Tax Season & IRS Scams: Why They Work & 7 Tips for Avoiding Them

A pushy IRS representative is on the other end of the line, and they’re demanding you pay them money.

Your mind is racing, trying to figure out what went wrong: Did you file your taxes improperly? Did you forget to pay something? 

And while you’re racking your brain, desperately trying to find some answers, this person is becoming increasingly aggressive.

If you don’t handle this now, what’s going to happen? Will you end up in jail? Worse, will you lose everything you’ve worked so hard for?

To make it go away, you agree to wire this person a $500 fee.

Little do you know that you’ve just been scammed, and the crooks will be long gone by the time you figure everything out.

The sad reality is that since October 2013, the US Treasury Department has received nearly 900,000 reports of IRS scam calls. And among them, at least 5,000 victims have paid out more than $26.5 million dollars.

On top of this, “Catching the bad guys is not easy. Many of these calls are coming from overseas. The Treasury Department was able to point to just one recent arrest.”

“Catching the bad guys is not easy. Many of these calls are coming from overseas. The Treasury Department was able to point to just one recent arrest.”

Clearly, between the amount of money at stake and the near-zero likelihood of being caught, there’s big incentive for crooks to focus on scams this time of year.

What’s this mean? Ultimately, it’s on you to avoid tax season scams, which is exactly what we’ll help you do here.

In order to provide you with a comprehensive overview of the problem, let’s start by talking about common scams you might encounter during tax season, the psychology behind them, and wrap things up with actionable avoidance tips.

Top IRS & Tax Season Scams

You’ve probably heard the phrase, “imitation is the sincerest form of flattery” before. In other words, if someone else does the same thing you’re doing in the same way, it’s probably because it works. And scams are no different.

This is why, at a basic level, there are only a handful of tax-related scams being used at any given time.

Sure, some criminals might put their own spin on it, such as coming up with a unique storyline, but for the most part, all tax season scams are intended to accomplish one of two things: steal your money or steal your identity (personal and financial information).

All tax season scams are intended to accomplish one of two things: steal your money or steal your identity.

What’s the point? Whether we’re talking about present day or a couple years ago, the same three tax season scams pop up again and again. The good news is that, as long as you know what to look for, this means they’re super easy to avoid!

We’ll get to all that in a second, but first: What’s involved in the most popular tax scams? Let’s find out.

Aggressive Phone Calls

Aggressive Phone Calls

As the CBS News article noted above, nearly 1 million phone scam reports have been filed since 2013. Why? Because this is often the most common method used by scammers. How does it work?

Again, the exact storyline might be different, but most tax season phone scams involve someone pretending to be an IRS agent, who will make “ruthless, aggressive calls, telling people they owe back taxes and threatening them if they don’t pay up immediately,” usually via wiring services like Western Union or MoneyGram.

Common threats include arrest and jail time, having utilities shut off, license revocation, and deportation.

Common threats include arrest and jail time, having utilities shut off, license revocation, and deportation.

Pro tip: A recent change in their approach is to claim that, according to the Affordable Care Act, you owe penalties for failing to maintain insurance.

For this version, many phone scammers target non-English speakers who may be residing here without proper documentation, and who are afraid for the welfare of their family. We’ll come back to this when we talk about emotions in the next section.

To support their exploits, scammers might use fake names (with common surnames like Jones or Smith), IRS badge numbers, and caller ID spoofing—they might even have the last four digits of your social security number!

You could hear fake background noises intended to make it seem like they’re in a call center, and if you hang up, one of their colleagues might call back and pretend to be a police officer or DMV employee to put even more pressure on you.

They could also send you a supporting email that appears to be from the IRS. Let’s carry this thought over into the next section…

Phishing Emails

Phishing Emails

Whereas tax season phone scams are often focused on stealing your money, email scams are generally intended to steal your personal information. In other words, your identity. And while ID fraud is a problem all throughout the year, it’s especially prevalent during tax season.

