IRS tax scams have always been with us and appear to have increased rapidly over the past few years. The tax season can be a worrisome and a source of irritation to many taxpayers and most people just want to be done away with it as quickly as possible. Inevitably, scammers are always on the lookout to steal your money as well as your identity. Many loopholes appear to exist on ways you can siphon off money on your returns, but for now, we analyze various ways to avoid a penalty when caught with your hand in the cookie jar.
How Tax Scams Work
Several options exist for scam artists to stealthily acquire your personal tax information or pay them money. Here are a few examples:
- Identity Theft: This is when people gain access to your Social Security Number and conspire to file a fraudulent tax return. You should strictly guard your number and ensure you should not give it out by email or any other way.
- Phone: Strangers may call you and tell you that you owe money, and give you a stipulated time to pay, failure to which you will get arrested. They may use fear and other extortion techniques to force you to reveal your credit card information and bank account number. They appear well versed using IRS tax return terminologies and at times may give you accurate four last digits of your social security number.
- Phishing: This is a form of fraud that is rapidly increasing. False emails are designed to look real. Some may bear the IRS logo and letterhead. Or even a forged signature that looks real. But they’re always scams. They ask for tax ID numbers, bank accounts, and social security numbers.
- Family Member in A Fix: Strangers will call you purporting to be members of your family in a jam and ask you for money. They can get your contact information from anywhere.
How to Avoid Penalty
Every year, the IRS releases a list of the “Dirty Dozen” tax scams. These pose the most danger to taxpayers and need to be avoided at all cost, since falling prey to any one of them you stand the risk of owing the IRS vast sums of money. In a worst-case scenario, you will get prosecuted.
- Promise of a Large Tax Refund: Beware of tax preparers claiming to have special knowledge about tax rebates or credits. They usually tax the retired, foreign workers or low-income members of society. Using flyers, or word of mouth, they will obtain your trust and confidence in harmless areas like Churches and sports clubs. If you give them your information, they will file a false return in your name but have the refund deposited in their account. The surest way to avoid them is by using a Qualified Tax Return Preparer.
- Report Offshore Funds to IRS: Avoid large penalties by reporting foreign funds to the IRS. This will include secret income brokerage accounts, foreign trusts, private annuities and nominee entities.
- False or Inflated Income and Expenses: Claiming income, you never earned or expenses you did incur to obtain refundable tax credits can get you prosecuted.
- Frivolous Arguments: Presenting outlandish and unreasonable requests for a refund.
- Advertisements for “Free Money” from IRS: Avoid any advertisements mentioning free money from IRS that targets low-income earners and the elderly.