Top 10 Tax Season Scams in 2020
You could find tax filing tips everywhere but here are 10 scary scams to avoid when doing it. Whether you’re filing taxes online or just searching for how to maximize tax return, read this article now and educate yourself.
The tax season is a very lucrative time for criminals all around the world. People are still falling victims, whether is online or via phone. We caught up with a few reputable security experts to share their tips and collected ten major scams that you should be aware of this year, regardless of where you live. If you came across them or have been victimized, report them with the Federal Trade Commission HERE. Here they are below:
1. Your Tax Refund Scam
Scenario 1. What would you do if you’d get a call from the Government telling they can’t process your taxes because somebody else ALREADY applied in your name? Watch the video below to see the exposed scam.
Scenario 2. You’re checking your email when you notice a message that seems to be from the government regarding your tax return. The news is good – you’re in line for a big refund! If you just submit your banking information, they can deposit the money right in your account for you.
You either reply to the email, or follow a link to an official-looking site with the government tax agency logo on it (IRS in US, CRA in Canada, HMRC in the United Kingdom, ATO in Australia, etc.). Of course, there would be nothing wrong with entering your banking information, if it was, indeed, your government. It isn’t, and you could stand to lose everything on your card.
Scenario 3: You get an email about your taxes but this time, you get the email shortly after you submit. Your tax agency informs you that you can have all the payroll taxes refunded for a fee, usually one that’s proportional to the amount you stand to get back (5%, 10%, etc.). They tell you the amount and ask you to wire the money. If you did so, you can kiss that money goodbye.
“The tax refund e-mail scam is active in over 15 countries all over the world. Don’t fall for it. Take the time to read up a bit on the process of tax returns in your country, if you aren’t informed already. Always rely on professional accountants this time of the year, contact legitimate companies to prepare your papers, or use trustworthy services”, says Sorin Mihailovici, the founder of Scam Detector.
2. Tax Agent Call Scam
This is the most common scam during the tax season. Watch the video below to hear in action real scammers and their phone calls recorded.
Taxpayers are receiving phone calls from scammers who purport to be IRS, CRA, or HMRC agents – depending on your country. “They claim to be calling about unpaid back taxes and proceed to threaten the unwitting taxpayers with arrest, lawsuits, suspension of their driver’s license, and more”, says Michael Raanan, a former IRS Agent and current owner of Landmark Tax Group.
“They generally use common names and surnames to identify themselves. Some of them spoof IRS toll-free numbers on caller ID to make it appear that it’s the IRS calling and they are sometimes able to recite the last four digits of a victim’s Social Security number”, says Raanan.
“Unfortunately, the scammers have worked out an effective system that has netted over $12 Million thus far. After calling the unwitting victim on their cell phone, the taxpayer is persuaded to remain on the phone and instructed to travel to a local convenience store or Walmart to purchase a Green Dot cash card. After the purchase, the victim then proceeds to provide the scammer with the account number on the back of the card, which is henceforth as good as cash in the thief’s pocket. At a recent IRS tax forum in San Diego, I was informed by an IRS Criminal Investigation agent that the largest loss to a single victim was over $100,000 to a taxpayer who stayed on the line for about 7 hours”, concludes Raanan.
Jayson Mullins from Top Tax Defenders adds to it. “You should know if you owe the IRS money they will never call and demand immediate payment, they will at least send a notice advising you owe; they will never demand taxes without giving you the opportunity to question or appeal the amount; ask for debit or credit cards over the phone; bring in law enforcement officers for non-payment”, says Mullins.
There is even more to that. “One scammer called a customer of mine who had done work in another state. So they told him they were collecting for that state. Then in the conversation they found out he actually owed the IRS and they said they were collecting for them too. The IRS does not initiate action by phone. It’s always through the mail”, says Randy Malone from Malone Tax & Bookkeeping.
3. Check Altering Scam
This scam could easily apply to Americans (filling their forms with IRS), Canadians (CRA), Australians (ATO), or Brits (HMRC), since every national tax agency has an acronym. “If you have to send a check to the IRS or any other agency, make sure your spell out the words Internal Revenue Service on the check. A common scam is to steal mail, looking for checks made out to the IRS, change the I to M or T, and simply deposit the check in an account opened in that name. It may be months before you discover the check has been stolen, and only after the IRS pursues you for non payment”, says Neal O’Farrell, ID Theft Expert with Credit Sesame.
