How To Protect Yourself From The 12 Most Dangerous Tax Scams of 2023
You go to file your income taxes with the hopes of getting a nice, big refund this year, only to get your return rejected by the IRS. The reason? Your taxes were already filed, but it was by someone else, and a refund check was mailed out, only not to you.
To the real Internal Revenue Service, these types of tax scams are unfortunately a common occurrence and they put you and your money at risk.
The IRS published its annual “Dirty Dozen” list highlighting the 12 worst scams taxpayers should stay vigilant and aware of during the 2019 tax filing season.
Tax scams can involve the above two schemes, in addition to a wide variety of other ploys, from the simple to the sophisticated.
Here’s the full Dirty Dozen list and how you can protect yourself from being a victim.
1. Phishing scams
Scammers look to bait unwitting taxpayers into stealing their personal and financial information through fake emails and websites impersonating the IRS, hoping that we won’t know the difference.
One scam making the rounds this year involves thieves using your checking account. They’ll actually deposit funds into your account, then send a phony email to get you to pay them.
By revealing any of your info to them, scammers now have access to your financial information all year round, not just tax season.
Businesses small and large need to watch out, too. Some phishing scammers -- under the guise of the IRS -- will request companies through phony emails to hand over copies of their employee W-2s, giving the crooks the opportunity to file phony tax returns and cash in the refunds.
How to protect yourself: The IRS is old school. It’ll never contact you through email.
Official correspondence will always be through traditional snail mail, so if you ever receive an email or text looking to be from the IRS, don’t click on it.
Do call the IRS, take a screenshot of the email, and forward it to the proper authorities before getting scammed. Beware of genuine-looking websites.
Look for misspellings that give scammers away, and always remember that that the IRS uses .gov in its address, not .com or .org.
2. Phone scams
Your cell rings, it says “Internal Revenue Service,” and the person on the other end sounds official enough when they surprise you with the news that you owe money on top of what you filed on your income tax return.
Watch out -- it’s a scam. Here, scammers will use phone spoofing tech so the incoming call looks like it’s from the IRS.
Should you be uncooperative, they may follow up with a phone call impersonating police or law enforcement, threatening you with arrest.
How to protect yourself: Treat phone scams like phishing crimes -- the IRS won’t just call you up on the phone and strongarm you into paying money.
Even if you received mail officially stating that you owe back taxes, the IRS will take the proper steps to rectify the situation and work with you, and that doesn’t mean an ominous call from the police.
If you receive such a call, tell the person on the other end that you’ll report them to the police. If the calls persist, call the authorities and file a harassment report.
3. Identity theft
In 2016, according to the Insurance Information Institute, identity theft scams resulted in $16 billion stolen from 15.4 million consumers, and tax time is no exception for con artists and scammers.
Instead of impersonating the IRS, they’ll obtain your Social Security or taxpayer ID numbers, plus other personal information, to impersonate you to get their hands on your tax refund.
How to protect yourself: IRS statistics show that taxpayer ID theft fell 40 percent last year, but that won’t stop tax scammers from getting more inventive and aggressive.
Never reveal your Social Security or bank account information to anyone, whether it’s over the phone, via email or text, or in writing.
When preparing your tax return, always use computer software with good antivirus and firewall protection, on your home computer, laptop or mobile device. Using websites properly encrypted ensures you can prepare your taxes and bank securely.
4. Tax return preparer fraud
They mentioned something about their credentials and seemed professional enough, but that guy you hired to do your taxes is no tax preparer -- he’s a scammer.
If it’s not enough to endure a phishing or phone scheme, some scammers have no trouble misrepresenting themselves (or flat out lying), passing themselves off as the real deal and perpetuating anything from ID theft to refund fraud.
Sign their contract, pay them their fees, and the next thing, they’ve run off with your tax and financial information, obtained your refund, and closed up shop.
How to protect yourself: If you’re looking to hire someone to prepare and file your taxes, choose a tax professional very, very wisely.
Licensed tax preparers will be able to prove their credentials; look for a traditional accountant or Certified Public Accountant (CPA), ask them to see licenses, verify their qualifications, and read reviews online to see if they’re on the level.
To avoid scams, search for a tax preparer through the IRS’ Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.
5. Phony charity scams
Fundraising and charity scams are rife at any time of the year, but during tax season, they prey on the generous looking to donate money, only here, they’re out to steal your donation and your charitable tax deduction.
What’s the difference between a scam and a real not-for-profit?
The fake charity may be vague about their mission, pressure you into giving, charge you fees to donate, and of course, they may ask you for bank account information no real fundraising organization would ever solicit from you.
How to protect yourself: Nonprofits and charities are the types of organizations you should just be able to trust on face value, but you can never be too careful. Treat one as you would a tax preparer. Confirm their credentials and see if they’re real and trustworthy.
Many phony charities use phishing and email scams, too, so if you see any sign of those tactics, steer clear.
6. Inflated tax refund claims
You can also call this one the “Too good to be true tax refund claim,” and if it sounds too good to be true, in the case of tax returns, it is. Inflated tax return claims are often a scam you’ll find committed by phony tax preparers.
They’ll ask clients to sign a blank tax return, charge you fees, and quote a huge tax refund before even looking at your financials. Then, they’ll take the signed form, fill out false information in your name (sort of like personal check fraud), and abscond with the money.
