Tax tips: Protect yourself from identity theft, fraud and other schemes
People can fall prey to tax scams at any time of year, but these schemes tend to peak during tax-filing season, according to the IRS.
One of the most rampant tax schemes is identity theft, said tax and financial expert Abby Eisenkraft, enrolled agent and chief executive officer of Choice Tax Solutions Inc. in New York.
“The cyberthieves have become more sophisticated,” said Eisenkraft, the author of “101 Ways To Stay Off the IRS Radar.”
Each year the IRS releases its annual list of Dirty Dozen tax scams.
“Taxpayers can and should stay alert to new schemes, which seem to constantly evolve. We urge them to do all they can to avoid these pitfalls – whether old or new,” said John Koskinen, IRS commissioner.
Watch out for these cons:
Identity theft. Criminals continue to file fraudulent returns using someone else’s Social Security number, but progress is being made. In 2016, the number of taxpayers reporting stolen identities on federal tax returns fell by more than 50 percent, with nearly 275,000 fewer victims compared to the year before.
Phishing. New and evolving phishing schemes are emerging as scam artists work to confuse taxpayers during filing season. Be on guard against fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or refund. Don’t click on one claiming to be from the IRS.
Fake IRS calls. Don’t fall for aggressive calls out of the blue threatening you with arrest, jail time or deportation. They’re fake, Eisenkraft said.“The IRS never initiates contact with you via phone, so if this is the first time you are hearing about a tax problem, it’s scammers trying to frighten you into providing personal information and get money out of you. Hang up!” she said.
Return preparer fraud. Check whether the person preparing your taxes is credentialed (enrolled agent, certified public accountant, tax attorney) and established in the business. “Beware of unlicensed preparers using copies of software they got at a local office supply store (not meant for paid preparation), and not signing the tax return (which is illegal). Look at page 2 of your Form 1040. If your tax return says ‘self-prepared’ in the ‘Prepared By’ box, there’s your first sign that you did not go to a legitimate preparer, but to a potential identity thief,” Eisenkraft said.
Fake charities. Charitable requests increase around the holidays and tax time. Be on guard against groups masquerading as charitable organizations using names similar to familiar or nationally known organizations. Take a few extra minutes to ensure your hard-earned money goes to legitimate and currently eligible charities. Look them up with the Better Business Bureau (bbb.org) or CharityNavigator.org.
Inflated refund claims. Scam artists lure victims by promising large federal tax refunds. Be wary of anyone who asks you to sign a blank return, promises a big refund before looking at their records or charges fees based on a percentage of the refund. Fraudsters use flyers, advertisements, phony storefronts and word of mouth via community groups where trust is high to find victims.
Excessive claims for business credits. Inflating business claims is illegal. Examples include falsely reporting amounts of mileage, personal purchases and research credits.
Falsely padding deductions on returns. Don’t be tempted to inflate business deductions, charitable contributions or expenses to pay lower taxes or receive higher reimbursements. When in doubt, talk to your tax professional.
Abusive tax shelters. It is fraud to channel funds through trusts or partnerships to avoid taxation. Abusive tax shelters serve no economic purpose other than lowering taxes, and they are illegal.
Frivolous tax arguments. Taxpayers have the right to contest their tax liabilities in court, but no one has the right to make frivolous claims to avoid paying taxes, such as that the only “employees” subject to federal income tax are employees of the federal government, or that only foreign-source income is taxable.