With Tax Day fast approaching, our legal team at Levinson Axelrod, P.A. wants to remind residents throughout New Jersey and beyond that tax season isn’t just the time of year when we follow through with our obligations to fund public services or are forced to perform math – it’s also a time ripe for consumer fraud and deception.
According to the U.S. Internal Revenue Service (IRS), phony tax schemes and scams happen year-round, but they spike and increase in aggressiveness during and shortly after filing season. Scammers like to take advantage of taxpayers’ lack of familiarity with the laws and rules surrounding taxes, as well as their fear of having the government come knocking on their door, which is why tax season provides the best opportunity for them to manipulate victims. In fact, the IRS reports that thousands of Americans lose millions of dollars and personal information to tax scams every year.
To ensure you don’t become a victim of fraudulent schemes this season – whether you file your own taxes or pay someone to do it for you – you need to know how to spot a scam, what the IRS can and cannot do, and the steps you should take to protect yourself. Below, our legal team provides information about 12 of the most common tax scams targeting taxpayers. These are known as the IRS’ Dirty Dozen:
- Phone Scams – Phone scams have long posed a major threat to taxpayers, and they’re perpetrated by criminals who pose as IRS agents or officials in order to steal money. Often, they involve callers who demand taxpayers pay bogus tax bills, and may urge them to send payment through a wire transfer, gift card, or prepaid debit card. Some may also leave urgent messages, intimidate or bully victims, or threaten arrest, deportation, or driver’s license revocation. Today, scammers are skilled enough to alter caller ID numbers to make it appear like the IRS or another government agency is calling, and use a victim’s real personal information to appear credible. Because phone scams surge during filing season, you need to know the IRS will NEVER demand immediate payment using methods such as wire transfers, prepaid debit cards, or gift cards, and will usually first notify taxpayers of outstanding bills through the mail. They will also never threaten taxpayers with arrests or local police involvement, demand payment without providing opportunities for inquiries or appeals, ask for credit card numbers over the phone, or call about unexpected defunds. If you feel you’re being targeted by a phone scam, hang up and do not give any information, and report it to the IRS.
- Phishing – Phishing refers to fake e-mails or websites set up with the intention to defraud victims and steal personal information and / or money. Don’t click on any e-mails or links that don’t appear legitimate, even if they claim to be from the IRS. The IRS will NEVER initiate contact via e-mail about any tax bills or refunds.
- Identity Theft – Taxpayers need to watch out for tactics that allow criminals to steal their identities, both during filing season and year-round. The IRS works closely with state and federal agencies to detect and prevent tax return-related identity theft. Monitor your accounts closely and always be wary of attempts to gain your personal information at all times of the year.
- Return Preparer Fraud – Watch out for phony return preparers when choosing someone to assist you with your tax returns. Most tax professionals provide honest and reliable service, but some operate with the intent to scam clients during filing season. Be sure to vet any service providers or tax professionals (checking credentials, reading reviews, etc.) you choose to work with before getting their help.
- Phony Charities – Criminal operations may pose as charitable or non-profit organizations to solicit donations from taxpayers, often by citing the tax benefits of donating. As such, you need to be careful of organizations that don’t seem very legitimate, have names similar to national or defunct organizations, or request payment through questionable means (prepaid debit cards, wire transfers, gift cards, etc.). You can use tools provided by www.IRS.gov to check the status of legitimate charitable organizations.
- Promises of Inflated Refunds– If anyone promises inflated tax refunds, remember that it may be too good to be true. Often, preparers who do so with an intent to defraud will have taxpayers sign blank returns, promise big refunds before looking at a client’s records, or charge fees based on a percentage of the refund. They may also advertise by flyer, set up fake storefronts, or gain clientele by word of mouth in closely knit communities.
- Excessive Business Credit Claims – You want to avoid improper claims for business credits not generally available to most taxpayers, including the fuel tax credit (limited to off-highway business use, including farming) and the research credit. Claims involving improper use of business credits by preparers commonly fail to meet requirements, and can result in costly consequences.
- Fraudulently Padded Deductions – Think twice before overstating deductions, including charitable contributions and business expenses, and before working with unscrupulous preparers who do so. Improperly claiming credits or falsely inflating deductions to pay less or receive larger refunds can cost you in the long run.
- Falsifying Income – Con artists and deceptive preparers may encourage taxpayers to inflate or falsify income in order to fraudulently qualify for tax credits, including the Earned Income Tax Credit. Because you are legally responsible for what’s on your return, you need to ensure it is as accurate as possible, and be wary of preparers who try to convince you otherwise. This scam could result to large bills for back taxes, interest, and penalties.
- Frivolous Tax Arguments – Some preparers or con artists may promote the use of frivolous tax arguments to avoid paying taxes, and encourage taxpayers to make outlandish or unreasonable claims about various legal issues, even if they are thrown out in court. Frivolous tax returns come with substantial penalties.
- Abusive Tax Shelters – The IRS is committed to stopping taxpayers and preparers who use abusive tax structures and tax avoidance schemes, or create or sell them to others. Be on the lookout for con artists who peddle tax shelters that sound too good to be true. If you have doubts about legitimacy, seek an independent opinion regarding services or products offered.
- Offshore Tax Avoidance – People involved in offshore tax avoidance, and the criminals who facilitate such schemes, face substantial penalties if the IRS finds that income and assets are being hidden outside of the country. Be sure to vet any tax professional carefully, and be wary of such services if they are offered.
As a law firm committed to fighting on behalf of the injured and the wronged, our legal team at Levinson Axelrod, P.A. knows how profoundly victims can suffer due to the negligent, unscrupulous, and wrongful acts of others – which is why we believe it is important to share information that can help consumers protect their rights. Take these common tax scams into consideration as you finish up your taxes and whenever you find yourself speaking to questionable parties – a little time and due diligence can protect you immensely in the long-run!