information below so that you'll be better prepared and not become the next victim of a tax scam.
As you’ll see, tax scams can take many forms. Besides taking your money, a thief is often after your identity. Having your identity stolen can negatively impact your credit, your work history and your annual tax filings. It can take years to clear up the harm done from an identity thief. Learn what to look out for so you can avoid the misery!
“Phishing” is a tool thieves use to get your personal information. A thief sends you a bogus e-mail (or fax) under the guise of a legitimate organization, such as the IRS. These e-mails look genuine and sometimes it takes a careful eye to avoid falling for them.
For example, an e-mail claims to be contacting you on behalf of an organization like the IRS. For tax purposes, this is usually an e-mail sent to you as a taxpayer saying that you are eligible for a refund if you provide personal information. Alternatively, it can be an e-mail indicating that if you do not provide the necessary personal information then you will be assessed penalties. Here are some recent scams the IRS is reporting:
- Refund Scams: phishing emails that appear to be from the IRS. They say that before you can get your refund you must register by clicking on a link and providing personal information. For example, this year scams claim to offer "Making Work Pay" refunds from the Federal Government's 2009 economic recovery legislation. These emails ask you to click on a link and provide bank account information in order to claim your lump sum refund. In reality, most workers will not receive the "Making Work Pay" refund as a lump sum, but rather as a reduction in taxes taken out of their regular paycheck. Remember, you don't have to complete a separate form to get your refund.
- Inherited Funds and Lottery Winnings Scams: phishing emails that appear to be from the Department of the Treasury. They claim that you will receive millions of dollars if you provide personal information or pay a "tax." In reality the scammers are only attempting to steal personal information or trick you into paying them money.
- Fake Tax Forms: phishing emails or faxes that send you a fake IRS form. They request you return the form with personal information. Remember, the IRS provides official forms on its website (www.irs.gov).
Here is a sample phishing scam e-mail:
From: Internal Revenue Service
Sent: Tuesday, September 02, 2008 8:57 AM
Subject: IRS Tax Refund
Internal Revenue Service (IRS)
United States Department of the Treasury
After the last annual calculations of your fiscal
activity we have determined that you are eligible
to receive a tax refund of $620.50.
Please submit the tax refund request and allow us 6-9 days in order to process it.
A refund can be delayed for a variety of reasons.
For example submitting invalid records or applying after the deadline.
To access the form for your tax refund, use the following personalized link:
Internal Revenue Service
Document Reference: (0x3D.0x67.0x3A.0x11).
It makes sense that you would trust this e-mail but think twice. Once you share your personal information with a thief, he can victimize you in many ways. He can take money out of your bank account, make charges on your credit cards and open new loans in your name. It can also impact your tax bill. If someone gets your social security number, he can use it to work illegally. This means that any money the person earns will be reported as income to you. At the end of the year you may be hit with a big tax bill to cover that income. The IRS may also add penalties to your bill because the it considers that income unreported. Also, the person who takes your identity may file a bogus tax return to claim your refunds.
E-mail isn’t the only way that thieves can get you to part with your personal information. There are also scams where thieves sent out bogus faxes or make phone calls impersonating IRS employees. You should never share information with anyone whom you do not know.
Phishing scam tips:
- The IRS does not initiate contact with taxpayers via e-mail or fax. Unless you’ve already communicated with someone from the IRS, you will not get an e-mail or fax from anyone at the IRS.
- To be eligible for a tax refund or the economic stimulus rebate you must file a tax return. There are no other special forms or ways to get a refund or rebate. If you get an e-mail telling you about a special way to qualify for a refund, it’s bogus.
- If you are suspicious about someone who claims to be from the IRS, you can call 1-800-829-1040 to confirm that the IRS has contacted you. Taking the time to confirm a contact can save you money and headaches down the road.
What to do if you receive a scam e-mail:
- Do not reply to the e-mail.
- Forward the e-mail to email@example.com
- Delete the message.
What to do if your identity has been stolen:
- Report it to the FTC: On the web. Or by phone: 877-438-4338
- File a report with your local police department and get a copy of the report.
- Contact the three credit rating agencies to see what activity has taken place on your account.
