Common Tax Scams and How to Avoid and Respond

The annual tax season begins in mid-January and goes through mid-April. During this period, taxpayers lose millions of dollars each year as a result of tax scams and the uptick in cybercrime, identity theft and fraud. The Internal Revenue Service (IRS) warns taxpayers about current common tax scams and phishing schemes and reminds taxpayers that they are legally responsible for what is on their tax returns, even if it is prepared by someone else.

The Most Common Tax Scams

There are several common tax scams that reappear year after year. Some are connected to everyday technology, and some arise around current events like the pandemic. Here are some of the most common scams to watch out for:

Identity Theft and Unemployment Scams: An extremely common form of identity theft involves unemployment claims using stolen Social Security numbers. Due to the COVID-19 pandemic, there has been an increase in identity theft scams connected to unemployment. Scammers use stolen personal data to file fraudulent unemployment claims in victims’ names. Victims then receive a 1099-G tax form detailing unemployment compensation that was never collected. Inaccurate 1099-G’s should be reported to the issuing state agency.

Phone Scams: Phone scams are one of the most common tax scams. Scammers impersonating IRS agents will make aggressive and threatening calls demanding immediate payment for apparent money owed. Threats of arrest, deportation, and suspension of a driver’s license are used to frighten the taxpayer into cooperation. Remember: the first IRS contact with taxpayers is usually through physical mail. If a person is unsure, they can go directly to the IRS website and call for support and clarity.

Verification Requests: Savvy scammers will reach out to taxpayers, posing as an IRS official and request that the taxpayer “verify” W-2 details and other information. The IRS does not typically request identification verification, and certainly not by phone. On the rare occasion that the IRS is following up on a suspicious tax return, they will send a Letter 507IC in the mail to request identity verification.

Phishing Schemes: Phishing schemes use unsolicited emails and fake websites to lure victims into divulging personal information that will be used in identity theft in fraud. Phishing schemes are one of the most instantly recognizable types of cybercrime and the scam can be perfectly tailored to tax season. IRS officials warn of unexpected emails that promise a refund or make threats about collections owed. The IRS does not initiate contact with taxpayers by email or text messages.

Charity Fraud: Charity fraud is becoming increasingly common in the aftermath of the pandemic, as well as in the aftermath of natural disasters and other events. Scammers will impersonate charities in an attempt to obtain cash or personal financial information. Some will even reach out to victims of a disaster, claiming to be from the IRS. The IRS has a search tool available on their website, to help individuals identify legitimate non-profits. Click here to learn more.

Avoiding Tax Season Scams

Beyond being able to identify common tax scams, there are a few good practices to put in place that can help to protect a person from falling victim. It all starts with smart filing! Filing tax returns is something of a “first come, first served” system. By filing early, a taxpayer can beat a criminal to the punch and prevent them filing a fake tax return and taking their payout before the IRS is alerted. A taxpayer can secure their filing process by only using secure Internet connections for online filing, taking paper tax forms directly to the post office, and trusting a verified tax professional.

A lot of tax season scams can be avoided by simply practicing good cyber-hygiene. It’s important to protect tax documents and any personal identification or financial information, especially a social security number. This can take the form of putting locks on phones and other devices, password protection,  or storing all sensitive information in a safe place at home. Be especially aware of online data breaches, as this can put a significant amount of information into the hands of criminals. If an individual is concerned that information may have been compromised in a data breach, they should take proper steps to secure information such as freezing and monitoring credit reports and updating  passwords.

If a Social Security number has already been compromised, there are a few red flags that can signal that the individual is being targeted for tax identity theft. These include the following:

• Receiving letters from the IRS about a tax return that the individual did not file.
• Being unable to e-file a tax return because of a duplicate Social Security number.
• Receiving a notification that an online IRS account has been created in the taxpayer’s name or that an existing account was accessed and disabled.
• Receiving notice from the IRS that indicates that the taxpayer received wages from an employer they didn’t work for.

Staying Vigilant and Responding to Tax Scams

Unfortunately, many taxpayers only discover an identity theft when attempting to electronically file a tax return or if the IRS sends a letter about a suspicious return filed with their Social Security number. The IRS recommends that if a taxpayer receives a strange notice in the mail, they are to call the number provided and respond immediately. If there has been an online breach, the taxpayer may still pay taxes and file their return on paper.

Since cybersecurity and tax scam prevention are about year-round readiness, it is important to stay vigilant. Victims of identity theft should check their credit annually and put freezes on their credit to prevent new accounts from being opened in their name. To learn more about common tax scams and how to avoid them, visit the official IRS website at irs.gov.

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