Top 3 Scams for the 2014 Tax Season

You’ve worked hard all year long, and like many of the 234 million tax returns filed annually, you’re expecting some money back. You imagine all the things you’re going to buy once it’s received, or all the debt that you’ll be able to eliminate. But keep a sharp eye out, because thievery abounds this time of year. Crooks are just waiting for an opportunity to take your money, and to wreak all sorts of havoc on your life.

With this in mind, what specifically should you keep an eye out for? How do you know if you’re being presented with a scam, and what can you do if you’ve already fallen victim? For 2014, here are the top three tax scams you should watch out for.

Tax Scam #1: Identity Theft

According to this article, identity theft in all its forms totaled more than $24.7 billion in damages during 2012, and tax fraud specifically related to ID theft rose 66 percent between 2012 and 2013. So while identity theft is an overwhelming problem all year long, it’s during tax season that the criminals really shift into overdrive due to all the money floating around, and the ease with which it can be intercepted. To accomplish this, criminals often commit what’s known as Stolen Identity Refund Fraud (SIRF), which is when they obtain key information about you, such as your name, social security number, and “a company’s name and tax-ID number to list as an employer.” There are a wide variety of methods that criminals use to get their hands on this information, including rifling through your trash, obtaining your credit report under false pretenses (e.g. posing as a landlord), buying it on the black market, and more.

Once criminals have this information, they will often submit tax returns before the real individual has had a chance to do the same. Unfortunately, it’s often the case that by the time a taxpayer receives a notification from the IRS that their return has already been processed and a check has been cut, the scammers are long gone and on their way to the next victim.

To put the problem into perspective, according to this report, “In Calendar Year 2011, the IRS identified over 1.1 million incidents of identity theft that affected the Nation’s tax system. This figure includes incidents in which taxpayers contacted the IRS alleging that they were victims of identity theft (110,750 incidents) as well as instances where the IRS identified identity theft (1,014,884 incidents). Many of the taxpayers that the IRS identified were not aware they were victims of identity theft because they either did not file tax returns or did not have filing requirements.” And the bad news is that these numbers are only expected to grow.

In order to prevent your identity from being stolen, whether during tax time or any other part of the year, the FTC recommends the following:

  • Be careful who you share personal information (social security number, financial information, etc.) with. When you are required to share, make sure to ask “why they need it, how they will safeguard it, and the consequences of not sharing.”
  • Before throwing anything away, shred personal and financial paperwork that you no longer need, including bank statements and medical information.
  • Make sure you quickly remove mail from your mailbox, while outgoing mail should go to the post office.

For a full list of tips that can help you protect your personal information, click here.

Tax Scam #2: Fake IRS Phone Calls

As we outlined in our previous tax season scam article, the phone is becoming an increasingly popular method of perpetrating scams, with more than 1/3 of all victims having been contacted by phone.

In this specific type of scam, crooks will often contact you and pretend to be a representative from the IRS. They’ll typically have access to the last four digits of your Social Security number, and will even use caller ID spoofing to make it appear that the call is originating from the Internal Revenue Service. During the call, the criminals will often claim that you owe the IRS money, and that you need to send payment via a pre-paid debit card or money order immediately. If the victim declines to do so, the scammers may follow up the initial phone call with a second that appears to generate from a DMV employee or police officer, who will then proceed to threaten license revocation, or even arrest.

If this happens to you, the best thing to do is hang up immediately and call the IRS at 800-829-1040. These trained professionals will be able to let you know if a payment is due. You should then follow up with the Treasury Inspector General for Tax Administration at 800-366-4484, and also file a complaint with the Federal Trade Commission.

Tax Scam #3: Inflated Refunds

The third most popular scam during tax season involves filing inflated tax returns. Here, criminals will typically pose as a tax preparer, and will convince unwitting victims that they can help them receive much more money than the individual would otherwise qualify for. This is accomplished by falsifying Social Security benefits, and applying for credits through the Earned Income Tax Credit (EITC), the American Opportunity Tax Credit, and many others.

Once the inflated tax return is filed and processed, the money may be deposited directly into the scammer’s bank account, or a very large portion may be retained as a “fee,” and the remainder given to the victim.

As with most tax scams, this is most prevalent among the elderly, or those who are not required by law to file a federal income tax return. What’s especially bad though, is that according to the IRS, the victims of this type of scam may lose their federal benefits (e.g. Social Security, veteran’s benefits, low-income housing benefits, etc.) as a result of filing a false return. Fines up to $5,000 are also a very real possibility.

The IRS provides a detailed list of helpful hints when choosing a tax preparer, including verifying their credentials and reputation, always asking for a copy of your tax return, and avoiding any tax preparer that bases their fee off a percentage of your total refund.

What Should I Do if I’ve Been the Victim of a Tax Season Fraud?

If you believe you’ve been the victim of identity theft, be sure to contact the IRS’s Identity Protection unit, and to file an “IRS Identity Theft Affidavit”. For this and other types of tax fraud, you’ll be assigned an Identity Protection Personal Identification Number, which will ensure that you’re “the rightful filer of the return.” Also, regardless of which type of tax scam you’ve been victimized by, be sure to contact all three credit bureaus and place a security lock on your account, which will prevent unauthorized access until removed by you.

Have you been a victim of a tax fraud, or do you have advice that you’d to pass on to your fellow consumers? If so, be sure to leave a comment, and spread your knowledge!

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