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Tax Scams & Fraud

By Kate Matych, 2L Law Student, MSU College of Law
The Internal Revenue Service is constantly on alert for scams intended to defraud taxpayers of money, financial information, and personal information. Each year, the IRS compiles a list of the most common ways taxpayers are targeted, and the tax scams that our clients most frequently encounter are detailed below.

No. 1 - Phone Scams           

There has been an increase in taxpayers receiving threatening phone calls from scam artists impersonating the IRS. In some cases, the scam artists alter the caller ID number to make it appear that the IRS is calling, then demand that the taxpayer make a payment or disclose credit card information over the phone. The scam artists’ goal is to intimidate taxpayers by making aggressive phone calls that sound urgent and even threatening. The scams are often targeted at elderly taxpayers receiving Social Security benefits, recently arrived immigrants, and taxpayers whose second language is English.

If you actually owe money, the IRS will first contact you by official letter, not by surprising you with a phone call demanding immediate payment. The IRS never requires a specific payment method or asks for credit or debit card information over the phone, nor will the IRS threaten to have local law enforcement officials arrest you for failure to pay.

A number of Tax Clinic clients (and clinicians!) have received calls from phone scammers. If you receive a phone call from someone claiming to be the IRS demanding money and know or think you owe tax payments, call the IRS at 1-800-829-1040 to determine any payment issues. Report the phone call to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484. The IRS and the Federal Trade Commission are committed to protecting taxpayers from phone scams, so please report all incidents by using the FTC Complaint Assistant. In the comment section of your complaint, please include the terms “IRS Telephone Scam” so the complaint is dealt with accordingly.

No. 2 - Phishing       

If you are surprised to find an email from the IRS in your inbox, don’t click on it! Recently, phishing emails may also claim to be from the Electronic Federal Tax Payment System (EFTPS). The IRS will never initiate contact with you by sending an email. By clicking on any links or downloading any attachments in the email, you may give the sender access to confidential information on your computer. If you receive an unexpected email that claims to be from the IRS or EFTPS, report the incident by sending the email to phishing@irs.gov.

No. 3 - Identity Theft

Despite the IRS’s continuous efforts to fight tax-related identity theft, each year thousands of taxpayers find themselves victims of fraudulent returns filed using their stolen Social Security numbers. Phone scams and phishing are the most common ways taxpayers fall victim to identity theft, but in recent months, there have been a number of news stories reporting companies experiencing data breaches, placing individuals who have relationships with the companies at risk for identity theft. Not all data breaches result in identity theft, and not all identity thefts lead in tax-related issues. Generally, when a data breach occurs within a company, that company will immediately warn individuals who may have been impacted by the data breach. If your Social Security number or financial data, such as wages, has been compromised, then there is a risk your tax account may be impacted; however, if you are a victim of a data breach involving just your credit card number or drivers’ license numbers, then your tax account will not be impacted.

If you believe you are a victim of identity theft, you should file an Identity Theft Affidavit so the IRS will watch your account for specific activity. For more information on identity theft, see the section of the IRS’s website dedicated to Identity Protection or the IRS’s YouTube channel

No. 4 - Return Preparer Fraud

The majority of taxpayers use the services of a tax return preparer, and most preparers offer honest, high-quality service. Unfortunately, there are some preparers who prey on taxpayers every tax season, leaving taxpayers victims of return fraud, identity theft, and more.

If a tax return preparer promises you a refund higher than anyone else can, then it is likely a scam. There is no “secret way” to receive a higher refund: the same laws and preparation methods apply to all tax preparers. You are responsible for the information reported to the IRS on your tax return, and if you buy into a scheme promising you a larger refund, then you may be penalized for filing false claims or receiving a fraudulent refund.

One way a dishonest tax preparer may attempt to give you a higher refund than any other preparer is by encouraging you to falsify your income so you qualify for a credit like the Earned Income Tax Credit. The Earned Income Tax credit is a benefit for taxpayers who meet specific requirements. If you think you might qualify for an Earned Income Tax Credit, or any other credits, feel free to contact the Tax Clinic.

To report an abusive tax return preparer, use Form 14157, Complaint: Tax Return Preparer. If you suspect the preparer filed or changed your return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit.

 


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