Tax scams are common for one main reason—there are 144.5 million taxpayers in the United States, giving bad actors a broad, diverse threat landscape. Many tax scammers try to leverage the victim’s sense of fear—taxes are unavoidable for many Americans, and mismanaging them can come with stiff penalties.
In other situations, the scammer may try to take advantage of your natural desire for more money, for example by offering a reduction in taxes due for a small fee. Even though tax scammers have a few different weapons, you can thwart their attacks by understanding your tax responsibilities, the different kinds of scams, red flags to look out for, and how to avoid them.
The Federal government uses the taxes you pay to fund infrastructural improvements, such as roads and parks, education, the military, and essential services for citizens, such as healthcare and Social Security. It’s against the law to not pay your taxes.
While there are different kinds of taxes, those paid to the Internal Revenue Service (IRS) are typically based on your income. The first step in paying your taxes is to file them, which involves declaring how much you earn. Often, people pay too much in taxes, and this can result in a tax refund, which is when the government gives you some money back after you do your tax return.
The government also uses the tax system to provide citizens with stimulus checks. A stimulus involves giving people money so they can both afford to pay their bills and make purchases that support the general economy. This enables people to keep their jobs and, as a result, infuse more money into the economy.
Taxation scams take two basic forms:
A thief will pretend to be someone from either the IRS or an organization authorized to help you deal with tax issues. They will then either try to fool you into thinking you have to pay a penalty on taxes you owe or provide them with sensitive information to resolve a tax issue.
In some cases, the “tax issue” they pretend to address involves the government owing you more money than you’ve received from the IRS in a refund. To claim your cash, you have to provide sensitive information. They then use this to steal your identity and open accounts or take out loans in your name.
They’ll usually ask for sensitive information, such as your:
Unfortunately, tax scammers are often successful in their schemes. The FBI recently received about 300,000 complaints in just one year (2020) costing victims a total of $1.3 billion.
There are several different ways scammers try to target taxpayers, but here are the most common taxation scams to look out for.
Identity thieves will try to get you to provide sensitive personal information that can be used to open fraudulent accounts in your name. They then either sell this information to another criminal or use it themselves.
The scam usually starts with the scammer reaching out via email or phone call pretending to be a legitimate representative from the IRS. They ask for your information, with the most important thing being your SSN.
Next, the scammer takes your information and uses it to do one of three things:
A specific kind of identity theft that’s become increasingly common because of the COVID-19 pandemic is one where the criminal tells you you’re due a stimulus payment.
Similar to other kinds of identity theft, the scammers collect personal information and then either sell it, use it to steal from you, or open financial accounts in your name.
In a refund recalculation scam, the thief claims you didn’t get enough money from the IRS in a previous refund. This scam is typically levied using an email that appears to come from the IRS (which may even include its logo) but it could also come via text message.
You’re prompted to click on a link in the email or text, which appears to lead to an IRS website. However, this is a fake site that sends the information you enter to the thieves. After you put in the info the site asks for, scammers either sell it, use it to steal from you, or apply for loans or credit cards.
A gift card scam involves someone pretending to represent the IRS, calling to tell you that you owe money, either from underpayment of taxes or penalties owed. They inform you they will accept your penalty payment using gift cards from certain stores, such as Walmart.
Once you buy the gift cards, the criminal asks for the card number and PIN. They then take that info, make purchases from stores, and either keep or sell the merchandise for profit.
Some of the most common red flags for taxation scams include:
In general, this should be a red flag any time someone claims they can help you resolve a tax issue and ask for personal information over email. The IRS doesn’t collect personal info over email.
In addition, any request for personal data, regardless of how the person contacts you, even over the phone, should be a red flag. The IRS already has your personal information, including your Social Security number.
Many scammers will threaten to suspend your Social Security number unless you pay them. This should flag a scam immediately for you, as your SSN cannot be suspended.
If you suspect you’ve been targeted by a taxation scam, you should immediately reach out to the IRS at (800)-829-1040 to check whether the communication you received was legitimate or not.
If it wasn’t, you should immediately report the issue by emailing [email protected]. In addition, you should report the incident to:
If you’ve been targeted by a gift card scam and you’ve already sent the card info to the criminal, you may be able to stop the transaction and get your money back. Contact the company that issued the card and ask them to cancel the transaction. It’s important to do this right away because once the money’s been spent, it may not be possible to get it back.
You may be able to get the funds returned through the criminal justice system if the authorities are able to apprehend the scammer. This is another reason why reporting the incident to the Treasury Inspector General Administration, the FTC, and the IRS is necessary.
If you suspect the scammer may be in your local area, you should report the incident to your local police, who may be able to use your report to track them down.
If you’ve given the scammer your personal information, it’s important to take the necessary steps to protect yourself from identity theft, which can take years and a lot of hassle to recover from. You should:
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