December brings holiday celebrations as well as end-of year financial planning and the inevitable stress of filing income tax returns. If finances are tight, the lure of too-good-to-be-true offers promising to maximize your tax refund may be difficult to decline. This could even be true if things are going well for you financially.
It’s important to be aware of how scammers target unsuspecting victims this time of year. This includes new tax refund scams and classic tax fraud schemes that have been in circulation for years. Get a head start on tax season by protecting yourself and your loved ones from these financially disastrous scams.
In Relation to Your Unclaimed (and Unexpected) Refund
The IRS recently posted a consumer alert about a mailing that misleads people into believing they’re owed a refund. The letter looks official but includes contact information that isn’t directed to real IRS customer service agents. It requests identifying information (driver’s license photo, financial account and routing numbers, and Social Security number) to claim the “refund.” If provided, the scammer will have all the information they need to steal your identity. Beware of solicitations like this one and remember to only contact the IRS using legitimate methods from their official website.
Fuel Tax Credit Scam
The IRS has seen an increase in promotions for filing for the fuel tax credit, according to the consumer alert. This is a credit for federal tax paid on fuel, and it’s intended for off-highway businesses and farming use. It isn’t available to most taxpayers. However, unscrupulous tax return preparers and others convince individuals to increase their refunds by claiming the credit illegitimately. Scammers often promote the tax credit and charge a fee to file it, pocketing both the fee and the refund. When the erroneous filing is discovered, you will be on the hook for paying the money back to the IRS.
Tax Avoidance Schemes
A claim that your owed taxes can be dramatically reduced or eliminated is too good to be true. These scams often target high-income individuals in the highest tax bracket. Known as abusive tax avoidance schemes, they include predatory deals with investment insurance, conservation easements, or hiding assets internationally. Taxpayers should beware of any scheme that promotes a dramatic reduction in taxes owed.
Year after year, tax preparer fraud and identity theft remain near the top of the IRS Dirty Dozen list. This list features the worst tax scams that deserve another look. The scams mentioned above are promoted by fraudulent tax preparers who want to steal or sell your identity.
Tax Preparer Fraud
Tax preparers who operate in a gray zone or are out to only commit fraud against unsuspecting victims are common. These fraudsters refine their techniques to become more convincing each year. Illegitimate tax preparers often set up in a temporary location leading up to tax season. Then, they’re gone before you realize you’ve become a victim. They offer extra deductions and credits you aren’t eligible for, drawing you in on the promise of a hefty refund. That refund is then directed to their bank account, and you’re the one investigated for filing a fraudulent tax return.
Watch out for these five red flags that your tax preparer may be a fraud.
- The preparer does not provide their preparer tax identification number on your return. Consult the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications before hiring someone to prepare your taxes. This directory will help you find a qualified preparer in your area.
- You are not asked to document your deductions, or you are encouraged to cheat. Tax preparers that you can count on will help you file your return quickly. They will also ensure you have the appropriate documentation to back up your return should you need it later.
- You are asked to sign a blank or partially completed return, and the preparer will "fill it in later." A reputable tax preparer will insist that you review your completed return before you sign it. They will also provide you with a copy of your signed return.
- The tax preparer's fee is based on a percentage of your refund. This motivates them to convince you to claim false deductions or make other untrue statements to inflate your refund amount.
- Your preparer suggests that your refund be directed to an account that you can't control. Unless you get an immediate advance on your refund, secured by your tax refund, then it could be a scam.
Remember, if a tax preparer lies to get your business, they shouldn’t be trusted with your personal financial information. If you think you’ve fallen victim to this scam, contact the Taxpayer Advocate Service, an independent organization within the IRS.
Tax Identity Theft
This occurs when a criminal files a tax return in your name, using your personal information, to claim your refund. Taxpayers might not know they’re the victim of tax identity theft until they try to file a return online. At that point, they learn that one has already been filed using their information. One way to prevent tax identity theft is to request an Identity Protection PIN from the IRS. This is a six-digit number only known by you and the IRS. It prevents someone else from filing a return in your name. Get your IRS Identity Protection Pin now on the IRS website.
If you feel you’ve fallen victim to tax fraud, our Identity Theft Recovery Advocates are here to help! As a Smarter, Smart or Fresh Start checking account holder at McCoy, you have access to identity protection benefits. Our identity theft protection specialists are trained to fully manage your identity recovery and are standing by to help.
