Tax Week: Scams

Anywhere there's money, there's sure to be someone cooking up a scam to take away your hard-earned cash. Scams are just as prevalent when filing your return during tax season. Here's a few of the more common scams to watch out for.

Phishing. I covered this scam in general with ways to protect yourself in an early blog - you can find that blog here: Phishing. During tax season, thieves use the same tactics: posing as the IRS or seemingly legitimate companies willing to do your taxes.  In 2008, taxpayers forwarded more than 33,000 of these scam e-mails, reflecting more than 1,500 different schemes, to the IRS. The IRS never uses e-mail to contact taxpayers about their tax issues. If you receive an email that you believe to be a scam, forward it to phishing@irs.gov.

Rebate Scams. This scam involves thieves trying to trick individuals into revealing personal financial information by making promises relating to rebates. A potential victim is told by phone or email that he or she is eligible for a rebate but must provide a bank account number (or similar information) to get the payment. If the target is unwilling, the victim is then told that he cannot receive the rebate unless the information is provided.

Frivolous Arguments. Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. The IRS recently expanded its list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of these positions on the list are subject to a $5,000 penalty. The complete list is via IRS.gov.

Return Preparer Fraud. Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their schemes. These scam artists make their money by skimming a portion of their clients' refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a business or an individual to prepare their taxes.

Misuse of Trusts. This scam involves promoters urging taxpayers to transfer assets into trusts. They promise a reduction of income subject to tax, deductions for personal expenses, and reduced estate or gift taxes. The trust then purposely fails to not deliver the promised tax benefits. Many go as far to steal your money entirely. Taxpayers should seek the advice of a trusted professional before entering into a trust.

How to report suspected tax fraud activity. Suspected tax fraud can be reported to the IRS using IRS Form 3949-A which is available to download via IRS.gov.

Learn more about the most popular scams involving emails in this video straight from the Internal Revenue Service:

Be safe!

Rob Cartwright