How do scammers accomplish this? Usually through phishing emails. Like real-life fishing, phishing emails use bait to lure in victims, often in the form of correspondence from a financial institution—or, at this time of the year, the IRS.

Remember, with most scams, the tactic’s usually the same; only the storyline changes.

This means you could be threatened because you owe back taxes or penalties due to the ACA (like we talked about previously), that there’s been an error and the IRS or a tax provider needs to validate your information, or even claiming that you’re entitled to an unexpected refund.

Speaking of which, let’s wrap up this section by talking about returns.

Phony Tax Returns

Phony Tax Returns

Granted, this is a specific type of scam, versus the methods we’ve discussed so far. But it’s so common that it deserves an honorable mention here.

Generally, there are two versions of this scam:

You’re Eligible for a Refund

Whether by phone or email, you’ll be notified that—for whatever reason—the IRS missed some important information in your filing and you’re eligible to get more money back.

To receive this money, they might claim you have to pay some kind of processing fee, which should be handled by wiring money. In other instances, the scammers might request your social security and bank account numbers to verify your account and to transfer the money.

Someone Filed a Return in Your Name

In this scam, criminals obtain your personal and financial information, whether using the above method or through other means, and use it to file a phony tax return in your name.

Unfortunately, this scam is almost never caught until someone goes to file their return, and by then the crooks are long gone and on to their next victim.

Reading through this, you probably kept asking yourself: “These seem so obvious. Why do so many people fall for tax season scams?” Great question! Let’s find out.

Death & Taxes: Why We Constantly Fall for Tax Season Scams

What causes so many people to fall for scams, whether during tax season or any other time of year? While it’s a simple question, the answer is anything but. Why?

Because there are a ton a factors at play. But for our purposes, they ultimately boil down to two things: emotions and bias.

The World’s Smallest Violin: How Scammers Play with Your Emotions

In the pursuit of their next victim, tax scammers will attempt to appeal to core emotions:

  • Fear & Authority – “I love my life. I don’t want the powerful government to send me to jail because of some silly mix-up! I’ll just pay this fine in order to make everything go away.”
  • Greed – “Just think about all the ways I could spend the $1,500 from this surprise refund. I’ll gladly pay the $250 processing fee!”
  • Curiosity – “I know this sounds too good to be true (or doesn’t add up). But what if it’s the real deal? I’ll miss out on an amazing opportunity. I sure could use that extra money!”
  • Shame & Embarrassment – “If I don’t pay this fine and go to jail as a result, I’ll be labeled a criminal for the rest of my life. What will my friends and family think? I’ll just pay this really quickly. Better safe than sorry, right?”

But emotions aren’t the only part of the equation; there are also some common traits shared among scam victims that make their emotional strings more easily “plucked.”

These include increased online activity, high impulsivity levels (risk takers), negative life events (grief, feelings of aloneness, financial trouble, etc.), older adults, and digital literacy level.

How Your Prejudices Can Make You a Scam Victim

Whether or not they fully understand the underlying principles, scammers are very good at playing to their victims’ cognitive biases; specifically confirmation bias, which causes us “to look for information that goes along with our existing beliefs and opinions about the world.”

But there are other biases at play here, too. Part of confirmation bias also includes believing that our first impressions are generally accurate, “and when we get a fact that doesn't quite fit in the puzzle, we force it in.”

Furthermore, optimism bias means we have a “tendency to overestimate the likelihood that good things will happen to us and underestimate the potential for unpleasant events.”

With so many cards stacked against you, how in the world can you hope to avoid tax season scams? Keep reading to find out!

Use These 7 Easy Methods to Detect Tax Scams & Dodge Bullets

#1. Be Mindful

No, I’m not talking about meditating for hours every day and achieving a Zen-like state. Instead, I just mean that it pays to take a good, hard look at your personal beliefs.