4. Tax Credit Fraud
Scammers promise refunds to people who have little or no income, claiming non-existent stimulus payments based on the American Opportunity Tax Credit. The crooks claim that they can get victims money back even if they weren’t enrolled in or paid for college.
Watch the video below to see what the American Opportunity Tax Credit is and to see how you can qualify.
The American Opportunity Tax Credit is an official refundable tax credit for undergraduate college education expenses. This credit provides up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses. The tax credit had a limited life span in the past: it was available only for the years 2009 through 2012. It was now extended through December 2017 by the American Taxpayer Relief Act of 2012. Therefore scammers use it, urging the victims to hurry and pay them to fill the tax forms out on their behalf.
If you are unfamiliar about a so-called bonus credit for seniors or low income families, check out with government website before forwarding any personal information. If you are being approached with a promise of a “guaranteed refund” then you know it’s a scam. Particularly, be aware of offers of free money with no documentation required or unsolicited offers to prepare a return and split the refund.
5. Taxes Filed Early Scam
This scam is extremely dangerous in the first few months of the year, when you haven’t even start thinking about filing for your taxes. “You might receive a message that seems to be from your country’s tax agency, whether is IRS in the United States, CRA in Canada, ATO in Australia, or HMRC in Great Britain”, says Sorin Mihailovici, the founder of Scam Detector. This could be a voicemail message or an email. It tells you the organization is offering a $50 reward for taxpayers who file their forms earlier than the usual deadline. “It will ease the pressure on our agency, thus ensuring all tax returns are done in a more timely fashion”, they say.
“Indeed, the message doesn’t come from the real agency. Scammers just steal personal information to commit identity theft and the number of victims in this beginning of the year is quite alarming. There is no such thing as a bonus for filing your taxes early”, advises Mihailovici.
6. Tax Error Scam
You receive an email from the tax authority in your country. The message seems to be authentic, as it contains the organization’s logo and details, and came just a few days after you submitted your tax forms.
The text looks like this: “We received your tax return. However, we are unable to process the return. Our records indicate that the person identified as the primary taxpayer or spouse on the tax return did not provide all the required documents shown on the tax form. Our records are based on information received from the Social Security Administration. Based on this information, the tax account for the individual has been locked. Please print out the attached notification and list of missing documents, fill it in, add the documents and send the following information to the address shown in the attached notification.”
Many people fall for this as the message comes right at tax time every year. Victims fill out the fake application and send it to the scammers, thinking it will go to IRS, CRA, ATO, or HMRC.
As in the Tax Refund Email scam, crooks are looking for all your personal information. Do not fall for this. Get professional accountants to do your taxes or official software, if you’re gonna do it yourself.
7. Tax Audit E-mail Scam
“If you get an unsolicited email that seems to be from the IRS or similar, requesting personal information – especially bank account information, passwords or PINs – or claiming you’re being audited, it’s time to smell a big rotting phish”, advises Robert Siciliano from BestIDTheftCompanies.com.
The IRS will never contact you via email, text message or social media. Make sure you don’t click on any links or open or download any attachments if you even suspect that the message is fake. Report any time of phishing to email@example.com“, concludes Siciliano.
To avoid the online tax scams, Siciliano suggests:
Protect your data. From the moment they arrive in your mailbox, your personal information (financial institution numbers, investment records, Social Security numbers, etc.) must be secured. Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact and are sure of the recipient.
Chuck the papers. Opt for electronic statements to be received via email to eliminate paper statements coming into your mail box where thieves could get at them.
Check and monitor your statements. To ensure that you’re not a victim, the best thing to do is to monitor you monthly bank statements and do a credit report at least once a year.
Use a clean machine. Make sure that the computer you use is not infected or compromised. The operating system and browser should be updated.
8. Rogue Tax Preparer
Siciliano also talks about the option of choosing who your work with when preparing your taxes. “It’s best to use a reputable tax return service, rather than an independent-type preparer. After all, some of these preparers have been known to charge extra high fees for getting you a bigger return, or steal some of your refund”, adds Siciliano.