Now, the IRS’ money has been stolen in your name, and you still don’t have your taxes filed properly.
How to protect yourself: We’ll repeat similar advice to avoiding fake tax preparers: research and review one’s credentials, and look at offers like inflated tax refunds as a big red flag. You can’t miss it if you stay vigilant.
7. Overestimated business credit claims
The IRS notes in its Dirty Dozen list this scam that takes advantage of tax credits available only to select businesses.
One of them is the fuel tax credit, a tax break for businesses, like farms, that may claim transportation deductions for off-highway use.
Another is the research tax credit, granted to organizations who can file a claim if they’ve participated in qualified research endeavors.
Scammers may falsify such activity to illegally obtain the tax credit.
How to protect yourself: Businesses should pay attention to all types of potential tax scams, but especially schemes that take advantage of specialized tax credits you may have qualified for in the past.
Stay on alert for suspicious emails, and phone calls, or solicitations from fake tax professionals, or even thieves claiming that they’re the IRS, and that they can “help” prepare your refund for you.
Likewise, taxpayers should also avoid temptation to file an inflated claim to avoid being charged with tax fraud. Double check all tax returns to make sure you haven’t inadvertently filed a larger claim than you’re actually due.
8. Overly exaggerated tax deductions
Being on the Dirty Dozen list doesn’t mean it’s a scam that can happen to you -- rather, some scams are caused by taxpayers themselves.
Falsifying the number and dollar amount of tax deductions you can claim is considered tax fraud and should be avoided at all costs.
Overstating deductions, according to the IRS, like charitable giving, business expenses, or the Child Tax Credit can get anyone in hot water with the government, all for trying to get a few extra bucks.
How to protect yourself: Protect yourself by avoiding becoming a scammer! Be honest and claim deductions you can actually take based on your income for the last year, the amount of expenses you incurred, and any applicable tax deductions from those expenses that apply -- but no more than what’s exactly calculated.
9. Falsifying income on your tax return
One of the biggest ways taxpayers can turn into tax scammers, lying about your income on a tax return is a textbook example of IRS fraud.
It could be claiming you earned less to avoid paying income taxes.
It could also be claiming invented income you didn’t earn just to claim certain benefits, like the Earned Income Tax Credit.
How to protect yourself: The IRS on its Dirty Dozen list gives sound advice for being an honest taxpayer: “Taxpayers should file the most accurate tax return possible because they are legally responsible for what is on their return.
This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties.”
10. Ridiculous tax arguments
Any phony claim a taxpayer may try to make to get out of paying all or a portion of their income taxes is also considered tax fraud.
“Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes despite being repeatedly thrown out in court.” That means it could be someone else telling you to invent a frivolous argument or your own scheme that won’t stand up legally.
Perpetuate the I-don’t-need-to-pay-taxes platform, or file a frivolous tax return that omits income or certain key information, and you could be penalized $5,000.
How to protect yourself: It bears repeating: fill out your complete tax return thoroughly and honestly, and you won’t find yourself in trouble with the IRS. In this case, everyone who earned income is a taxpayer and needs to pay income taxes.
If, for any reason, you qualify for an exception, check with a certified financial or tax professional to verify your tax situation, and the current laws.
11. Abusing tax structures
A tax structure, or shelter, is a legal arrangement employed to reduce or minimize the income taxes you owe. A tax deduction, in many cases, counts as a tax shelter, as do certain investments (think of offshore tax shelters).
Abusive tax shelters, though, are tax fraud and make the IRS’ Dirty Dozen.
Scammers, according to the IRS, will advertise shady tax shelters that -- like inflated tax refund schemes -- just sound too good to be actually true. And that usually means “illegal.”
How to protect yourself: Approach with caution any person or organization that tries to sell you (literally, with the fees to prove it) any type of tax shelter or other program promising to lower your tax burden, if not eliminate it outright.
When in doubt, consult the IRS’ Office of Tax Shelter Analysis, or email the abusive tax shelter hotline at IRS.Tax.Shelter.Hotline@irs.gov to report a crime.
12. Offshore tax avoidance
Speaking of abusive tax shelters, one way to legally and legitimately create a tax shelter is through various types of offshore investments that count as income but don’t fall under U.S. tax laws.
However, “offshore cheating” is just one way people try to buck the system by hiding money in international accounts to avoid paying their taxes.
This year, it’s prevalent enough to make the Dirty Dozen.
How to protect yourself: Avoid offshore tax avoidance by keeping your investments legal and legitimate.
The bigger the investment, the bigger the fraud, the bigger the penalty.
The IRS encourages taxpayers to think twice about this and other types of tax fraud before getting caught up in any illegal activities.
The "Dirty Dozen" may be a comprehensive list, but it’s only a sample of the types of tax scams and frauds that exist. As a consumer conscious of their finances, stay alert this tax season; scammers become savvier, always devising new and intricate ways to steal your hard-earned money.
And as a taxpayer, avoid tax filing behaviors -- accidentally or on purpose -- that could spell trouble with the IRS.
Choose a reputable, reliable tax professional, use good tax filing software, and most of all, don’t hesitate to contact the necessary authorities if you feel you’ve been a victim of a tax scam.