We all have our own worldviews that are unsupported by evidence, and the only way to unshackle ourselves is by admitting there’s a problem and paying attention to how our kneejerk beliefs can make us less informed consumers—and how they can make us susceptible to scams.

#2. Mind Your Emotions

When you have so many baseline emotions simultaneously at play, such as fear, greed, and shame, you’ll be worked into a tizzy in no time. Then, scammers will use the opportunity to break down your defenses and get you to hand over your money or personal information.

Instead, take a deep breath, separate yourself from the situation, and tell the caller you’ll call them back. As soon as these words leave your mouth, you’ll be much less likely to become their newest victim. But you’ll probably get lots of pushback too, so stay diligent!

#3: On the Phone? You’re In Control

Remember that when you’re on the phone with a suspected scammer, you hold all the cards. These criminals know this, so they’ll use high-pressure tactics—like the threat of prosecution and jail time—to make you cave. 

Instead, maintain your high ground, learn to say no, look at the bigger picture, and hang up.

#4: Email Fail

What can you do to prevent falling victim to an email scam during tax season? 

First, understand that under no circumstances will the IRS contact a taxpayer via email and request their personal or financial information. So, if you receive an email like this, you can rest assured it’s a scam.

Under no circumstances will the IRS contact a taxpayer via email & request their personal or financial information.

In addition, most professionals recommend that you never open an email from an unknown sender. And if you do, definitely don’t click on any links or download any attachments it contains. Otherwise, you could open yourself up to thousands of different viruses and malware (more about this in a second).

In doubt? Don’t give away any of your personal information and immediately call the IRS at 800-829-1040.

#5: Know the Rules

Speaking of things the IRS will never do, here are some additional guidelines that can instantly reveal a tax scam:

  • Before they attempt to call you, the IRS will send you an official notice through the mail that you owe money.
  • Regardless of how they contact you, the IRS will never demand immediate payment, or that payment be made in a specific way (e.g. via a wiring service like MoneyGram or Western Union, or by credit or debit card over the phone).
  • The IRS will give you the chance to appeal their decision.
  • Although a call from a real IRS agent might not be the highlight of your week, they’ll never threaten you with arrest, deportation, or driver’s license revocation.

#6: Be Proactive by Practicing Safe Habits

In addition to the email tips we already discussed, you should start practicing other safe online habits, such as browsing only trusted websites, entering your information into secure forms, surfing the web behind a firewall (especially important if filing your taxes online), and keeping your anti-virus software up to date.

For your online accounts, make sure you create strong passwords that can’t be easily hacked. Pro tip: This random password generator might offer a quick and easy solution.

In the real world, preventing someone from filing a fake tax return in your name is often as easy as filing your tax return as early as possible, and by regularly checking your credit report. Also, don’t carry your Social Security card with you, or any other documents that reveal your SSN.

Even then, always be very selective who you share this information with!

#7: If You’ve Been Scammed, Speak Up

Remember the shame and embarrassment we talked about before? Well, these same feelings often cause victims to avoid reporting the crime, since they can feel foolish for being duped.

But the reality is that it’s extremely important to speak up and to let as many people as possible know. Why? Because your story could very well help someone else avoid falling victim; and maybe—just maybe—bring some of these scammers to justice.

This means you first need to alert the appropriate authorities, such as:

Then, you need to talk about your experience on consumer advocacy websites like HighYa, which you can do in the comments below. And don’t forget to share informative articles like this with your friends, family, and social networks. After all, they want to stay scam-free this tax season, too!

Read Next: Filing Your Tax Return for Free: Your Comprehensive Guide

Derek Lakin

With more than a decade of experience as a copywriter, Derek takes a detail-oriented, step-by-step approach to help you shop smarter. Whether it’s nutritional supplements or new scams, he believes an informed consumer is a happy customer.

Sign Up for HighYa Newsletter

Sign up for HighYa newsletter and get our best content delivered in your inbox as well as 3 free eBooks to help you save money and shop smarter. Enter your email below to get started!