- Put alerts on your accounts.
- Close any accounts that have been tampered with.
- Report misuse of your social security number to the Social Security Administration.
Scare Tactis Fraud
Scare tactics fraud is when you get and phone call or email from someone claming to be the IRS and tell you that you have tax debts that need to be paid immediately, or there will be series consequences. They may threaten deportation, say you will be arrested, or that your driver’s license will be suspended. Of course they’ll try and get you to pay the “debts” directly to them. The caller ID or email sender address may appear to be from the IRS, and emails my even contain fake documents to convince you of the debts.
The IRS will never call or email with these kind of threats. If you do have debts, you will be contacted my mail, and the process in generally slow and methodical, not “Pay Now!” urgent.
Information courtesy of the IRS
Tax Professional Fraud
Preparing a tax return can be confusing. Many of us turn to professional tax preparers to make sure the job is done right. Unfortunately, some preparers don’t have your best interest in mind. In some cases, tax preparers draw clients in by promising large refunds. Of course, preparers can’t promise any refund for taxpayers. Instead, these crooked preparers lure you in with a promise and then use the opportunity to create a bogus return for you. They then skim off part of your “large refund” for themselves. However, when the IRS examines the return, you will be left with the job of fixing the problem and paying back any money that you shouldn’t have gotten - plus penalties and interest!
If you have a tax debt, you may have noticed ads from companies that promise to settle your tax debt for pennies on the dollar. Watch out!
Many honest tax professionals routinely represent clients before the IRS to reduce and resolve outstanding tax debt. However, some companies promise services that will only create headaches for you down the road. Some “tax settlement specialists” claim to be able to drastically reduce your tax debt – for a large fee. And even worse, usually what they’re selling isn’t what you need.
Here is how the process works. In IRS language, what you are looking at is an “offer in compromise” (OIC). An OIC can be a useful option. It allows you to make a reduced, lump-sum offer to the IRS to satisfy the entire outstanding debt. However, there is no secret to success. Basically, if you choose, you can hire a tax professional to walk you through the forms and make follow up calls to the IRS. These are things that many people can do on their own, without paying a large fee. The OIC process does not involve any negotiations.
The IRS reports that it rejected 75% of the offers it received in 2007. To be successful with an offer you need to show that it’s the best collection option for the IRS. In other words, is your offer the most that the IRS can expect to receive from you over the next five years? It’s that simple. So, ask yourself: professional help with your OIC, you may end up paying a lot of money for a service that doesn’t offer any relief.
- Avoid “tax settlement specialists” - companies whose sole business is preparing OIC’s.
- Don’t get tricked into paying a large fee for a service that will most likely not get the results you are looking for.
- If you financially qualify, we can help you to prepare an OIC for free.
Tax preparation tips:
- If it sounds too good to be true, it probably is. No tax preparer can promise you a refund, especially a large refund.
- When you sign a tax return, you are telling the IRS that you agree with what is reported, even if you didn’t prepare it. You will be held accountable for the contents of your tax return.
Finding a tax preparer
Here are some things to look out for to ensure your tax preparer will meet your needs:
- You’ll want a preparer who you can contact in the future and who will respond to your questions. Stay away from preparers who close their office after filing season is over. If you have a problem down the road, you’ll want to be able to count on them.
- Get references to find out if past clients were satisfied.
- Check with state board of accountancy or state bar association to see if the tax professional has any questionable history.
- Try to get an estimate of cost in writing that is clear to you. Read over any agreement carefully before you sign it.
- Stay away from preparers who try to persuade you to say something that isn’t true on your tax return or who persuade you to buy other services or products.
- Stay away from preparers who ask you to sign blank forms or who want the refund sent to them.
- Most importantly, don’t be afraid to ask questions – you should fully understand your tax return.
You can get your taxes done for free by fully-trained tax professionals!
During tax season you can dial 2-1-1 and get a listing of tax sites in your area offering free tax preparation for elderly and low-income folks. These returns are prepared by tax professionals who have been trained by the IRS. Their accuracy rating is often better than commercial preparers. More on free tax prep
Partially updated October 2014 and January 2015