Each year, the IRS compiles a list of “Dirty Dozen” tax scams to warn taxpayers of the year’s most aggressive and evolving schemes. While taxpayers can fall prey to these year-round, tax season is a particularly vulnerable time since it presents more opportunities for criminals to steal valuable information. And in recent years, tax scams have been on the rise, so it’s critical to be on the lookout.
Below are the 2019 Dirty Dozen, with tips to protect your information and steer clear of trouble this tax season (and beyond).
In recent schemes, criminals have been posing as the IRS, sending emails with fake display names. If you click on hyperlinks in those emails, they point to phony, yet convincing-looking websites. And if you “take the bait” by logging in and entering personal details, you inadvertently hand over personal information. Those hyperlinks may also download malware, which gives criminals access to your device so they can obtain sensitive information. To stay safe, never click on an email claiming to be from the IRS; the IRS does not initiate contact with taxpayers via email about a tax bill or refund. If you are targeted by one of these email schemes, report it by forwarding it to email@example.com.
2. Phone scams
Phishing schemes don’t only come via email. Some come the old fashioned way: through a phone call. In recent years, the IRS has seen a surge of scammers contacting taxpayers by phone, claiming they owe money to the IRS. The criminals impersonate the IRS and insist taxpayers pay their balance immediately by using a pre-loaded debit card or wire transfer. To intimidate taxpayers, they threaten punishment by police arrest, deportation or license revocation. To make sure you’re not a victim of phone scams, do not give information out over the phone to anyone claiming to be the IRS. If you think you may owe tax, contact the IRS directly at 1.800.829.1040.
3. Identity theft
You should be wary of identity fraud throughout the year, but it’s especially important to watch out during tax season, as criminals try to file fraudulent tax returns using other people’s Social Security numbers. To protect against this, the IRS has formed a partnership with the states and the tax industry known as the “Security Summit.” Though they’ve made improvements in detecting tax-related identity theft, taxpayers play a crucial role in preventing it. To help, always use security software with firewall and anti-virus protection, and use strong passwords. Keep your tax records secure, don’t leave personal information lying around, and only shop at reputable online retailers.
4. Return preparer fraud
The majority of tax professionals provide honest, high-quality service, but some dishonest preparers scam clients by using their personal information to commit tax fraud and identity theft. To avoid this situation, do your research before selecting a preparer. First, ask for referrals from co-workers, family or friends. Once you’ve found some potential options, check their qualifications, history and online reviews.
5. Inflated refund claims
As you’re on the lookout for questionable tax preparers, also watch out for anyone guaranteeing a big refund. At tax time, scam artists pose as tax professionals, casting a wide net for victims by posting flyers, putting up phony storefronts or using word-of-mouth via community groups. They build false hope by duping people into making claims for fictitious rebates, benefits or tax credits, and they charge expensive fees to do it. If preparers ask you to sign a blank return, promise an inflated refund before looking through your records, or charge a fee based on the percentage of your refund, don’t use them. Avoid this situation entirely by carefully researching preparers before choosing one.
6. Excessive business credit claims
While it’s important to watch out for scammers, you also need to watch out for yourself — be careful not to unintentionally misuse business credits when filing. For example, businesses may think they can use the fuel tax credit to their benefit, but those credits aren’t available to most taxpayers and are typically limited to off-highway business use. Business owners also commonly misuse the research credit, but unless you can validate qualified research expenses, you should not be claiming that credit. When claiming business credits, make sure you have documentation to back up those claims.
7. Falsely padding deductions on returns
Taxpayers may also be tempted to inflate deductions or expenses on their returns to pay less than what they owe or receive larger refunds. While the majority of taxpayers file honest and accurate returns each year, the IRS cautions people against this offense. Their automated systems are increasingly efficient, and they generate most IRS audits. If they detect an inaccurate return, significant penalties can apply. So when you’re filing, do not overstate your deductions and expenses.
8. Falsifying income to claim credits
Con artists posing as tax preparers may convince unsuspecting taxpayers to exaggerate their income to qualify for tax credits, such as the Earned Income Tax Credit. While the con artists can benefit from this by increasing their fee, ultimately the tax preparer is responsible for what’s on their tax return, even if someone else prepares it. If you’re caught falsifying income, it can lead to back taxes, interest and penalties. So if you’re filing yourself, be as accurate as possible and if you’re hiring someone to prepare your taxes, choose carefully based on reputation.
9. Frivolous tax arguments
In this scheme, scammers convince taxpayers they don’t legally owe taxes based on outlandish claims (e.g., “taxes are voluntary,” “only federal employees pay tax”), but charge them a fee to file a so-called “frivolous” tax return. In this frivolous tax return, they’ll report a reduced income, or even no income, so taxpayers avoid paying taxes in the short-term. Once they’re caught, however, they’ll be subject to a $5,000 penalty in addition to taxes owed. And while some taxpayers take frivolous tax claims to court, they’re repeatedly thrown out. If a tax preparer suggests you don’t owe taxes, don’t fall for it.
10. Abusive tax shelters
One of the more sophisticated scams, abusive tax shelters are an investment scheme where scammers channel your funds through trusts or partnerships to avoid taxation. Although taxpayers may intend to pay what they owe, they may fall prey to one of these complex investment schemes without realizing they’re illegal. If someone pitches you a complex product like this, seek out an independent opinion to check out legitimacy.
11. Offshore tax avoidance
In this long-running scheme, taxpayers attempt to evade taxes by hiding money in international accounts. In recent years, the IRS has increased efforts to eliminate this method of tax avoidance. While there are legitimate reasons for maintaining financial accounts abroad, you need to make sure you meet reporting requirements. If you don’t comply with those requirements, you could be subject to significant fines and even criminal prosecution.
12. Fake charities
When donating your dollars to charities, watch out for illegitimate groups masquerading as charitable organizations. In an attempt to solicit donations from unsuspecting contributors, scammers will create fake charity names that are similar to nationally-recognized organizations. Before you donate your hard-earned money, do your research and confirm the status of charitable organizations on IRS.gov.
Protect yourself (and your employees).
In addition to the 2019 Dirty Dozen, the IRS has noted advanced phishing schemes targeting personal information available in files of payroll professionals and human resources personnel. These targeted scams are known as business email compromise (BEC) or business email spoofing (BES) scams, and criminals may pose as businesses asking you to pay a fake invoice, an employee seeking to re-route a direct deposit or an executive initiating a wire transfer. Stay on high alert for these types of requests and in the meantime, stay safe by following our tips to avoid phishing scams!