How to Avoid Being A Victim of a Tax Scam
A tax scam can come in a variety of flavors and each year the Internal Revenue Service (IRS) warns taxpayers of common scams ahead of the annual tax deadline. Every year the IRS updates their list of the most prevalent tax scams known as the IRS Dirty Dozen. The Dirty Dozen tax scam list is an honor roll of the worst tax scams. Although many of the schemes return year after year, they evolve and become more polished to evade detection and ensnare victims. The ultimate goal of any tax scam is to trick the taxpayer and to steal money.
It may seem like the only secure way to file taxes is to file them on paper, but that’s not the only way if you are cautious and vigilant with your personal information and banking data.
Don’t File Tax Forms Using Public WiFi
Do not use public WiFi or a public computer to prepare or file your tax returns. This means you cannot sit at your favorite coffee shop and work on your taxes because you are sharing an internet connection. Don’t login into any bank or financial accounts on unsecured Wi-Fi networks. Don’t use a computer in your local library or at a hotel to work on your taxes. Even using a friend’s computer is risky because it can retain usernames and passwords.
If you really need to work in a public space on shared WiFi, then use a Virtual Private Network (VPN) to encrypt your financial data and protect your passwords. Hackers can easily steal your social security number, bank accounts, and commit identity theft if you use a public computer or shared internet connections. A reliable VPN can protect your personal information.
Tax Related Identity Theft
Tax related identity theft occurs when a hacker acquires your personal information and uses it to file a false tax return in your name. They may also hack into your bank account. Your personal data like name, social security number, bank account logins, and address can all be used to file a fake tax return or steal your legitimate tax refund You may not realize that you’ve been a victim of identity theft until you check your credit report or file your tax return.
To help guard against identity theft, make sure you protect your personal information. Never log into any banking or credit card accounts using public WiFi. Limit the personal information you post on social media to avoid a social engineering attack. Remember that posts and information on social media often contain the answers to common password reset questions. Your parents’, dogs, and children’s’ names are all common password hints. The same goes for hometown, where you went to high school, and where you were married.
File Taxes Early
A common tax scam involves a hacker has stealing your identity and filing a bogus tax return in your name. That means they use your name and social security number to file a tax return with false income along with deductions and credits that will score the hacker a refund. So, when you try to file your legitimate return, it is rejected by the IRS, because it’s a duplicate. The tax return was already filed for you – by the hacker. The tax refund is routed to another address or bank account that the hacker can access.
Filing early reduces the chances that a hacker can file a return before you. If you have already filed your tax return, and a hacker files another return using your name afterward, then it should be rejected by the IRS. Besides the earlier you file your taxes the sooner you will get your refund if one is owed to you.
Tax Preparers Scams
Use a reliable and professional tax preparer that you can trust. Tax preparers are required to register with the IRS and have a Preparer Tax Identification Number (PTIN.) They must use their PTIN to sign client’s returns. Do not use a preparer that refuses to sign your return or asks you to file it on paper. If they have more than ten clients per tax year, then they are required to file your return electronically. Still, both of you need to sign the tax return.
Don’t let any preparer talk you into claiming credits and exemptions that you are not entitled to. This can be difficult because you may be relying on the tax preparer to show you what you can claim. Don’t allow any preparer to inflate your income. Make sure the dollar amounts they use match your income. Never claim any income, especially IRS Form 1099 claiming income, that you did not earn. Unscrupulous tax preparers can use this to increase your income to a level that makes you eligible for more credits.
If you plan on receiving your refund through direct deposit, be sure the bank account number and routing number are yours. Scammers can redirect your refund to their own bank accounts.
Beware of Tax Scam Phone Calls
Scammers are capable of spoofing their incoming Caller ID phone number to make it appear to be an IRS office number. Even if the Caller ID number matches an IRS phone number as shown on their website or mailing, it does not guarantee that the caller is from the IRS. You can always offer to call them back at their office number listed on the IRS website.
The IRS does not call and demand payment over the phone. They will always send a letter using US Postal mail. Yes, they can call taxpayers, but they do not take payments of any kind over the phone. A sure sign of a tax scam is if the caller demands payment in the form of gift cards and prepaid debit cards.
If you suspect that the caller is impersonating an IRS employee, then hang up immediately and report the call.
How to Report Tax Scams to the IRS
Report all phishing emails or other unsolicited email claiming to be from the IRS or an IRS-related function to phishing @ irs.gov. To report any scammer or hacker download an IRS referral form. Send a completed form along with any materials to the Lead Development Center:
Internal Revenue Service Lead Development Center
24000 Avila Road
Laguna Niguel, California 92677-3405
Fax: (877) 477-9135
All information herein has been prepared solely for informational purposes. The content maintained on this site as well as the opinions voiced in this material are resources for educational and general informational purposes only and are not intended to provide specific advice or recommendations for any individual. No information on this site constitutes financial advice and should not take the place of consulting with a certified financial planner and tax, legal, or other financial advisor.
Michelle writes about cyber security as well as how to protect your data online. She has worked in internet technology for over 20 years Michelle earned a B.S. in Engineering from Rensselaer Polytechnic Institute. She published a guide to Cyber Security for Business Travelers