The Tax Preparer scam is also brought up by David Bakke from Money Crashers. “You might also come across an individual claiming to be able to prepare your taxes for you and then receive a large refund. Usually, your information is falsified to get the big payoff (leaving you to deal with the consequences) or your return is deposited into a criminal’s bank account. To avoid that, if you need help preparing your return, use only a reputable agency”, says Bakke.
9. Identity Theft Tax
This occurs when a criminal fraudulently obtains your social security number and files a fake return in your name. “All they need is your social security number – other documents can be falsified. To get around that, file your return early and never divulge your social security number to anyone, unless applying for a job or opening a new line of credit”, explains Bakke.
“The sooner you file, the less chance an identity thief has to file ahead of you and claim a refund. Victims of tax related identity theft say they now have to wait a year or more to get their refund after the incident” says Neal O’Farrell. “In the first week of February, a grand jury indicted 16 people for running a tax refund identity theft scheme, where they used 11,000 stolen identities, complete with driver’s licenses and Social Security cards, to file bogus tax returns totaling $38 million. They had the refunds deposited in more than 3,000 phony bank accounts opened in 440 different financial institutions. Clear evidence that these identity theft rings are well organized, patient, and motivated”, concludes O’Farrell.
10. Tax-Settlement Scam
During the economic crisis, tons of tax-settlement so-called “agents” have developed great businesses relying on people’s desperation to save every cent they can.
Unfortunately, hundreds of these “specialists” advertise themselves as saviors, promising people they can make their tax-debts disappear. They charge exorbitant prices in advance, only to claim in the end that “your situation is a little complicated, and unfortunately not much can be done”.
Fees charged by these “consultants” could vary, from $400 to even $25,000, depending on what they are catching on the hook.
Although there are legitimate programs that can help you save money, you should stay away from “specialists” who are asking for large fees up-front and conduct their business only through email or phone, never in person. Try to visit their office, research every name, and if they are asking you to give them power of attorney over your tax debt, certainly stay away.
How To Avoid Tax Scams:
Whenever you are contacted by your federal tax agency, it is a nerve wracking time. However, it is important to know how these agencies contact tax payers. The IRS, for instance, will never send out emails to tax payers. All official correspondence is done via post mail. So if you receive an email from the IRS, you can safely delete it. If you receive a phone call from someone claiming to be the IRS, it is recommended that you ask questions to verify their identity.
No matter what agency you are dealing with, the easiest way to verify if they are legitimately trying to contact you is to call the agency directly. If you are talking on the phone with a real agent, he or she should have no problem with this request. If the person on the phone gets angry and starts to threaten you or in any other way does not comply with your request, you can be assured that it is not a real federal agent.
If you are ever being asked for your personal information, like your Social Security Number, be very cautious about handing this out. If you give this out to the wrong person, they can do a lot of damage to you and to your tax situation. Always keep your personal information close to your chest and only give it out to reputable organizations.
There will be times when you do need to give out your personal information, such as if you are not comfortable doing your taxes yourself. In this case, you will have to resort to hiring somebody to do it for you. Before hiring somebody to do your taxes, make sure that you do your research and carefully vet anyone that is claiming to be a tax payer. You can search online for reviews of tax professionals, ask your friends and family for a referral, or use a reputable company known for doing tax returns.
As for dealing with scams in the corporate setting, it is advisable that you always be extra cautious when dealing with people’s personal information. If you get an email from anyone requesting people’s private details, even if it is from the CEO of your company, make sure to verify that it is coming from who it is saying it is coming from.
One thing you can do is to check if the email originates from the correct email address.
Scammers will often fake an email address that is assigned to the CEO’s name, so it looks legitimate. A closer look will often reveal that it is not the correct address. The best way to verify if the request is valid is to actually talk to the person who is making the request. Picking up the phone or talking face to face will immediately verify if this request is valid. After all, no one wants to be responsible for handing over people’s personal information to a scammer.
How To Report Tax Scams:
Make your family and friends aware of this scam by sharing it on social media using the buttons provided. You can also officially report the scammers to the Federal Trade Commission using the link below:
How To Protect Yourself More:
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