5 tips to protect yourself from tax scams – Forbes Advisor

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Three things in life are certain: death, taxes and tax scams.

Whether it’s text messages claiming to be from the IRS or phone messages threatening you with arrest for the taxes you’re supposed to owe, fraudsters are looking for new victims.

Last year, taxpayers lost more than $4 million to scammers posing as the IRS, with a median loss per complaint of $515, according to reports from the Federal Trade Commission (FTC).

But this is only the amount declared lost; the actual total may be much higher.

Tax scam calls escalate in the month leading up to Tax Day, and scammers will make more than 2 billion calls in the week leading up to Tax Day, according to data from First Orion, a communications company that offers branded caller ID for businesses.

Why are we sensitive to tax evasion?

Most of us don’t know the tax code, says Kent Welch, chief data officer at First Orion, which makes us fear we’re doing something wrong when we submit our annual tax return. “And now, when everyone is vulnerable, these scammers take advantage,” he says.

In a March survey, the company found that 40% of consumers would expect the IRS to email them if there was a problem with their tax refund or payment amount, and 30% of consumers would expect the IRS to call them.

But the IRS communicates primarily by mail. He rarely calls or visits taxpayers, and he never emails or texts.

“My clients frequently call me in a panic because they have been led to believe that the IRS called them to demand payment or to otherwise threaten them,” says Gena Jones, founder and CEO of the tax firm. and Accountant Jones Tax Group.

There is a lot you can do to protect your identity and your finances from tax scams. But first, it helps to know how these scammers work.

Types of tax scams

1. Tax evasion

The reason you hear that you should file your tax return as soon as possible is because someone else can file a return in your name and steal the refund you’re waiting for.

You may not realize someone has filed a fraudulent tax return until you eventually file yours and find out that “you” have already filed it.

“Unfortunately, criminals can leverage snippets of information to file a fraudulent statement and can do so without even accessing a W-2,” says Troy Gill, senior threat intelligence manager at Zix, a technology security firm. .

If someone has collected enough information to file a tax return for you, such as your social security number and contact information, they almost certainly have enough personal information about you to access other aspects of your identity or finances.

Another type of fraud involves your tax preparer misrepresenting your refund total by giving you less than what is owed to you and keeping the rest of the refund for themselves.

The IRS does not monitor the prevalence of “ghost” tax preparers, but the Justice Department closed four tax preparers for unscrupulous practices in 2022 alone.

If your tax preparer does not sign your return or designates it as a “self-prepared” return, beware. Paid preparers are required to sign and failure to do so is a major red flag of malicious intent.

2. Phishing Scams

Phishing scams use unsolicited communications to try to get information or money from you, or sometimes both.

You might receive a text or email from “the IRS” asking you to click on a link to check your tax refund or the status of your stimulus payment. But the link takes you to a web page asking for personal information to steal your identity.

Or you might get a phone call from someone claiming to be from the IRS about an unpaid tax bill. The caller may even give you a lot of information about yourself, like your full name or date of birth, to gain your trust.

The IRS primarily uses regular mail to contact taxpayers and never sends text messages or emails.

A scammer may only need one more piece of information to complete a profile about you based on other information they already have, says Welch. “Their tactics are to piss you off quickly and make you make decisions quickly,” he says. “The next thing you know, you’re giving information.”

A talented scammer can also extort money from a victim. Welch recalls a “college tax” scam targeting young people last spring.

The scammers would call and say, “You haven’t paid all your taxes. You made your declaration but you did not pay the ‘study tax’ to go to school,” he recalls. “And they would tell you to ‘deal with it right away’ with a credit card, or if you don’t have one, run to Walgreens and get an iTunes gift card.”

How to stay safe from scammers this tax season (and all year)

1. Just hang up

The IRS does not send emails or text messages. He rarely calls and usually sends several letters before sending agents to your door out of the blue.

And it never demands immediate payment of any amount you may owe.

“Hang up any callers who begin the conversation with a threat or anything that seems extreme,” Jones says. “Any government agency that wishes to communicate with you will send you a letter.”

Do not give any information to a caller. If you want to call the IRS or the company claiming to be calling you, find the customer service phone number yourself. Don’t trust the information the person gives you or the number that appears on your phone screen. The number could be spoofed or disguised, to make it look like it’s from a legitimate business or agency, Welch says.

Although it is difficult to reach a live human on the phone at the IRS due to limited staff and high call volume, the best number to call the agency with your tax questions is 800-829-1040 .

You can check your tax information by setting up and verifying your account on the IRS website, which will show your refund status and the amounts you owe.

2. Inspect the letters carefully

Mikkel Jensen, US director of Ageras, an online marketplace that connects business owners with accountants, says to carefully read any correspondence claiming to be from the IRS.

“Any correspondence that uses threatening, demanding, or aggressive language is a clear indication of a scam,” he says, explaining that IRS correspondence is informative and straightforward, and does not demand payment immediately or through specific methods like prepaid debit cards.

Each type of letter or notice the IRS may send has a corresponding number, which can be verified on the IRS website.

3. Trust your instincts

If your gut tells you something is wrong, it’s probably true.

If you’re in the middle of a conversation and think you’ve given someone too much information, Welch advises you to hang up immediately and report it to your financial providers like your bank or credit card company.

As soon as a scammer has enough of your personal information, their next step is to try to get your money, says Welch. Notifying your financial providers of a potential problem helps them be on the alert for you.

If you find yourself in this situation, you can also freeze your credit reports to prevent someone from opening new credit accounts in your name.

4. Obtain an Identity Protection (IP) PIN

The IRS allows you to set a six-digit secret code called an Identity Protection PIN or IP PIN. It’s free and you can get one after creating an IRS.gov account and verifying your identity.

Once you have your PIN, you will use it to sign your tax return. If someone tries to file a return on your behalf using your social security number or tax ID, they will be rejected without also having the PIN.

The IRS will generate a new pin for you each year, which you will receive in the mail in December or January.

5. Research tax preparers

If you want help preparing your tax return, research potential tax preparers carefully before agreeing to work with one, says Peter Rice, president and CEO of Hanscom Federal Credit Union in Massachusetts.

Rice advises researching your tax preparer’s qualifications, as well as how they handle and protect your personal information. Tax preparers must have a Preparer Identification Number (PTIN). When they complete your declaration, they must sign it and include their PTIN.

If your tax preparer doesn’t have a PTIN, won’t sign your return, says your refund will be deposited into their account, or requires cash-only payment for their services, find a legitimate one.

You can check a tax preparer’s credentials by visiting the IRS Preparer Directory.

There are several free options for getting help with tax preparation, so don’t feel pressured to pay someone who could do lasting damage to your finances.

How to report tax fraud and scams

If you think you’ve interacted with a scammer, report it.

  • If you get a suspicious email, do not click on any links and do not respond. Forward it to phishing@irs.gov
  • If you get a suspicious phone call, send an email to phishing@irs.gov with the subject line “IRS Phone Scam”. Include details about the call, including the phone number and any instructions the caller gave you during the call or left in a voicemail.
  • If you get a Suspicious SMS, do not click on any links and do not respond. Submit it to the IRS at 202-552-1226. Send a separate text to the same number to provide the original number.
  • If you suspect your tax preparer is acting maliciously, report it to the IRS with IRS Form 14157.
  • If you find out that someone has filed a fraudulent return on your behalf, file an online identity report and learn your next steps at identitytheft.gov.

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