Mixed in with holiday celebrations, December also brings end-of-year financial planning and the stress of filing your income tax returns. The lure of too-good-to-be-true offers promising to maximize your tax refund might be too appealing to pass up. This post outlines ways that scammers target unsuspecting victims, both with new tax scams and reminders of classic tax scams. Let us help you get a head start on tax season this year by protecting you from these scams.
About Your Unclaimed (and Unexpected!) Refund
A recently posted IRS consumer alert warns that a mailing some individuals have received misleads people into believing they are owed a refund. The letter looks official but includes false contact information. The letter requests information (like a driver’s license and Social Security number) to prove the identity of the refund recipient. If provided, then this will give the scammer the information they need to steal your identity. Watch out for solicitations like this one and remember to only contact the IRS using legitimate methods from their official website, irs.gov.
Fuel Tax Credit Scam
The IRS has seen an increase in promotions for filing for the fuel tax credit, described in this IRS consumer alert. This is a federal tax credit for fuel. It is for off-highway businesses and farming use. It isn’t available to most taxpayers. However, unscrupulous tax return preparers and others convince individuals to increase their refunds by claiming the credit illegitimately. Scammers often promote the tax credit and charge a fee to file it, pocketing both the fee and the refund. When the erroneous filing is discovered, you will be on the hook for paying the money back to the IRS.
Tax Avoidance Schemes
A claim that fraudsters make to dramatically reduce or eliminate your taxes is certainly too good to be true. These scams often target high-income individuals in the highest tax bracket. Known as abusive tax avoidance schemes, these scams can include predatory deals with investment insurance, conservation easements, or hiding assets internationally. Taxpayers should beware of any scheme that promotes a dramatic reduction in taxes owed.
Year after year, tax preparer fraud and identity theft remain near the top of the IRS Dirty Dozen list of the worst tax scams and thus deserve another look. The scams mentioned above are often tied to these fraudulent activities. Fraudulent tax preparers who aim to steal or sell your identity promote them.
Tax Preparer Fraud
Tax preparers who operate in a gray zone or are out to commit fraud against unsuspecting victims are unfortunately all too common, and these fraudsters refine their techniques to become more convincing each year. Illegitimate tax preparers will often set up in a temporary location leading up to tax season. They disappear before you realize you’ve become a victim. They’ll offer extra deductions and credits you aren’t eligible for, drawing you in on the promise of a hefty refund. They will then direct that refund to their bank account, and you’ll be investigated for filing a fraudulent tax return.
Watch out for these five red flags that your tax preparer may be a fraud.
The preparer does not provide their preparer tax identification number on your return.
To learn more, consult this Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.
The preparer doesn’t ask you to document your deductions, or he encourages you to cheat.
Legitimate tax preparers will help you file your return and ensure you have the appropriate documentation to validate it.
The preparer asks you to sign a blank or incomplete return, with the promise that they will “complete it later.”
A reputable tax preparer will insist that you review your completed return before you sign it. They will also provide you with a copy of your signed return.
The tax preparer’s fee is based on a percentage of your refund.
These individuals earn incentives by convincing you to claim false deductions or make false statements to inflate your refund.
Your preparer wants to direct your refund to an account that you can’t control.
Unless you get an immediate advance on your refund, secured by your tax refund, then it could be a scam.
And remember, if a tax preparer is willing to lie to get your business, they could be likely to steal your identity using the information you’ve provided for them to file your taxes. If you have further questions or feel that you’ve fallen victim to this scam, you can get assistance from the Taxpayer Advocate Service, an independent organization within the IRS.
Tax Identity Theft
Tax-related identity theft occurs when a criminal uses your personal information to file a tax return in your name to claim your federal tax refund. Taxpayers might not know they’re the victim of tax identity theft until they try to file a return online and learn that one has already been filed using their information. One way to prevent tax identity theft is to request an Identity Protection PIN from the IRS. This is a six-digit number only known by you and the IRS, and it prevents someone else from filing a return in your name. Get your IRS Identity Protection Pin now.
If you believe you’ve fallen victim to tax fraud, then our Identity Theft Recovery Advocates are here to help! If you have an Ultimate Checking Account, then United Texas Credit Union will stand by to help you identify proper resources at the IRS and walk you through this process. We will work for you and with you to help you recover from identity theft and minimize the losses and damage it causes. Feel free to reach out to us to learn more about identity theft remediation and other services included in your Ultimate Checking Account at United Texas Credit Union.
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Each individual’s financial situation is unique. We encourage you to contact United Texas Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.