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How To Avoid Common Tax Scams

How To Avoid Common Tax Scams

Tax season is stressful enough without the added worry of falling victim to tax scams. Unfortunately, this is a reality many taxpayers face. According to the Federal Trade Commission, consumers reported losing over $10 billion to fraud in 2023, marking an increase of more than 14% compared to the previous year.

Here are three prevalent types of tax scams to be aware of:

1. IRS Imposter Scams: Scammers impersonate IRS agents, typically contacting you by phone or email, and request confidential information. This information can be used to access your financial accounts, steal your identity, or commit other crimes.

2. Tax ID Theft: Someone files a tax return using your Social Security number and claims your refund before you have the chance to file.

3. Tax Prep Scams: Unscrupulous tax preparers charge a fee for preparing your taxes but either don’t file them or sign them, leaving you responsible for any filing errors or late fees. Anyone preparing or assisting in preparing federal tax returns for compensation must have a current preparer tax identification number (PTIN) from the IRS.

Educating yourself on these scams and knowing what to watch for can help you avoid becoming a victim. Here are some tips to safeguard yourself from these increasingly common crimes.

Unsolicited IRS Communication

1. Be Cautious of Unsolicited “IRS” Communication

The IRS will not contact you via phone or email without first sending you a written notice in the mail. If you receive a call claiming to be from the IRS, be wary of urgent or threatening behavior from the caller. Ignore any emails or texts asking for personal information, as the IRS does not:

  • Initiate contact via email to request personal or financial details.
  • Leave pre-recorded or threatening messages.
  • Threaten arrest or other punitive actions.
  • Demand immediate payment through prepaid debit cards, gift cards, or wire transfers.
  • Ask for checks to be sent to third parties.
  • Demand payment without offering a chance to question or appeal the amount owed.

For secure communication with the IRS, set up an account on their website to view balances, set up payments, and access prior tax records.

2. Freeze Your Credit

Freezing your credit with major credit bureaus can help protect you from identity theft by making it harder for others to open new credit accounts in your name. The Federal Trade Commission provides information on how to contact the credit bureaus to freeze your credit.

File Your Taxes Early

3. File Your Taxes Early

Filing your taxes as soon as you have all necessary documents can help prevent tax ID theft. The earlier you file, the harder it is for someone to steal your refund by fraudulently filing your return before you.

4. Obtain an Identity Protection PIN

An Identity Protection PIN (IP PIN) is a six-digit number known only to you and the IRS, preventing others from filing a tax return using your Social Security number or Individual Taxpayer Identification Number (ITIN). Visit the IRS website for instructions on obtaining an IP PIN.

Work with a Reputable Tax Preparer

5. Work with a Reputable Tax Preparer

Ensure your taxes are filed correctly and on time by working with a reputable and trustworthy tax preparer. Avoid preparers who:

  • Operate “pop-up” offices without a permanent location.
  • Lack a PTIN.
  • Ask you to sign a blank return.
  • Promise large refunds without reviewing your records.
  • Charge fees based on a percentage of your refund instead of a set price.

If it sounds too good to be true, it probably is. The IRS offers tips on finding reputable tax preparers, and your financial advisor may have recommendations.

6. Report Tax Fraud

If you encounter or suspect tax fraud, report it to the IRS to help protect others from similar scams.

Conclusion

Staying informed and vigilant is your best defense against tax scams. By understanding the common types of scams and following these proactive steps, you can significantly reduce your risk of becoming a victim. Remember, the IRS has established protocols for communication and payment, so any deviations should raise immediate red flags. Protect your personal information, work with trusted professionals, and report any suspicious activities. With these precautions, you can navigate tax season with greater peace of mind and security.